The general election is still over a year away. We can’t trust presidential polls too much, especially if they’re within the margin of error. However, one candidate is not within the margin of error. Joe Biden is blowing Trump away. He has the moderate, blue-collar appeal that could win back the Rust Belt and give the suburban women uncomfortable with Trump a home in the Democratic Party. Every Democratic candidate will lose to Trump except for Biden, who would win in a blowout.
By Joshua D. Glawson | United States
The rise and fall of the Detroit automotive industry is a classic example of the problems of cronyism, labor unions, and corporate welfare. Thomas H. Klier, who is the author of “From Tail Fins to Hybrids: How Detroit Lost its Dominance of the US Auto Market,” points out some key concerns with the decline of the auto industry. However, Klier fails to demonstrate the imperative issues of US government marketplace meddling and power-drunk control, and how the government was the biggest driver for the auto industry’s demise and crash.
Klier begins his narrative with determining there are three distinct phases that made up the decline of the US auto market: One, The 1960s’ foreign imports; Two, the 1979 oil crisis; Three, the 2008/2009 Great Recession.
First, a market, in order for it to be the healthiest and most productive, is best left alone with little-to-no government involvement. A market thrives on competition, supply, and demand, while freely and voluntarily exchanging goods and services. When the US government involves ‘itself’ in the business of others, it automatically stunts the growth and capabilities of that industry.
After the gas-powered automobile was invented in Europe, Americans had gained an edge in the market with lower wages and overhead compared to that of Europe. By 1899, there were already over 500 automaker companies in the US. However, this created a saturated marketplace, and after WWI by 1929, there were only 44 companies making gas-powered automobiles in the US. The Great Depression would then finish off the remainder of these, dwindling that number down to an even fewer number which would eventually make way for the US “Big Three,” i.e. General Motors, Ford, and Chrysler. The Progressive Era, from the late 1890s to the 1920s, ushered in more government involvement in all industries, including that of the automotive industry.
By 1933, President Franklin D. Roosevelt (FDR), established the National Industrial Recovery Act (NIRA) which was intended to give a coercive protection of these various special industries and workers, including that of the automotive industry. Not only did this Act provide economic protection to various industries, but it also subsidized, fixed prices, and destroyed market competition. FDR’s protectionism and cronyism led to the development of the United Automobile Workers’ Union (UAW).
Of course, as any labor union will proclaim, this coerces the market to higher prices in order to pay workers higher wages. Labor unions also restrict the flexibility of the company because once a labor union is established, there is more bureaucracy, red tape, fees, and fields where only the “specialized” laborers are allowed to do their part. This essentially drives out competition through a coercive government monopoly by fixing prices, and removing the flexibility of standard supply and demand, while only allowing certain political elites to arbitrarily determine what a “fair” price should be.
Simply put, if subject A, Jane, says she will only work for a certain price as determined by the government and labor union, but then subject B, Joe, says he will work for a lower price as to be more competitive, this would not have been allowed by law. So, along with many other economic factors, the prices of cars went up along with the subsidized pensions and wages of the auto industry’s workforce. In the 1960s, with an influx in imports due to more competitive pricing, the Detroit automotive market began to decline, as pointed out by Klier.
Klier is also neglecting the emphasis on tariffs, which choke markets. After WWII, any “benefits” the US had gained from the war had already begun to significantly diminish by the 1970s.
Second, almost since the very birth of the oil industry in the US in the 1800s, the US government has been involved in controlling who can and who cannot be involved via government cronyism. Examples of government tampering and controls of the marketplace, which includes that of the automotive and oil industries, are the Sherman Antitrust Act of 1890, heavy oil provisions to France and England in WWI, the Mineral Leasing Act of 1920, the 1928 Red Line Agreement, 1933 oil production quotas, 1933 oil import duty taxes, WWII rations, 1948 Marshall Plan, 1959 Mandatory Oil Import Program, establishing OPEC in 1960, 1967 Arab oil embargo, and so on.
