The second way in which it is rigged is our trade policy. First there is the size of the trade deficit. This is the result of policy choices. Instead of forcing our trading partners to respect Bill Gates copyrights and Pfizer's patents, we could have insisted they raise the value of their currency to move towards more balanced trade. But Bill Gates and Pfizer have more power in setting trade policy than ordinary workers.
Also, contrary to what Mankiw tries to tell folks in his column, the trade deficit did play a big role in our loss of manufacturing jobs. As my favorite graph for the day shows, manufacturing employment was roughly constant at around 17,500 million from the late 1960s until 2000. During this period, there was substantial growth in manufacturing productivity, as Mankiw says. This growth caused manufacturing employment to decline as a share of total employment, but to remain roughly constant in absolute terms.
However, from 2000 to 2006 manufacturing employment falls by more than 3 million, or close to 20 percent. The change was the explosion in the size of the trade deficit, as an over-valued dollar made our goods less competitive. This plunge in employment devastated lives and whole communities. It was a clear policy choice. Importers like Walmart and outsourcers like GE benefited, as ordinary workers lost big-time.
