Abominable Economics

by Daniel Griswold

With friends like Jerome R. Corsi, the American free-enterprise system is in more trouble than we feared.

Corsi should be on the right side of the battle to defend economic freedom. Before the 2008 election, he wrote a popular book with a great title, The Obama Nation, warning that Barack Obama was not the man we needed in the White House. But in his latest book, America for Sale: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty, he sounds a lot more like Obama than like Ronald Reagan, the former president he professes to admire.

While Corsi takes passing shots at government spending and climate-change legislation, his real target is "free trade," "globalism," and international agreements such as NAFTA and the World Trade Organization. The villains in his book are trade agreements, trade deficits, growing Chinese foreign-currency reserves, and oil imports, all of which threaten to undermine the U.S. dollar, American independence, and the middle class. Orchestrating our decline is a cast of characters from around the globe, both familiar and obscure, working in public and in secret.

Boosted by a friendly Fox News interview with Sean Hannity in October, the book has been selling reasonably well. The people buying it are presumably the same conservative-leaning folks who opposed Obama's election and are now fueling the Tea Party movement. Libertarians and conservatives who value free markets and limited government, however, should keep their distance from this bestselling prophet.

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute in Washington and author of the new Cato book, Mad About Trade: Why Main Street America Should Embrace Globalization.

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Coming from an author who claims to be a friend of free enterprise, and who earned a Ph.D. in political science from Harvard in 1972, the book is striking in its economic ignorance. It would fail an economics course at a community college. It repeats just about every anti-trade cliché that has been uttered by the AFL-CIO, Public Citizen, and Sen. Bernie Sanders (Socialist, Vt.).

The only "invisible hand" to be found in this book is that of an international conspiracy to sell off our national assets, sell out our sovereignty, and abolish the dollar. The "globalists" behind this movement are mostly academics and former officials who don't run in current circles of power, such as Peter Drucker, Benn Steil, Herbert Grubel, Nouriel Roubini, Robert Mundell, George Soros, Henry Kissinger, Zbigniew Brzezinski, and David Rockefeller. Of course, former officials and academics are putting forward all sorts of ideas every week, some sensible, others far-fetched. A string of quotes from secondary players doesn't prove that an idea is about to be foisted upon us.

Of special interest to Corsi is the plan to construct a NAFTA transportation corridor from Texas through the nation's midsection. To demonstrate that such a scheme exists, he simply describes various plans to improve infrastructure in North America to accommodate increased freight traffic caused by expanding trade. As evidence that something nefarious is going on, he quotes an official with the Canadian National Railroad, who lets slip that his company is "now positioned to provide shippers with a seamless door-to-door transportation solution and to ensure the safe and secure flow of goods throughout the North American continent." Isn't that exactly what transportation companies should be doing?

Corsi tries to tarnish NAFTA further with arguments that sound like they could have come from Dennis Kucinich. Corsi cites a recent study by the North American Center for Transborder Studies that claims that 40 million jobs were created in the United States, Canada, and Mexico between 1993 (the year NAFTA passed) and 2007. Expressing skepticism, he writes, "Typically, the study failed to articulate the methodology by which these job estimates were derived, nor did it indicate whether the job creation was a net 40 million, after taking into account the jobs lost from NAFTA or other free-trade agreements such as those under the World Trade Organization."

There is nothing mysterious about the methodology. The figure comes from comparing the number of people employed in each country in 2007 to the number employed in 1993. Those numbers are readily available on the Internet from public sources. From 1993 to 2007, employment in the United States grew from 120 to 146 million, in Mexico from 31 to 42 million, and in Canada from 13 to 17 million. Simple subtraction will tell us that the net number of jobs added in the United States after NAFTA was 26 million, in Mexico 11 million, and in Canada 4 million, and simple addition will give us the total of 41 million.

Instead of performing basic arithmetic, Corsi cites the growth in America's bilateral trade deficits with both Canada and Mexico since NAFTA. He uncritically swallows the formula of the labor-union Left that trade deficits by definition mean net job losses, even though this is clearly not the case. This faulty premise leads Corsi to conclude, "What these data suggest is that the net new jobs created under NAFTA in North America are likely being created in Mexico and Canada, not the United States." In fact, as the real employment numbers show, the United States accounted for the large majority of the net new jobs created in North America since NAFTA.

Corsi often gets even simple facts wrong. Take, for example, this passage:

What is clear is that the United States has been losing manufacturing jobs steadily since the end of World War II. In 1945, at the conclusion of the war, the service industries accounted for only 10 percent of nonfarm employment, compared to 38 percent for manufacturing, according to the U.S. Bureau of Labor Statistics. The crossover point came in 1982, when for the first time services surpassed manufacturing as the largest employer among major industry groups. By 1996, services accounted for 29 percent of nonfarm employment, and manufacturing, at 15 percent, had reduced to being somewhat smaller than retail trade. By 2008, manufacturing was less than 10 percent of nonfarm employment, and service-producing employment had risen to approximately 84 percent.

The number of manufacturing jobs was actually rising until the late 1970s, from 15 million in 1960 to a peak of 20 million in 1979. It has indeed been generally declining since then, but not steadily. Net U.S. manufacturing employment actually rose by 700,000 in the first half decade after the passage of NAFTA before resuming its decline in 2000.