Along with these coercive involvements in the marketplace, by the 1960s there were also laws implemented to force car manufacturers to have certain safety features, which also leads to increased costs. Nevertheless, oil and petroleum products such as gasoline were already strictly regulated, and slowly choking the auto industry. Today, the US oil industry “benefits” from over $200 Billion in subsidies, and countless regulations. Much like the story of ‘I, Pencil‘, which demonstrates the complexity of the marketplace, so too are the numerous subsidies that plague many industries and stages of production, especially that of the auto-industry- petroleum, oil, gas, plastics, metals, workers, manufacturing, import tariffs, export tariffs, foreign manufacturing, shipping domestically and abroad, etc.
Three, the economic crash or Great Recession of 2008, or others cite 2009, which assisted in the temporary downfall of the auto industry of Detroit, specifically, was again caused by government involvement. With a minimum of nearly 600 confirmed laws that regulate and set pseudo-standards for the automotive industry in the US, it makes it so that running a car manufacturing company, much less starting one, is nearly impossible.
Various states and the federal government have continuously provided subsidies to the Big Three of Detroit, and this negates the standard of measuring supply and demand. When people or companies are given “free money” they do not have to compete in the market the same way, and they do not have to concern themselves with their next dollar earned as someone who must work and compete for it. Finally, when the bailouts came for the Detroit auto industry, it was nearing $90 Billion.
Of course, subsidies do more than redistribute wealth from those paying taxes to those that are gaining the plunder. Subsidies, as previously mentioned, also cut supply and demand, while also driving out competition due to inability to compete with increased funding, and stifles creativity and flexibility in the marketplace as demands and desires increase. It makes the company receiving the subsidies lose interest in market needs because they are doing better with the easy money from the government.
Many will support subsidies because they believe it helps save jobs or makes things cost less, but in fact, that is an economic fallacy to assume such. A subsidy is still supported through taxes, which come from the citizens, and this proves to add to inflation and falsifying prices as it helps falsely prop a market. It also influences the GDP as it assists in purchasing and subsidizing products that many people may not actually want. GDP will reflect as being up, when in fact it was all junk coercively purchased off the dime of everyday citizens.
While I can agree with the author that certain stages are evident in the downfall of the auto industry, especially in Detroit, it was ultimately caused by government influence, laws, coercion, subsidies, and cronyism, not the marketplace itself.
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By Owen Heimsoth | United States
Recently, tariffs have become pretty big in the news. Just yesterday, BMW announced measures to add production in China, likely a response to President Donald Trump’s tariffs on automobile products from the EU.
Donald Trump’s actions clearly oppose the values of free trade. Because of this, he is hurting our ability to grow cars in Iowa.
Yeah, that sounds weird, but let me use a popular argument relating to free trade that many economists use.
How to Grow a BMW
There are two ways in which we can produce cars. We can either manufacture them in Detroit or grow them in the Midwest.
The first plan of action is a well-known, huge part of our economy, but so is growing the automobiles. I’ll explain how the process works.
In late April, our farmers start planting their soybeans and watch them begin to grow. A few months later they begin to harvest their crops and put them on ships. Those ships float over the horizon to the east. We trade our soybeans with many countries throughout the world, and a couple months later, the ships come back with BMW’s on them.
This is how free trade works. It does not take an expert to see this; I reckon an eight-year-old may understand the benefits. We have soybeans. We want cars. The rest is history.
This would be simple, but Trump is doing his best to make it much, much harder.
In recent months, Trump has put tariffs on automobile imports from the EU. As a result, China has placed retaliatory tariffs on US soybeans. What has been the result?
The US can’t export their soybeans cheap to China, a huge manufacturer of automobiles. Also, EU tariffs have hurt automobile trades with the contingency.
Now, German automobile companies such as BMW are putting their factories in China and helping raise the price for automobile consumers in the US. This is also counterintuitive because we are failing to curb Chinese influence in the global market, something that Donald Trump aimed to do.
And now we can’t grow BMW’s in the Midwest.
