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.


Shag from Brookline said...

This is a very interesting post with a lot to digest. Perhaps Neil might comment with his economist hat.

Mike's (6) is a reminder to reread Kurt Vonnegut's first novel "Player Piano" (1961?) that described a future when the basic needs of Americans could be well provided by relatively few managers (MBAs?) and engineers, with government support of the citizenry left without meaningful jobs. (Sen. Sherrod Brown's "dignity of work"?) How did the masses keep busy without jobs to go to? It turns out this wasn't utopian and people reacted. ("The Jetsons" TV cartoon show appeared to be utopian.) Is Trump's base of the "Forgotten" comparable to the reactions of people in "Player Piano"? Vonnegut's novel did not project globally, especially threats from America's competitor nations. If Americans are insecure, what does that say for America's National Security Strategy? And "Player Piano" did not address climate change. Politicians, elected officials think short term, the next elections, not long term.

This post on top of Eric's will be cascading through my mind in challenging the accumulation of my knowledge and thinking over the past 88 years. Do I still have room for my optimism?

Joe said...

Over the centuries, changing times resulted in major problems for labor -- e.g., the changes in agriculture led to great hardship and pressures.

Automation as well as other things already greatly changed and burdened people in this country, especially some of the people like a thirsty person in the desert drank the sand of Trump ("American President" film reference). A labor expert/professor (Erik Loomis, "Ten Strikes") on his blog -- Lawyers Guns and Money -- e.g., believes that self-service machines are "vile" in part because they deny jobs to people.

The right to work and have a job is an essential thing and if we seriously examine the concept I think we should think large. There are many things for people to do and it is suitable to provide people the means to do them. For instance, people struggle to be artists of various types (a low paying profession other than the lucky few, plus Law & Order guest appearances), often performing various service type jobs and the like to do so. This is arguably a waste of potential jobs for others who need them.

The money spent on let's say cruel anti-foreigner policies can be used to pay for such things such as providing a type of base living wage as long as you do something of that nature. Automation can be a good thing & either way is here to stay and long term solutions other than trolls in the White House should be considered.

Neil H. Buchanan said...

Mike's post and Shag's comment have inspired me to plan a post (most likely for next week) on this topic. As it happens, my post will have some overlaps with Joe's comment.

Shag from Brookline said...

My optimism has been sparked. David Leonhardt's recent NYTimes column and newsletters focus on the need to restore antitrust laws to lead to more innovations that can create replacement jobs. David cites Tim Wu's book oaths I just saw Steve Case (founder of AOL) being interviewed on Amanpour & Co. about his new project for aiding young innovative firms and revitalizing cities that had suffered poor times. Accepting the reality of climate change can create new jobs. I'm not on board with any potential candidate for the Democratic nomination in 2020, but I like Sen. Sherrod Brown's "dignity of work." And many of Bernie's views. There is a place in politics for real populism.

I just got back from a local shopping trip and observed an ACLU team working the sidewalk near Whole Foods. I hey come every few months. I told a young lady on the team that a few years ago I came up with a limited version of the Village People's "YMCA," demonstrating with my arms the simplicity of "A" "C" "L" "U." I related to her that during the 1988 presidential campaign President George H. W. Bush pejoratively referred to his opponent, Brookline's own Mike Dukakis as a "card carrying ACLU member" inspiring me to join and be a card carrying member of ACLU. It felt good observing this ACLU team of young men and women in action.

David Ricardo said...

The issue may not be automation but labor mobility, both geographical and career. The cost and availability of housing in areas where the job market is growing is such that it is preventing employable adults from moving to where the jobs are. And the lack of the right type of education and training, even among the educated is preventing employable adults from moving from where industries are shrinking to areas where industries are expanding.

As far as the GM layoffs are concerned, this is the result of two trends. The first is the movement away from sedans and the second is the movement away from auto manufacturing in the U. S. As for the Trumpian intervention, remember when federal government involvement in private business decisions was considered an unacceptable violation of the free enterprise principles that the nation was founded upon by conservatives? Neither do they.