Also, if we accept Corsi's numbers at face value, more than half the nonfarm U.S. labor force shifted to the service sector over the span of a dozen years (from 29 percent in 1996 to 84 percent in 2006) — which would be perhaps the most radical economic transformation in such a short period of any country in history. But according to BLS and Census Bureau data I cite in my own recent book, Mad about Trade: Why Main Street America Should Embrace Globalization, a majority of Americans were working in the service sector by the end of the 1920s. In fact, there has never been a time in our history when manufacturing workers outnumbered service-sector workers, and thus there was no "crossover," much less a revolution on the scale Corsi claims.

Corsi repeats the union mantra that globalization has caused the loss of high-paying manufacturing jobs in exchange for low-paying service jobs. He states, without any citation, that globalism means "American workers must exchange manufacturing jobs paying in excess of $35 an hour for service jobs paying $10 to $15 an hour." In fact, as I document in Mad about Trade, two-thirds of the jobs our economy added in the past two decades have been in the service fields of health care, education, and business and professional services — all of which pay higher wages on average than does manufacturing. Despite the nostalgia for manufacturing work, the American middle class today earns its keep in the service sector.

The examples of sloppy scholarship just keep coming. Corsi repeatedly describes the recent economic downturn as "the U.S. recession that officially began in December 2008." There is no definition of "recession" under which this is true. The National Bureau of Economic Research, the accepted authority on the U.S. business cycle, puts the data a year earlier; that is when employment and industrial output began to fall.

To date the recession to December of 2008 — the month after Obama's election — Corsi accepts the informal definition of a recession as two consecutive quarters of negative GDP growth, and then defines the beginning of a recession as the end of the second consecutive quarter. This makes no sense: Under this definition, whenever there are two and only two consecutive quarters of negative growth, a recession begins and ends on the same day. Using the real two-consecutive-quarters definition — placing the beginning of the recession at the point at which the negative growth started — the recession started in July 2008, not December.

The errors don't end there. Corsi writes, "Between December 2008, the date the recession officially began, and February 2009, the U.S. lost approximately 4,384,000 jobs." Actually, the BLS data show a loss of 2.1 million jobs during those three months. The U.S. economy also lost nearly 2.3 million net jobs in the year leading up to December 2008, which Corsi apparently just added in.

There's more. Corsi writes that "China's economy, heavily dependent on making cheap goods for the U.S. market, was cast into its own deep recession by the U.S. economic downturn." In reality, China didn't experience a recession, much less a deep one. According to the generally accepted figures from China's National Bureau of Statistics, its economy grew 12 percent in 2007, 9 percent in 2008, and at an annual rate of 7.6 percent through the first three quarters of 2009.

He writes that our soaring trade deficit with China "reflects imports from China growing nearly 250 percent, from $100.1 [b]illion in 2000 to $243.5 [billion] in 2005." Actually, while the latter number is about 250 percent of the former, the former only grew about 150 percent. He outdoes himself on page 182, declaring that "the U.S. negative trade balance with China in 1985 was under $1 billion; in 2008, the U.S. negative trade balance with China had grown more than 250 percent, to a negative $266 billion." An increase from 1 to 266 would be an increase not of 266 percent, but of 26,500 percent (or 266 times).

Granted, many math-challenged adults and journalists struggle with percentages, but then again, those same adults do not pose as experts qualified to write books on global trade and finance. And typos and random errors creep into many books, but serious books by serious authors do not contain such widespread, obvious, and systematically biased errors as those teeming in America for Sale.

America for Sale is not a complete loss. In a chapter titled "The Mortgage Bubble Bursts," Corsi names many of the right names: a Federal Reserve Board that kept rates too low for too long, the Community Reinvestment Act, Fannie Mae and Freddie Mac, and the abuses of many subprime-mortgage lenders. But even this section is not original; other authors have ably made the same case, including my Cato colleague Johan Norberg in his recent book Financial Fiasco. And nothing in this section implicates globalism, free trade, China, or the WTO as a cause of the recession.

In the following chapter, he argues, quite reasonably, that Americans could reduce their reliance on imported oil by more aggressively developing domestic sources. He expresses skepticism toward renewable and other alternative energy sources, and describes in some detail potential domestic gas and oil fields that could yield significant amounts of energy. But he never attempts to analyze what a dramatic ramping up of domestic oil and gas production would mean for oil prices, the dollar, and our living standards. For example, a sharp drop in oil imports would mean fewer U.S. dollars flowing into international exchange markets, a stronger dollar, and relatively fewer exports of U.S. manufactured or agricultural goods.

Corsi invokes the name of Ronald Reagan, but his book could not be farther from the spirit of Reagan when it comes to our economic engagement in the world and our future as a nation. As president, Reagan embraced the idea of a North American free-trade area and moved it closer to reality by signing a free-trade agreement with Canada in 1988. As far back as 1980, Reagan talked about joining the United States with Mexico and other countries of Latin America in a hemispheric free-trade zone. Reagan's able U.S. trade representative, Clayton Yeutter, was instrumental in launching the Uruguay Round in 1986, which led to the founding of the World Trade Organization in 1995. In his farewell address, Reagan shared his vision of America as a shining city on a hill "teeming with people of all kinds living in harmony and peace; a city with free ports that hummed with commerce and creativity. And if there had to be city walls, the walls had doors and the doors were open to anyone with the will and heart to get here."

If Jerome R. Corsi is now the conservative defender of free enterprise and the America Way, we are in deeper trouble than the Gipper ever imagined.