February 27, 2008
The debate last night in Cleveland Ohio between Barack Obama and Hillary Clinton featured a discussion about the Ohio economy. Apparently both candidates blame NAFTA and other free trade agreements for the decline in manufacturing jobs in Ohio. Both candidates featured, therefore, promised to "re-negotiate NAFTA" in the debate in an effort to win votes in Ohio. Yes the Ohio economy is struggling: Unemployment last measured in December was at 6%, a full percentage point higher than the national average; mortgage defaults in the fourth quarter of 2007 were at a 1.44% rate, compared to a national average of .87%; over the last eight years, real median income has dropped from over the national average to $2,300 below the national average (a drop of around 10%); and over the last eight years Ohio has lost over 275,000 manufacturing jobs (a drop of about 25%). But some other facts are notable: 1) Nafta took effect in 1994 and from 1994 to 2000 there was income and job growth in Ohio. Nafta is not the cause of the recent drop, which dates from 2000. 2) Nafta did not greatly reduce tariffs on Mexican goods, they were already low. The inevitable conclusion is that trade with China (and India and other emerging Eastern Europe economies), which grew dramatically after 2000 (China's admission into the WTO dates from 2001) is a more likely cause. Indeed, the stump speeches of both candidates now routinely attack China. Any long-term solution for Ohio, however, has to involve investment incentives that induce private companies to locate or grow here. This takes time and careful planning. However, the other routine parts of the candidates stump speeches -- Attacking corporate profits or the pay of corporate executives or the decrying the pay and benefits of workers is not consistent with a plea for corporations to locate or grow businesses here. Ohio needs to invest in infrastructure (roads, power sources, and cleanup of abandoned factories) and to invest in education and incentives for local talent to stay in the state; the state and the federal government need to reduce corporate taxes and dividend taxes (to eliminate once and for all any double tax on earnings); and the state needs to give up protectionist support (in its many forms) of industries that are not competitive. We need to drop our takeover protections, for example. We could also follow Indiana's example and privatize some of our government functions (Indiana sold its northern toll road to Australians who overpaid a whopping $6 B and used the money to attract three new Japanese car manufacturing plants).
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