Tuesday, November 27, 2018

GM Plant Closures Expose Trump's Economic Ignorance But Also Raise Hard Questions

By Michael C. Dorf

Across the political spectrum, elected officials were unhappy with the news that General Motors would mothball five North American plants and cut about 14,000 jobs. That is certainly understandable. The workers who will lose their jobs, their families, and the communities that will suffer the indirect effects of GM's move deserve our empathy.

To be sure, Donald Trump's response was a characteristic mix of bluster and ignorance. He reported that he had pleaded with GM CEO Mary Barra to make a different decision out of a sense of obligation. Trump noted, correctly, that the US had saved GM during the Great Recession (without mentioning that this was accomplished by President Obama over the objections of Republicans). Trump also predicted that Barra's "going to put something back in [Ohio] soon." That's possible, I suppose. If the plant infrastructure can be converted to producing different sorts of vehicles at lower cost than building new plants, then GM's move could cause only temporary pain. But the mere fact that Trump made the prediction is hardly a reason to think it is based on any solid information.

Indeed, the bigger picture here shows the incoherence of Trump's approach to economics. For one thing, Trump's steel and aluminum tariffs have increased GM's costs and thus reduced its ability to make a profit on all of its products. Beyond Trump's fondness for trade wars, he does not seem to understand basic arithmetic. Prior to the last few months of losses and volatility, Trump boasted about stock market highs as an indication of what a success his administration's policies have been. Yet in important respects high stock values appear to be negatively correlated with worker wellbeing. Every dollar that ends up in workers' pockets as wages is a dollar that does not end up as corporate profits that increase a firm's share price. That inverse correlation was painfully obvious yesterday: GM stock prices increased by five percent on the news of the forecasted job cuts.

Accordingly, some Rust Belt voters who went for Trump in 2016 will likely lose faith in his snake oil. While that perhaps bodes well for the prospects of Democratic candidates in the next election, no one who actually cares about the plight of workers, their families, and their communities can regard the GM news as good. How bad it is -- and what should be done in response -- depends on a number of factors. Let's consider a few possibilities.

(1) The rosiest scenario is simply one of shifting supply and demand. If, in the mid-1990s, a company that made videocassette players announced that it was shutting a manufacturing plant, that would not be cause for alarm. Either the same company or a rival would replace or retool that plant in order to produce DVD players. Something similar could be happening with GM. There was insufficient consumer demand for the vehicles at the plants to be shuttered, but GM will continue to produce vehicles, just different ones. On environmental grounds, one might worry about the shift to SUVs and trucks, but GM is also apparently focusing on self-driving and electric cars, so the overall environmental impact is unclear. In any event, thinking strictly in terms of jobs, the rosy scenario acknowledges that capitalism inevitably includes the replacement of some products and industries with others. That causes temporary displacements but in the long run is healthy.

(2) Are we in the rosy scenario? Although the number of US manufacturing jobs has increased recently, that short-term effect masks a long-term trend downwards. In both the US and elsewhere, automation has decreased and will continue to decrease the need for workers in manufacturing. The not-so-bad version of this transition focuses on high-skill jobs. But for every former assembly line worker who retools as a computer programmer or robot designer, there are likely several more whose new line of work is something more like retail clerk at a substantially lower wage than in her former job.

(3) Indeed, even that's probably a too-rosy picture. In the 1980s and 1990s, there was much talk about how the US was transitioning from a manufacturing economy to a service economy, but there is no reason why service workers will be immune to replacement through automation. Retail clerks get displaced due to online shopping. In the short run, that may mean more jobs as UPS delivery truck drivers, but in the long run those jobs will be replaced by autonomous vehicles and drones. Eventually, we end up with a small number of people who can make large sums of money by designing the machines that do the work that was formerly done by large numbers of people.

(4) And then the whole edifice crashes. Henry Ford's insight was that workers were also customers. Once people lack jobs and thus money, there aren't jobs for people at the top. The last time I worried about job losses to automation, that observation led me to wonder whether we might eventually see a demand for something like guaranteed basic income coming from the titans of industry, not so much because they want to ensure a decent living for everyone but out of self-interest. I think that is a possibility in the long run.

(5) Meanwhile, our politics does not seem capable of addressing a looming job shortage. Conventional Republicans tout the magic of the market. Trumpian Republicans incongruously do that while also promoting protectionism. Neoliberal Democrats look to education as a way to compete for high-paying jobs in the knowledge economy; indeed, even more traditional Democrats sound those sorts of themes. (Here's Sherrod Brown's issues page on the economy, for example.)

(6) So far, no one on either the right or the left has really begun to imagine a future in which automation leaves just too few jobs for the number of able-bodied adults who need them. Maybe that future will never come, but just assuming that it won't seems only somewhat better than Trump's fantasy that he can recreate the 1950s economy by imposing tariffs on foreign raw materials and goods, subsidizing the coal industry, and imagining that profit-motivated corporations will act out of a sense of civic obligation.