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November 22, 2014

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The Policy Racket

Debate over creating jobs splits parties in Washington

Republicans and Democrats in the Senate are in a standoff this week over reauthorization of the Economic Development Administration, a fairly noncontroversial, 46-year-old office in the Commerce Department that invests in distressed urban and rural communities to preserve and create jobs.

Senators were similarly stuck last month over a bill to reauthorize small-business innovation grants, and a bill to refresh and expand the authority of the U.S. Patent Office the month before that. And a bill to reauthorize the Federal Aviation Administration the month before that.

Each piece of legislation has lingered in the Senate because of amendment-related squabbles for weeks, hostage to a political disagreement over creating jobs.

Democrats say these bills, which are stimulus spending measures designed to encourage private-sector buy-in and amounting to up to $7 in private capital for every dollar of investment, at least in the latest bill.

Republicans, who don’t oppose the measures outright but object to them as “spending” bills, are against passing any until Congress moves on long-languishing free trade agreements with Colombia, South Korea and Panama.

“Democrats don’t want to admit that the government-driven policies of the past 2 1/2 years are part of the problem. And until they do, nothing will change ... We need to change course, and a good place to start is with trade,” Senate GOP Leader Mitch McConnell said today. “At a time when 14 million Americans are looking for work, they actually want to hold off on these known job-creating agreements in exchange for a green light to spend more money.”

President Barack Obama agrees in principle with Republicans that free trade agreements are a good idea and will lead to the creation of tens of thousands of jobs. But neither the administration nor Senate Democrats support the strategy of holding off on every other domestic jobs investment program until the trade agreements are finalized.

Senate Majority Leader Harry Reid’s objections to advancing the free trade agreements before domestic programs cut even deeper than that.

“I’m not a big fan of free trade agreements,” Reid said today. “I think if you ask people in Nevada, boy, hasn’t NAFTA helped us a lot? Heh, they would just sneer and walk away.”

“We keep talking about free trade agreements, but where is the fair part of those trade agreements?” Reid said. Republicans “are more concerned about what jobs are being created in Colombia, or Panama, or Korea than what are being created here in America.”

When two countries conclude a free-trade agreement, it eliminates tariffs, quotas and any preferred-status restrictions placed on the traded goods traded. The system is designed to boost productivity in both countries. But that presumption isn’t perfect. Although free trade agreements usually boost wealth in participant countries, there’s no guarantee that wealth ends up being equally distributed across each country’s labor force; meaning sometimes, the availability of more import-tax-free goods from abroad can make the working class at home worse off.

Trade agreements with Colombia, Panama and South Korea were concluded between those countries’ heads of state and President George W. Bush from autumn 2006 to summer 2007, during a climate of economic calm that would be broken a few months later, when the U.S. economy began to falter. They’ve been awaiting Senate ratification since.

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