Hot Air Over Trump's Carrier Deal

Nobody seems sure of what president-elect Donald Trump told Carrier Corporation that made the air conditioning manufacturer reverse its plans to transfer 1,000 jobs from Indiana to Mexico.

But whether Trump threatened the company with something, or offered them something, Carrier has taken a public about-face and agreed to keep those jobs in the United States.  So far, all we know is that the company will get about $7 million in incentives from the state of Indiana, ostensibly as a gift for staying put, but that money will be spread out over a decade.  So for an employer the size of Carrier, it hardly seems like a valid financial tradeoff.

Still, Trump has spent the day today exulting in this grand - albeit token - demonstration of his business acumen.  After all, as he keeps telling us, he's a billionaire, which must mean that he's a savvy businessman.  And yes, he's made (and lost) a lot of money developing real estate all over the world.  But does that necessarily translate into Trump being an economics wizard?

The reason Carrier was going to shift those 1,000 jobs to Mexico was - and remains - a simple one.  Mexican workers cost far less than American ones.  That's been the main reason why our country has hemorrhaged so many manufacturing jobs over the past several decades:  Foreign workers cost American companies pennies on the dollar, compared with Americans doing the same jobs.

It's a dilemma that has stumped not only American workers, but middle class employees living in every post-industrialized country, from Germany to Japan.  And it's a dilemma that has confounded the brightest economists, who can't agree on how - or even if - we can generate new jobs for Western workers at pay rates Western workers want.  With the specter of robotization looming on the not-too-distant horizon, the chances of rebuilding our manufacturing payrolls seem bleak at best, at least in terms of jobs that can't be done in emerging-economy countries.

But Trump won the presidency based in large part on his promises of "making America great again" by bringing jobs back from overseas.  This small victory with Carrier provides Trump with a patriotic photo-op, and a chance to look super-presidential, but how many similar jobs can be similarly saved in significant enough numbers to make Trump look like he's keeping his promise?

The reason companies fire Americans and transfer work to cheap-labor countries isn't because American employers enjoy putting fellow Americans out of work.  The reason has nothing to do with emotions, or frustration over unrealistic workers unions, or a desire to raise the standard of living for people half a world away.  The reason is all about a company's profit margin.

Wall Street wants companies to grow their profits any way they can.  And lowering a company's overhead is a relatively easy way to do that.  It's not complex economics, or new math, or bizarre logic.  It's simply capitalism exploiting some of its baser, less beneficent characteristics.  

Of course, while many Americans have gone through economic turmoil over the years as their good-paying manufacturing jobs have been shifted overseas, many other Americans have benefited financially from all the offshoring.  The rise of 401(k) retirement accounts proves it.  In order to maximize returns on the stock market, a company shedding expensive workers creates wealth for investors, and many of those investors are white-collar middle class American workers who need a robust 401(k) account to fund their retirement.

So isn't this a sticky quandary we've made for ourselves?  If you think about it, aren't our 401(k)'s (I don't have one, BTW) actually working against us?  At least in terms of retaining current American jobs, and creating new ones for American workers?

American retirees benefit from when companies in their 401(k) portfolio fire workers and downsize their staffing, and the hope is that somehow, somewhere, those newly-jobless fellow Americans find some sort of employment... eventually.  But your financial advisor doesn't tell you about all the people who might have to lose their jobs to sustain the growth of your retirement account.

Indeed, Wall Street makes out like a bandit, forcing companies into an incessant downward spiral of cost-cutting to generate an upward spiral of profits.  Meanwhile, aren't these opposing spirals also creating a vicious circle that ultimately pits average American workers against each other?  Who's the only real winner here?  Isn't it mostly Wall Street?  Might this be one of the reasons we're experiencing such a dramatic economic gap between the classes?  Might the middle class as a whole not really be winning anything, because Wall Street is making money while we're being forced to play fruit basket turnover?

Maybe, maybe not.  Nevertheless, if pay scales were more robust for Americans, and people earned bigger salaries, they'd likely be able to invest in more traditional ways, and save more (what a concept) for their retirement.  Of course, the notion of higher pay brings with it the likelihood that our cost of living would also rise, since people ostensibly would have more to spend on, say, even bigger homes, even more expensive vehicles, and all the other ways people have to spend money.  It's probably not impossible for most Americans to save money these days, but it sure isn't a popular idea, since we tend to base so much of our identity on where we live, what we drive, where we dine, and what we wear.

Back on Wall Street, however, doesn't it seem clear that our employment and benefits system is actually sabotaging itself?  To make things even more frustrating, it's not like any significant change in how retirements are funded could be implemented anytime soon, since today's workers need some sort of financial vehicle to make up for what they're not earning in their pay packets.  And 401(k)'s - for better or worse, for richer or poorer - are the most widely relied-upon financial vehicle they've got.

Not that Trump is perturbed by any of this.  For one thing, his investments rely heavily on real estate, which traditionally has proven to be an incredibly reliable wealth generator.  But for the rest of us, who can't afford to purchase a $1 billion Manhattan office tower, the game we're forced to play at the hands of companies like Carrier is the only game in town.