Don't Fall For Sound Bite Economics

My grandmother once told me the reason she was a Democrat was because FDR ended the Great Depression. I pointed out that it wasn’t FDR, but World War II that brought an end to the Great Depression. Since we had Adolph Hitler to thank for that, by her reasoning she should have become a Nazi. She laughed and said, "Oh, you sound just like your daddy."

Such exchanges between grandmother and grandson might be rare, but unfortunately, strongly held positions based upon such faulty assumptions are not. Too often, people latch onto an idea and hold it as gospel without even allowing for the possibility that the entire premise for their argument might be wrong.

Take the recent uproar over the job market. If you were to believe the news or the political ads, you would assume that our manufacturing sector is in the toilet, all the jobs are being shipped to China and as a result the economy is worse off than it ever was under Bill Clinton.

Well, guess what. You would be wrong, wrong and wrong.

Here are the facts. According to a report from the National Center for Policy Analysis, the U.S. output of real goods as a percent of GDP is higher today than in any decade since the 1930’s. As for jobs being shipped to China, would you believe that China has fewer manufacturing jobs today than it did just a few years ago? That’s according to BusinessWeek Magazine. And here’s the real kicker – the U.S. Bureau of Labor Statistics reports that the average unemployment rate during George Bush’s first three years in office was lower than it was during the same period under Bill Clinton (5.5% versus 6.0%).

So why all this talk about job losses? Well, part of the reason is a change in the way jobs are classified. In the past most companies handled all aspects of their business, from accounting to janitorial services. Regardless of the job description, if the company was a manufacturer, all its’ jobs were considered manufacturing jobs.

Today, many companies contract out tasks like payroll, accounting, programming and maintenance. Those employees now work for service providers and are classified as such. The jobs haven’t disappeared, they’ve just been reclassified.

Another reason for concern comes from dramatic improvements in productivity. In the short term, this causes dislocations among workers, but it eventually leads to an improved standard of living for everyone. If you don’t believe that, look back to Henry Ford’s revolutionary five dollar day. It almost single-handedly created the American middle class. But it came two years after Ford had devised the moving assembly line, which reduced the number of workers needed to assemble a car by eighty-six percent. The five dollar day would have been impossible without that improvement in productivity.

But the biggest reason that we believe the job market is in the tank comes from partisan politicians who hope that if they repeat a claim often enough, it will become ingrained as truth among voters. The danger in creating phony problems is that it opens the door to phony prescriptions that have nothing to do with solving the problem, but everything to do with fulfilling personal political agendas.

We can accept what others want us to believe, or we can choose to learn the facts for ourselves. Democracy demands that we do the latter.