Bad economics, smart politics

0:01NPR.

0:11This is The Indicator from Planet Money. I'm Waylon Wong. And I'm Paddy Hirsch. There is a big fight going on in Pennsylvania right now about the future of U.S. steel, which recently agreed to sell itself to a Japanese firm called Nippon Steel for$15 billion. And the fight has arranged itself in an interesting way. Not left against right the way it might have a decade ago, but economists against politicians. Economists are for it. They say the deal will save jobs. Politicians oppose the deal on the grounds that American manufacturers should stay American. But there are loads of American companies that are owned by foreigners, right?

0:46Like Firestone. Japanese. Anheuser-Busch. Belgian-Brazilian. And Ben & Jerry's, the iconic ice cream company, is owned by the Brits. I'm going to throw it into the ocean. Not as long as it's not pistachio. So why the resistance to foreign ownership now? Well, here's the thing. U.S. Steel is based in Pennsylvania. And Pennsylvania is a so-called battleground state, one of the very few in the nation that is hotly contested. in this upcoming presidential election. Which raises the question, is the opposition to the U.S. Steel Deal really about economics and jobs and national security? Or is it about politics and perception, trying to win precious votes at any cost?

1:28On today's episode, we'll look at how politics can often distort economics and find out whether that's what's happening in Pennsylvania and some other battleground states right now. That's coming up after the break. This message comes from Vanguard. Capturing value in the bond market is not easy. That's why Vanguard offers a suite of over 80 institutional quality bond funds, actively managed by a 200-person global team of sector specialists, analysts, and traders. They're designed for financial advisors looking to give their clients consistent results year in and year out. See the record at Vanguard.com slash audio.

2:08That's Vanguard.com slash audio. All investing is subject to risk. Vanguard Marketing Corporation Distributor. Support for NPR and the following message come from Edward Jones. A rich life isn't always a straight line. Unexpected turns can bring new possibilities. With 100 years of experience navigating ups and downs, Edward Jones can help guide you. Let's find your rich together. Edward Jones, member SIPC. It is the economy, stupid. This is a phrase used by James Carville, a Clinton political advisor, in the 1992 elections. It was true then, and it seems to be true today. The economy is the top issue for voters in this election.

2:51But what does the economy actually mean? Michael Strain is a director of economic policy studies at the American Enterprise Institute. That's a think tank that you might say leans gently to the right. Mike says that when it comes to the U.S. steel deal in Pennsylvania and the opposition to it from both presidential candidates, the economy doesn't necessarily mean good economics. The idea that we should be troubled by foreign investment in the United States is completely backwards. Foreign investment is a good thing and is a very important source of productivity growth and wage growth for workers.

3:34It helps to make American companies more competitive. And before you say to yourself, well, he's one of those business-friendly conservatives, here's Betsy Stevenson, former chief economist in the Department of Labor under the Obama administration. We should welcome getting savings from Japanese consumers coming in and helping Japanese companies invest in U.S. jobs. That's the dream, right? Having outside investment support a growing U.S. economy. So while economists of all political leanings pretty much agree that the U.S. steel deal with Nippon steel should go ahead, politicians of all political leanings, or the ones that matter at least, say it should not.

4:17Yes, former President Trump opposes the deal. So does President Biden and Vice President Harris. They're worried about a potential threat to around 14 ,000 North American jobs. And the steel union agrees it doesn't trust Nippon steel to keep those workers employed. Mike Strain points out that without a deal, U.S. Steel could go under. He says not only has Nippon Steel offered to pay$15 billion for U.S. Steel. In cash. My goodness. It has also pledged a further$1.4 billion to refurbish U.S. Steel's aging facilities. That will protect those jobs, he says, and potentially even create more. The deal doesn't close any manufacturing facilities and move them to Japan.

