The New York Times had a lengthy piece giving a story on how the Democrats lost the support of working-class voters over the last three decades. The essence of the argument is that working-class voters were angered by Democrats’ support of “free trade” and the bailouts of the financial industry in the financial crisis. While this story is largely true, it seriously understates the working-class cause for complaint.
First and foremost, our trade deals were not about free trade. They did little or nothing to free up trade in highly paid professional services, such as physicians’ and dentists’ services. As a result of the continued protectionism in these services our doctors get paid more than twice as much as their counterparts in other wealthy countries. At the same time, our manufacturing workers get paid less than manufacturing workers in Germany and other wealthy countries in Northern and Western Europe.
If we brought the pay of our doctors and dentists in line with pay in other wealthy countries it would save patients more than $100 billion a year ($800 per family) in healthcare costs. This is far more than most estimates of the gains from NAFTA and other trade deals.
Presumably, the reason that free trade in highly paid professional services was not a topic in recent “free trade” deals is that these professions are extremely powerful politically. They would not allow an administration of either party to pursue trade deals that sharply lower their pay.
While unions of manufacturing workers also did not want trade deals that they correctly recognized as undermining their bargaining position, these unions did not have the political power of doctors and dentists. So, we got NAFTA and China’s entry into the WTO, both of which had a very negative effect on the wages of manufacturing workers and led to the loss of millions of manufacturing jobs.
In fact, the story is even worse. While these trade deals were putting manufacturing workers in direct competition with low-paid workers in the developing world, they also increased protectionism in the form of stronger and longer patent and copyright protection. Proponents of these trade deals turned reality on its head and dubbed these government-granted monopolies “free trade.”
It again speaks to the differential power of the beneficiaries of these monopolies and manufacturing workers that they actually got this clear falsehood accepted in public debate. It is reasonable to argue for patents and copyrights as policies to promote innovation and creative work, but liking these policies does not make them free trade. And there is a huge amount of money at stake, with the difference between patent protected prices and free market prices costing us in the neighborhood of $500 billion a year ($4,000 a family) in the case of pharmaceuticals alone.
In short, working-class people not only got screwed by the trade policies associated with Democratic presidents, but they also had to listen to elite types lie about the nature of the policies. The lying went deep.
For example in the case of NAFTA, not only did the media largely minimize the impact on workers here, it also fabricated stories about a post-NAFTA boom in Mexico, implying workers here were being selfish if they didn’t want to see much poorer workers in Mexico prosper. The Washington Post, a strong NAFTA supporter, stood out in this respect running periodic pieces touting the growth of a post-NAFTA middle-class in Mexico. It even invented data to push the case; in 2007, it had an editorial claiming that Mexico’s GDP had quadrupled since 1988. The actual increase was 86 percent.
In fact, now that we have 30 years to look back, we can see that the promised convergence between the US and Mexico did not take place. Between 1994 and 2024 per capita income in the United States rose by 63.9 percent. In Mexico, it rose by just 20.3 percent. Rather than having moved closer together, the gap between income in the United States and Mexico grew enormously in the post-NAFTA period. There are surely many factors that contributed to the differences in growth rates, but obviously NAFTA did not bring about the promised convergence. (The World Bank got into the act as well, pushing a bogus study arguing the case for convergence.)
Trade was not the only area where elites pushed lies that advanced their economic interests at the expense of the working class. The story on partially deregulating and bailing out the financial industry was very similar.
In 2008 and 2009, when most of the country’s major financial institutions faced bankruptcy, very few people in policy positions were advocating leaving things to the market. Instead, they pushed the lie that letting the major banks fail would lead to a Second Great Depression.
This was completely untrue. While an extensive set of banking collapses surely would have worsened the recession, we had in place the tools needed to prevent anything like another Great Depression. Most immediately, we now have deposit insurance that would have allowed the overwhelming majority of people to get the full amount from their deposits, even if their bank failed. This would limit the immediate damage.
We also learned the secret for getting out of a depression. It’s called “spending money.” In the first Great Depression it was the spending associated with World War II in 1941 that finally lifted us out of the depression in 1941. However, if we had undertaken similarly large-scale spending on domestic needs in 1931, we could have avoided a decade of double-digit unemployment. The same would have been true in 2008-09, if we decided to let the market work its magic.
The benefit of going that route is that it would have radically downsized the financial sector. This would both made it more efficient and also eliminated a major source of inequality in the economy, since many of the country’s largest fortunes come from the financial sector.
Here also the Democrats’ fingerprints were everywhere. The first bailout took place under Bush, but the regime of bailouts continued under Obama. This was a clear case where the Democrats were not prepared to leave things to the market, but rather insisted on putting a very big thumb on the scale to benefit the rich at the expense of everyone else.
Short Story: The Masses Have a Very Good Case
While the NY Times piece might leave readers with the impression that working-class disaffection with the Democrats is the result of a misunderstanding, in fact the party’s leaders did pursue policies that benefited the elites at the expense of people with less education. They also used their power in the media and other institutions to cover up the class interests in these policies. The working-class has a pretty good case.
The one point the Democrats can make in their favor is that the Republicans are even worse. They will give even more money to the pharmaceutical industry, the financial industry, and the tech bros. This will presumably become clear over the course of a second Trump administration, but that doesn’t change the fact that the working class had very real grounds for being unhappy with the Democrats.
The post Revising NYT History on Democrats Losing the Working Class appeared first on Center for Economic and Policy Research.
