There can be little question that the middle class, or what’s left of it, is less and less able to cope. Adjusted for inflation, average hourly wages declined by 1 percent from 1970 to 2009. Meanwhile, home prices increased 97 percent, gas prices went up 18 percent, health costs rose 50 percent, and the price tag for public college spiked a whopping 80 percent after adjusting both wages and costs for inflation, according to figures compiled by the Senate Health, Education, Labor, and Pensions Committee. The average family of four needs an annual income of $68,000 just to cover basic costs, but in 2010, half of all jobs paid less than $33,840. The number of Americans living below the poverty line—46.2 million—is the highest in the 52 years that the Census Bureau has been tallying figures.
The Great Recession and the cyclical collapse in demand exacerbated but did not solely cause these dismal statistics. The declineof the middle class has been like a “slowly growing cancer” that no one noticed until it was too late, says Dani Rodrik, a Harvard University economist who issued one of the earliest warnings against runaway free trade a decade ago in his book Has Globalization Gone Too Far?
The bleak numbers raise obvious questions about the dominant economic paradigm of our time. For more than a generation, we have thought of the spread of free markets and globalization were pretty much inevitable. Economists, trade experts, and policymakers, including both Republican and Democratic presidents, have told us, in effect, that we could do little about the brutal displacement of old industries and jobs, and that we might as well just get used to it. Indeed, we were told, the U.S. must lead this charge: Free trade in the West helped to win the Cold War, after all, and the United States emerged as the sole superpower. It created to a strange blend of false fatalism and American hubris. Somehow, the champions of hands-off economic policy insisted, we would come out on top in the end.
This self-conceit infected both political parties. It was Democratic President Clinton, after all, who pushed through the North American Free Trade Agreement and “triangulated” his way to agreement with then-House Speaker Newt Gingrich, R-Ga., on a workfare replacement to the welfare system.
Most economists agree that opening up markets, especially in the aftermath of the Cold War, produced a wealthier world overall. And it may well be that it’s still in America’s interest to lead the free-trade agenda. In a new book, J. Bradford Jensen, a senior fellow at the Washington-based Peterson Institute for International Economics, suggests that the United States will remain very competitive globally in business and personal services—now 50 percent of the economy—and reap millions more jobs. Even three years after the financial crash, some successful services-based cities such as Omaha, Neb., and Sioux Falls, S.D., continue to enjoy relatively low unemployment rates. UCLA’s Nickelsburg, a free-trade hawk, rejects labor unions’ complaint that the nation’s jobs have all gone to China and other places. “They’re not really going to China,” he says. “Most are going to automation, to advanced manufacturing. The American manufacturing worker has become more productive.”
Beyond doubt, however, the advocates have overstated globalization’s benefits and underestimated its hazards, including social upheaval. The open trading system that Washington adopted more aggressively than any other major country—particularly, the giant economies of China, Germany, and Japan—has exacerbated inequalities at home far more than the government was prepared for, casting whole communities and regions into peril. Federal policies for at least the past 30 years have actively whittled away at the middle class while affording it almost no protection. Similarly, the U.S. is the only advanced country that doesn’t play favorites to protect essential domestic industry, even when it comes to government procurement policies.
Those who challenged the wisdom of the day, who pushed for “fair trade” (more tariffs, unemployment insurance, and worker protections) over “free trade,” were typically branded protectionists and driven from the discussion. The outcasts included Robert Reich, Clinton’s dissident Labor secretary, who loudly advocated a sturdier safety net for the middle class and was edged out of power. Those who second-guessed the massive deregulation of Wall Street mostly suffered the same fate. What job training and adjustment programs the government did provide were meager and mostly ad hoc.
Robert Scott, head of research for the left-leaning Economic Policy Institute, has published a pair of withering reports making the case that two of the biggest free-trade deals of the last few decades, NAFTA and China’s entry into the World Trade Organization (which required a lowering of tariffs as well), have brought nothing like the economic boons that supporters predicted. The United States had a small trade surplus with Mexico before NAFTA; as of 2010, the surplus had become a giant deficit, displacing production that might have supported 682,900 U.S. jobs, Scott estimates. He reckons that as many as 30 percent of the workers that NAFTA displaced never came back into the workforce and that those who did tended to take jobs at lower wages.