Jobs count

Today two big items on the job front:

1. President-elect Donald Trump has saved 1000 jobs at Carrier in Ohio, at a cost to the state of $7000 per job;
2. The Obama recovery that started in July 2009 generated 178,000 new jobs last month, at no cost to the Federal or state governments, lowering the unemployment rate to 4.6%.

We are now in the eighth year of Obama’s much-criticized “slow” recovery.

Which news gets the electrons? It’s mainly the first of course: Trump is a master at attracting attention to everything he does. What he has done in this case is unusual: a direct intervention in a single company’s decisions by the president-elect, with the threat of “consequences” if it does not comply.

What’s wrong with that?

Let me count the ways:

1. This kind of non-market intervention is precisely what most economists (and until recently virtually all Republicans) think is a bad idea, as it causes distortion in the distribution of resources (in this case both capital and labor) that cannot be justified on economic grounds.
2. A precedent of this sort gives all companies who can pretend to be considering transfer of jobs out of the US an incentive to seek a bribe from the state or Federal governments not to go ahead. Ohio in particular can expect to be flooded with such requests.
3. Carrier’s labor costs in the US will be higher than in Mexico, otherwise it would not have considered this move. It will need to pass those costs on to consumers, making its products less competitive than they might otherwise have been not only in the US but also abroad, reducing American exports.
4. A company considering a US investment will now have to take into account the unspecified threat of consequences should it decide to move the jobs it creates here to another country, thus discouraging foreign investment.
5. Mexicans who might have earned decent wages at a Carrier plant will be poorer, thus limiting their purchasing power and ability to buy US goods.

These downsides are all well-understood and major reasons why American presidents have stopped “jawboning” on price increases, investment decisions and other economic issues. As Ronald Reagan taught us, the proper role of government is to set the parameters for open competition and leave the specifics to private individuals or companies.

So what should a president do about jobs being shipped overseas? The key is to create an improved business environment at home, in particular by streamlining regulations and lowering corporate tax rates. This would make the US more competitive rather than more willing to dole out $7000 checks. There is actually a good deal of agreement between Democrats and Republicans on improving the business environment, even if there are serious disagreements on which regulations should be streamlined.

This carrier deal is an insignificant achievement in the grander scheme of things, though one that points in bad directions. For those who don’t like globalization, wait until you see the consequences of economic nationalism.