Obama’s Obsession Drives Progress in Reverse: Kevin Hassett

Days before Michelle Obama jetted off to her lavish vacation in Spain, her husband the president visited a General Motors plant in Hamtramck, Michigan.

Defending his policy of nationalizing GM and Chrysler, Barack Obama described the auto industry as “what has been the heart and soul of American manufacturing, what has built a middle class not just here in Detroit, but all throughout the Midwest, what has made us proud and has been a symbol of our economic power.”

With that, Obama revealed his obsession with manufacturing. While other presidents have shared this unhealthy fixation -- see George W. Bush’s Manufacturing in America strategy -- Obama has raised it to another level.

Manufacturing has been on a more-or-less-steady decline as a share of national output for decades, part of the natural evolution of the U.S. economy. It’s time politicians stop calling this a national crisis.

Lots of firms went bankrupt during the recession without the federal government sweeping in to save them. Big manufacturing firms had to be rescued because of their symbolic power. Massive government intervention, it seems, is advisable to save the auto industry because manufacturing output is somehow more valuable than other types of output.

Like the rest of Obama’s economic policy, the foundation for this idea is nonexistent. Small wonder his economists are quitting.

Plan Power

Later in his talk at GM, Obama pledged “to insist that management, workers, creditors, suppliers, dealers, shareholders, everybody get together and come up with a plan so that we can start building for the future.”

I guess that means the problem with the American auto industry was not that the automakers were swamped by insanely high labor costs after years of unwise concessions to unions; the problem was that we never had a presidential orator brilliant enough to urge everyone to get together and craft a plan to save manufacturing.

Truth is, we already know Obama’s plan: to tax you to keep the rust-laden, union-heavy industrial sector afloat.

Sadly, similar thinking seems to be catching like a plague. Two days before the president’s speech, the House voted 379 to 38 to pass H.R. 4692, which recommends establishing a presidential task force to create a National Manufacturing Strategy to revive U.S. industries.

Special Treatment

You might ask, what’s the harm in yet another government study? Here’s what. One provision in the bill would require the president to include, in each year’s federal budget, information on how the spending plan advances the manufacturing strategy. That would give manufacturing special treatment in every budget.

Manufacturing has been declining as a share of U.S. gross domestic product for some time, from about 28 percent in 1950 to about 11 percent in 2009. Any economist can tell you that this decline is not necessarily a cause for concern.

Over the past few decades, our economy has transformed dramatically, and the importance of innovation has increased sharply. A 2006 study by the Federal Reserve found that investment in intangible capital is more important today, in the aggregate, than investment in tangible capital. We have become an ideas economy.

That’s not a problem. It’s economic evolution, a natural and positive force. The agricultural sector has seen a similar decline in the last 60 years, falling to 1 percent of GDP from roughly 7 percent.

So should Congress order up a task force to revive U.S. agriculture? That, too, would mean trying to reverse progress itself.

Pain Management

It’s true that long-term economic changes can be painful. There are regions in the U.S. that historically have been centers of manufacturing, just as there are regions that have been centers of agriculture. People in those regions bear a disproportionate share of the harm and deserve policies that ease the pain of transition.

So Congress can and should provide educational opportunities that better prepare workers for the new economy. It can and should encourage new businesses with low corporate tax rates and other inducements.

Obama’s high-tax, high-regulation approach does the opposite, so islands of manufacturing become islands of decay and despair, places where nationalization seems defensible, even worthy of applause.

If Democrats think that the optimal share of GDP devoted to manufacturing should be higher, their economists should tell us what that optimal share is. They don’t because they can’t.

When politicians pick winners and losers, they interfere in the natural economic process and invariably cause harm. If members of Congress believe they recognize profitable opportunities better than the market does, they should retire from Congress, start businesses and grow rich.

If they’re really successful, they might even be able to afford a great vacation in Spain.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain in the 2008 presidential election. The opinions expressed are his own.)

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