by Wendell Cayton

It’s urban myth time again—the rhetoric of a presidential campaign is upon us. TV market analyst Tobin Smith argues that all presidential candidates should have to pass Econ 101 before they can run for office, and I agree with him.

Last week, an email I received from supporters of one candidate noted that current economic policies would saddle each of our children with an additional $35,000 in debt.

So what? Any of us with children and a mortgage have exceeded that number many times. We pay it off by selling the home or making payments for 30 years. Instead of paying cash for homes, we borrow from the bank. This gives us the year over year cash flow we need to invest in our retirement accounts, pay for our children’s educations and improve the quality of our lives.

This is exactly the same thing our government does—the difference is that the government does not have the option of “selling the family home” to downsize and pay off the debt. It must support the debt with increasing tax revenues that can only come from a growing economy.
The bond market—the ultimate inflation barometer—has passed judgment on current policies by keeping the ten-year Treasury bond trading around 4%, an indication that bond traders do not see inflation as a threat.

Let’s take on the urban myth of job creation. Our economy is structurally designed to destroy a certain number of jobs each year. It’s called innovation, progress, capitalism at its finest, or, to quote economist Joseph Schumpeter, the natural result of “gales of creative destruction.”

Only a fraction of destroyed U.S. jobs go overseas because of an economic principle called “the law of comparative advantage,” expressed centuries ago by David Ricardo. He theorized that economic gain will increase between two nations if each specializes completely in the production of goods it has a comparative cost advantage in producing.

Ricardo also held that foreign trade may promote further accumulation and growth if wage goods (not luxuries) are imported at a lower price than they cost domestically, thereby leading to an increase in real wages and profits. His ideas have proven right for centuries—overall income levels have risen in “specialist” nations as long as comparative advantage prevailed.

The U.S. job problem is not the result of manufacturing jobs leaving; according to Holman Jenkins writing in the WSJ, only about 10% of manufacturing costs are job-related. It’s the other overhead that kills profits: corporate taxes, litigation costs, federal mandates . . . all forms of “social overhead.”

For our economy to grow and our lives to improve, we will continue to be an exporter of technology and infrastructure, things we can produce at a comparative advantage. We will buy inexpensive manufactured goods from abroad, contributing to the growth and development of nations who ultimately will have the money to buy from us.

Enacting of proposed protectionist laws against off-shoring or many other urban myths being spread today can only lead to the unintended consequences of falling corporate profits and stock prices. If this were to come to pass, those counting on 401k plans to provide retirement income will be sadly disappointed when it comes time to collect.