Rossputin.com Rational Thinking About Our World

David Sirota is guilty of the same intellectual error as many on the left are when it comes to economics. They assume that anything they expect should happen or anything they wanted to happen did in fact happen. A great example is Sirota’s anti-free trade assertion that because of NAFTA, “left for dead, of course, is a place like Ohio”, an assertion utterly belied by the facts.

Again, I am not saying that there are no losers in free trade or any other competitive system. But Sirota and friends argue that the losses from free trade are in aggregate much larger than the gains to the nation. I do not know of one serious economist or one serious economic study which demonstrates anything other than free trade being a substantial net winner for the nation which participates in it…even if its trading partners trade less freely!

But the subject for today is the economic death of Ohio, something which didn’t happen despite the fondest wishes of anti-free traders and anti-capitalists. Sure, they can find workers who lost their jobs. But do you think they take even a moment to look for workers who found new employment, or the creation of new jobs which caused new workers to move to Ohio for the opportunities? Of course not, because they know the facts would contradict their deep desire for free trade to produce uniformly bad outcomes. Unfortunately for these tools of organized labor, they’re entitled to their own opinion but not to their own facts.

First, let me start with a macro concept. Sirota and others might argue that NAFTA has killed our manufacturing base. If that were the case, then you’d expect the balance between goods and services production in the US to have shifted far more dramatically than the balance in countries which didn’t join NAFTA.

But the following chart from the Bureau of Labor Statistics shows something very different. It shows that from 1965 to 2005, the United States’ shift in output towards more services and fewer manufactured goods was not remarkable compared to 6 other modern economies, including European countries not known for free trade. Yes, the chart covers a much longer period than the years since just before NAFTA, but nevertheless I would have expected the US to look like a serious outlier if our manufacturing base had been wrecked by free trade treaties which other nations were not participants in.

Let’s move on to some interesting facts about Ohio.

Here’s a chart of Ohio’s labor force (people in jobs, not unemployment rate) from 1980 to today:

Now here’s another chart. For the moment I won’t tell you what the data series is.

Would you agree that these charts are exceptionally similar? Look at the dips or flat areas around 1983, 1991, 1995, and 2003.

OK, here it is again, properly labeled:

What does this tell us? It tells us that Ohio’s unemployment is directly correlated with the nation’s economy, not that Ohio is somehow worse off than the rest of the nation. If you look at 1994, when NAFTA was implemented, onward, there is no evidence that Ohio has underperformed the national economy. Indeed, Ohio seemed to have done slightly better during the economic weakness around 2002 than much of the rest of the nation.

Here’s another pair of graphs for your perusal:

First, Ohio’s unemployment rate from 1980 until now, and immediately following is the national unemployment rate over the same period.

Ohio’s unemployment rate in December, 1993, the month before NAFTA came into force, was 6.5%, which was the lowest it had been for about two years. In January, 1994, Ohio’s unemployment rate dropped an impressive 0.4% to 6.1%. As of May, 2008, Ohio’s unemployment rate had NEVER AGAIN reached as high as 6.5%. So much for “left for dead”.

In the four years after NAFTA’s enactment, Ohio’s unemployment rate dropped MORE than the national unemployment rate. Indeed, as you can see from the charts, Ohio has done as well or better than the rest of the nation in unemployment rate during almost the entire span of this chart, except for a couple of years from roughly 2005-2007, which I doubt even David Sirota would try to blame on NAFTA. (Actually, I don’t doubt it.)

In case you still don’t believe that free trade is good for Ohio, let me give you another comparison, this time to Colorado (which I choose simply because I live here.)

According to the International Trade Administration, based on 2006 data (the latest available), “Export-supported jobs linked to manufacturing account for an estimated 3.6 percent of Colorado's total private-sector employment. Over one-sixth (18.6 percent) of all manufacturing workers in Colorado depend on exports for their jobs.”

Now the same info for Ohio: “Export-supported jobs linked to manufacturing account for an estimated 6.7 percent of Ohio's total private-sector employment. Nearly one-quarter (23.1 percent) of all manufacturing workers in Ohio depend on exports for their jobs.”

Here’s more about Ohio: “In 2005, foreign-controlled companies employed 213,800 workers in Ohio, the eighth largest total among the 50 states. Major sources of Ohio's jobs in 2005 included Japan, the United Kingdom, Germany, France, and Switzerland.

Almost half of these jobs (45 percent, or 95,400 workers) were in the manufacturing sector in 2005. Foreign-controlled companies accounted for 11.7 percent of total manufacturing employment in Ohio in 2005 (more than one of every nine manufacturing workers).

Foreign investment in Ohio was responsible for 4.5 percent of the state’s private-sector employment in 2005.”

(All of these numbers are larger than the equivalent numbers for Colorado, including in percentage terms.)

And more: “Ohio's export shipments of merchandise in 2007 totaled $42.4 billion, up 42 percent ($12.6 billion) from 2003. Ohio recorded the eighth largest export total of all 50 states in 2007.” Ohio’s 2003-2007 increase was the 9th largest in the nation.

Besides NAFTA not “leaving Ohio for dead”, how about this NAFTA-specific information: “Ohio exported globally to 213 foreign destinations in 2007. The state's largest market in 2007, by far, was our NAFTA trading partner Canada, which received goods exports of $19.6 billion. This was nearly half (46 percent) of Ohio's total exports that year. Ohio's second-largest market was our other NAFTA partner Mexico ($3.0 billion), followed by Japan ($1.5 billion), China ($1.5 billion), and the United Kingdom ($1.4 billion).”

The Cleveland area exported over $8 billion in merchandise in 2006. Dayton was over $4 billion, Akron $3.5 billion, Columbus over $3 billion, and Toledo $2 billion.

If that’s “left for dead”, I wonder if anti-free trade and pro-labor activists will ever admit to an economic policy which increases competition against unions having been successful.