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In our textbook, Modern Principles, Tyler and I emphasize that Congress and the President are subject to a higher law, the law of supply and demand. In an excellent column, Jason Furman gives a clear example of how difficult it is to fight the law of inelastic demand:
…Today a given number of autoworkers can make, according to my calculations, three times as many cars in a year as they could 50 years ago.
The problem is that consumers do not want three times as many cars. Even as people get richer, they increase their spending on manufactured goods only modestly, preferring instead to spend more on services like travel, health care and dining out. There are only so many cars a family can own, but that’s not the case for expensive vacations or fancy meals. As a result we have fewer people working in auto factories and more people working in luxury resorts and the like.
These forces — rising productivity but steady demand — explain why the United States was losing manufacturing job share as far back as the 1950s and 1960s, long before trade became a major factor.
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