Sometimes economists take flying leaps--and fall flat on their faces. There was Arthur Laffer and his famous curve-on-a-napkin. He persuaded the Reagan Administration that tax cuts would balloon receipts and lower the budget deficit. Instead, his theory helped swell Washington's red ink to record levels. Or consider Raveendra N. Batra, who topped the best-seller lists in 1987 with a book entitled The Great Depression of 1990. Three years later, the economy was only wheezing, but Batra's reputation was in real trouble.
Now comes Pat Choate, whose collaborative effort with Ross Perot, Save Your Job, Save Our Nation, has propelled him into bookstores everywhere and onto the Larry King Live television show for a Sept. 7 interview alongside Perot. "My analysis is straightforward," Choate tells BUSINESS WEEK. "The Mexicans are pursuing a low-wage strategy for pulling U.S. jobs south of the border."
It's compelling talk--the sort that President Clinton can't ignore as he pursues passage of the North American Free Trade Agreement. But Choate's broadside against NAFTA isn't doing much for his reputation among economists.
Some of Choate's peers charge that his charts, graphs, and economic analysis take startling liberties with the facts. "Having done serious work in the past, he had to know what he was doing here was totally one-sided, just a polemic," fumes Gary C. Hufbauer of the Institute for International Economics, who backs NAFTA. Says economist Jagdish Bhagwati of Columbia University, who is more ambivalent about the trade pact: "I think he's gone around the bend."
Call it a flair for drama. Choate, 52, long has enjoyed a reputation as a feisty but brilliant analyst with a talent for transforming dense issues into hot national topics. In 1990, Choate was dismissed as vice-president for policy analysis at TRW Inc., shortly before the release of Agents of Influence, his stinging critique of Americans who leave top government jobs to lobby for Japanese companies. The book was a big seller. But Choate claims TRW dumped him under pressure from Japanese clients unhappy with his call for U.S. economic patriotism--a charge TRW denies.
Agents of Influence caused a stir in Washington, but no one questioned Choate's facts. Not so for his NAFTA book. He asserts, for instance, that the pact places 5.9 million U.S. jobs "at risk" of being moved to Mexico by U.S. companies seeking lower wage costs. Hufbauer says Choate merely identified from Census Bureau data U.S. industries where wages account for more than 20% of the value of output, and then declared these industries to be all "at risk."
UNAPOLOGETIC. That list includes high-skill industries such as aerospace and telecommunications, sectors where even the most pessimistic studies predict that NAFTA will actually produce more U.S. jobs. Says Thea Lee of the labor-backed Economic Policy Institute, a NAFTA foe: "We project 500,000 jobs will be lost"--far fewer than in Choate's estimate.
Choate is unapologetic. "I don't care what their economic models predict," he says. "It will happen." As head of economic development for the low-wage states of Oklahoma and Tennessee, Choate claims that he routinely lured companies from states such as Massachusetts and Michigan, using similar strategies.
The debate doesn't end there. Choate's book cites testimony from former Labor Secretary Lynn M. Martin and a report from the Congressional Budget Office that NAFTA will throw more than 150,000 people out of jobs. Trouble is, both Martin and the CBO contended that these losses would be more than offset by job gains from expanded trade--a point Choate conveniently ignores. He argues that job losses from NAFTA will occur soon after passage, while the new jobs will take longer to create. "That's one or two generationsof lives wrecked in the meantime," hecontends.
His tactics may backfire: The book has energized NAFTA supporters outraged at his use of data. But Choate, now a true Perotnista, may not care that they're upset--or even that he may share Laffer's fate within the profession. As Laffer discovered, there's always the lecture circuit.