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By James Sweet III | United States
The 2016 Presidential Election was a monumental political upset in modern American politics. Donald J. Trump, the TV star businessman, became the first President-elect to have no prior political experience. The election saw the states of Michigan and Pennsylvania vote for the Republican nominee, the first time since 1992, with Ohio voting for a Republican, the last time being 2004. These three states, part of the geographical region known as the “Rust Belt”, were crucial in delivering victory to the Trump campaign, but with protectionist policies being enacted by the man they helped win, these states may be the reason that Donald Trump loses re-election in 2020.
Many countries have regions that can be labeled as a “Rust Belt”. These regions used to consist heavily of manufacturing, but have seen a sharp decline in manufacturing jobs and loss of factories. The states of Michigan, Pennsylvania, and Ohio, which make up the American Rust Belt, saw this sharp decline begin during the mid-1900s, continuing to today.
According to an economic research paper by Lee E. Ohanian, a consultant for the Federal Reserve Bank of Minneapolis, the decline of the Rust Belt began in 1950, 30 years earlier than commonly believed. By 1980, the Rust Belt’s share of manufacturing jobs fell by 34%, and it’s overall share of the American economy fell by about 28%. In 1950, 33% of the population lived in the Rust Belt, but by 2000, only 25% lived in the Rust Belt.
There are several reasons for the decline of the Rust Belt, like the rise of the Sun Belt, a region spanning several South Eastern states. The Sun Belt offers better environmental and economic conditions for the manufacturing industry. One factor that was crucial in the decline was the lack of competition, something that protectionist policies such as tariffs actively discourage.
According to Ohanian, “there is considerable evidence of oligopolistic behavior as Rust Belt industries successfully lobbied Congress for protection against both competitors and antitrust prosecution.” With no competition to challenge the Rust Belt companies, there was no incentive to continue innovation, as the government-created monopolies ensured that their products would be bought in the region no matter what.
Looking at the above figure, it becomes evident that the manufacturing industry in the Rust Belt slowly stabilized after 1980. This is because the Sun Belt, a region that consists of southern states, began to attract manufacturing jobs. The region implemented right-to-work laws, which encouraged corporations to move down south from the labor union intensive Rust Belt. In a Forbes article written by himself, Adam Millsap states, “two of the largest and most powerful unions in the country were based in the Rust Belt: the United Steelworkers (USW) and the United Auto Workers (UAW). These two unions were able to use the threat of widespread strikes to obtain higher wages, which increased production costs for Rust-Belt firms.”
Ohanian believes that the Rust Belt can bounce back, “but if the Rust Belt is to thrive again, it must be able to compete and succeed in an exceptionally competitive national and world economy, something that the industries fought against for many years.”
So, how does this relate to President Donald J. Trump?
On the campaign trail, President Trump spoke of his campaign promise to return jobs to the Rust Belt and attempt to fight unemployment in the region. To achieve that goal, President Trump enacted a counterproductive policy, levying tariffs on China, Canada, Mexico, the European Union, and Japan. The only nation that didn’t respond to American protectionism with tariffs was Japan. The remaining four nations levied tariffs against the United States, adding up to a total of $165 billion in tariffs levied by and against the United States.
According to Citigroup, “80 percent of ‘red’ states produce goods subject to retaliatory tariffs totaling 10 percent or more of GDP, compared to 10 percent of ‘blue’ states.” The Rust Belt is one of the most affected areas, with 48% of our exports to Canada originating from the Rust Belt.
Bernard Baumohl, chief economist at the Economic Outlook Group, stated, “More workers in the U.S. make products that are made from steel, than make steel itself.” Imports are necessary to the growth of these industries, and if protectionism gets in the way, President Trump may face a hard time getting re-elected in the areas that he is hurting.
The history of the Rust Belt shows that the decline of an industry is not because of unfair competition, but rather the lack of competition altogether. Perhaps our President can recognize that before skyrocketing prices of the intermediate goods essential to the manufacturing industries of the Rust Belt hurt the region and his chances of reelection.
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