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The Party of Economic Seriousness

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics and Director of the Maurice R. Greenberg Center for Geoeconomic Studies
June 11, 2007
Washington Post

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The collapse of the immigration bill last week holds a political lesson. It isn’t just Democrats who flunk Globalization 101. Indeed, Democrats may be supplanting Republicans as the grown-ups on this issue.

Anyone who understands Globalization 101 knows that immigration, including large-scale unskilled immigration, is a fact of the modern world. Mexican laborers who migrate to the United States stand to see their wages triple or more: No amount of border security is going to keep them from coming. Chasing down and deporting illegal workers is costly to U.S. taxpayers, cruel to immigrants, disruptive for U.S. employers, expensive for U.S. consumers — and, most of all, futile. People who yell “amnesty” merely reveal that they don’t understand the world we live in.

But the Republican Party, which prides itself on understanding globalization when it comes to capital flows or trade, is blind to the global labor market. In the crunch immigration vote in the Senate on Thursday, only seven Republicans voted for reform, while 38 voted against it. Among the supposedly globo-phobic Democrats, the numbers were roughly reversed: 37 Democrats voted for reform while just 11 voted like ostriches.

This pattern is not confined to Republicans in the Senate. President Bush, to be fair, has been good on immigration ever since his days as governor of Texas; among the front-runners to succeed him, Sen. John McCain of Arizona is sensible. (Both men prove that you can come from a border state and not be a bug-eyed wall builder.) But two of the party’s leading presidential hopefuls, Rudy Giuliani and Mitt Romney, have been spouting the amnesty nonsense. The all-but-declared Fred Thompson is scarcely any better.

Giuliani is also spouting nonsense about health care — a challenge that the nation must address if it is to assuage middle-class anxiety about a turbulent globalized economy. As employers have stopped offering coverage, Americans have discovered that it’s almost impossible to buy decent insurance because the market for individual purchasers is plagued by a vicious cycle. At the start of this cycle, insurance premiums reflect the cost of covering the average person, so healthier-than-average people realize they are getting a bad deal and choose not to buy coverage. That leaves a sicklier group in the market, which forces premiums up, which drives more relatively healthy people to exit, which drives premiums up still more, and so on.

This market failure is a basic fact of health-care economics. But Giuliani is oblivious to it. In an interview with the Wall Street Journal last week, he indicated that he wants to triple the number of people in the dysfunctional individual insurance market without taking the one step that might fix it, which is to force every American, healthy or not, to buy coverage. Depending on whether he understands how dumb this is, Hizzoner is either a coward or a lightweight.

Meanwhile, the Democratic Party is sounding less bad on globalization than might have been expected. After last year’s midterm elections, the Democrats seemed ready to turn against trade and foreign investment. They have duly forced dubious labor standards into trade pacts with Peru and Panama, and they have failed so far to renew the president’s authority to negotiate trade deals, which expires at the end of this month. But the bill emerging from Congress on the process for putting inward investment through a security review resists the temptation for paranoid obstructionism. And leading Democrats have indicated that they’ll support the Doha round of global trade talks if negotiators can revive it.

Compared with the immigrant bashing that has dominated Republican presidential debates, Democratic presidential hopefuls have sounded sweetly reasonable. With the exception of the no-hoper Dennis Kucinich, none has pressed protectionist themes. There is no equivalent to the Dick Gephardt of 1988, who won the Iowa caucuses on an anti-trade ticket.

Instead, the Democratic candidates are focusing on helping the economy’s losers without restricting trade, which is exactly what they should be doing. John Edwards, the contender who sounded most protectionist in 2004, seems to have turned over a new leaf. He has admitted that trade benefits poor countries and has declared that arguments over labor standards should not be an excuse to obstruct liberalization. Meanwhile, Edwards has proposed a thoughtful health-care reform that would require everyone to buy insurance. He supports market-minded social programs such as an expanded earned-income tax credit and housing vouchers.

In the 2004 election, the Kerry-Edwards ticket forfeited its claim to economic seriousness by opposing trade deals such as the Central American Free Trade Agreement. In 2004, likewise, the Bush-Cheney ticket forfeited its claim to economic seriousness by defending its dishonest tax cuts. This time around, the party that gets closest to a fiscally responsible platform that accepts globalization while helping the losers will deserve to win. For the moment, Democrats are doing better.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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