4:58And the deal keeps everything in the United States. Moreover, the deal would strengthen America's steel producing capacity. The rules of orthodox economics then dictate that the U.S. steel-Nippon steel deal should go ahead. But of course, the two candidates in the presidential race aren't focused on orthodox economics in Pennsylvania. They're focused on politics, on winning the votes of Pennsylvanians. Betsy says that is an entirely different kettle of fish. everybody's fighting over a very small number of marginal voters that you have to get them to deeply believe you're on their side and you're trying to make it right for them i think that that's the way in which politics is hijacking economics leading for people to argue for the kind of populist policies that make economists want to claw their eyes out because they seem Like, they don't make any sense.

5:56It's not just in Pennsylvania that economics have been hijacked. It's Michigan, Wisconsin, North Carolina, all battleground states that have become crucibles of debate about the future of manufacturing in the U.S. And manufacturing, of course, used to be a big employer in the U.S., one of the biggest even. But, Betsy says, that hasn't been the case for a long time. Today, it's a mere 8 % of U.S. jobs. And I think that's really hard for people who grew up and were young adults at a time when the middle class really depended on a strong manufacturing sector. That voter nostalgia has driven both Harris and Trump to focus on the revival of manufacturing in their campaigns.

6:43Mike Strain says that populist impulse is making for some questionable economic calls. We're seeing a lot of silly and harmful ideas, what seems to be a willingness to continue policies from the Trump and Biden administrations, where we have demonstrable evidence of harm to American workers into the U.S. economy. Mike is talking here about protectionism, tariffs, subsidies. Protectionism is designed to shield American industry from foreign competition, maybe even to keep America self-sufficient, which may sound like a good idea in principle. But Mike argues that history has shown that protectionism, taken to an extreme, comes with a sting in its tail.

7:23If you are arguing that the U.S. should be self-sufficient, then you are arguing that American workers should be less productive, that American workers should have lower wages, that American households should have lower income, and that America's long-term economic future should be quite dim. The most recent round of protectionism, mainly aimed at protecting U.S. industry from Chinese competition, was ushered in by the Trump administration. And it's been maintained by President Biden since. But protectionism is not a new thing, nor is it the province of any one political party, as loyal indicator listeners know.

8:05In this presidential campaign, the distortion of economics by populist politics is a feature of both parties' platforms in the battleground states. But it's not confined to those states. Betsy Stevenson says the remarkable thing about the stances taken by both the Harris and the Trump campaigns is that they're so consistent in their messaging across the U.S. and so similar to each other in content. This protectionism is the same on both sides of the aisle. Yeah, both candidates essentially agree that protectionism is good. And in the case of U.S. Steel, that foreign ownership is bad. Even if that investment comes from an ally, bails a U.S.

8:43company out, shores up the American steel industry and saves American jobs. Betsy says that protectionist message may fly in the face of good economic practice, but it resonates with a significant chunk of the American population, whatever state they live in, because they feel the economy hasn't necessarily been good to them for a while now. It feels like the system is rigged, that somehow you don't have a fair shot. You know, it's like a deep-seated notion of unfairness that I think a lot of people feel deep in their bones and how they're reacting to that unfairness is different. But it's causing everybody to feel like I need to keep more for myself.

9:23That's protectionism. More for me. Betsy says, and Mike Strain agrees, the distortion of economics by populist and protectionist politics hasn't been manufactured by this campaign. It's been a long time coming. Nor is the distortion confined to the battleground states. They just happen to be where the spotlight is shining right now and where we can see exactly how these policies are playing out.

9:50This episode was produced by Cooper Katz-McKim with engineering by Patrick Murray. It was fact-checked by Sierra Juarez. Kate King Cannon edits the show and the Indicator is a production of NPR. This message comes from PACA. Everyone's got that one hoodie they practically live in. But the Paka hoodie? It's on another level. Softer than cashmere, warmer than wool, and still breathable, this alpaca fiber hoodie goes from airport to mountain trail to couch without missing a beat. And right now, for a limited time, you'll get 30 % off when you purchase three or more items during their Black Friday Cyber Monday sale.

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