A country in transition: if America would only reject the notion of an economy dominated by government and return to a truly free market, liberty and prosperity could be near at hand.

Why are middle-class jobs vanishing in the United States? Everyone has pet theories to explain the nearly universal anxiety in the middle class about the economy and jobs. "Water cooler" analysis often points to such factors as Chinese imports, illegal immigrants, unions, or high taxes and regulations.

However, these factors are actually not causes, but effects. The reality is, America is in another transition, from a knowledge-based economy, to a more government-related one. Normally, free-market innovations are the impetus behind major structural changes in the economy, such as when we went from an agrarian to an industrial one. However, normal market forces have been distorted in this transition by government flat and government incentive. As a result, American families are paying a terrible price, as higher paying jobs have disappeared.

The term "government-related economy" does not imply that everyone works for the government, like in the former Soviet Union. While governments employ millions of persons directly, even more Americans work in government-related functions, such as law, activism, media, money management, war contracting, education, and research. Others occupy quasi-government administrative bodies, like conservation commissions, or regional transportation authorities.

Others are dependant on direct government handouts such as welfare, Social Security, Medicaid, housing, or pensions, with over half of American households getting some government payment. Almost 70 million adults do not work, and most of these are collecting government payments.

At one time, we had a more or less market-driven economy, with our political and legal systems somewhat restrained by our state and federal constitutions. The trend now is toward a government-related and controlled economy with business and government wed, and an authoritarian political system. Writer Joseph Sobran has quipped mordantly that the U.S. Constitution now poses no serious threat to our form of government.

Much good can come of economic change, bringing higher standards of living to ever more persons. However, rather than allowing change to create greater productivity and rising incomes, government has derailed the process with its interference. As a result, the productive class is decreasing in number, but the government-related dependent and regulated class is growing.

Springfield, Mass.--A Case Study

Let's look at the plight of a typical medium-sized American city, which illustrates where we were and where we are going. Welcome to Springfield, Massachusetts, located about 90 miles west of Boston, home to about 152,000 souls.

Springfield was founded in 1636 by a settler from the Massachusetts Bay Colony, William Pynchon. Located in the Connecticut River valley, it was a successful farming community that moved into the industrial era with vigor. The first gasoline-powered car was manufactured in Springfield, followed by many other auto and trolley manufacturers. Legendary Springfield Rifles and Smith & Wesson arms were produced here. Milton Bradley, Indian Motorcycles, Westinghouse, American Bosch, Chapman Valve, Craftsman tools, Diamond Match, and other household names had plants here. So much money was around that hundreds of large Victorian homes were built, giving rise to the moniker the "City of Homes." But it didn't last.

Today, Springfield is virtually in receivership, under control of a state finance control board, despite a city budget of nearly half a billion dollars per year.

Most of the factories are gone. The magnificent Victorians, which would cost a million or more to build today, sell for a fraction of that. Ghettos have replaced working-class housing areas. Crime has soared. The criminal court in Springfield is the busiest one in Massachusetts. City politicians, with snouts permanently in the public trough, have looted the city's treasury. The government schools turn out functional illiterates at a yearly cost of $14,000 per pupil.

Few manufacturing jobs remain in Springfield, and a large percentage of the population is on some form of government assistance. Instead of making things, people work as therapists, social workers, criminal-justice professionals, jailers, facilitators, activists, lawyers.

How Did Things Get So Bad?

What caused this decline in Springfield, and the other "Springfields" around the country? Governments are supposed to create conditions of liberty that allow manufacturing to thrive, but ours have done exactly the opposite in recent times: they overtax and regulate, ensuring that jobs move to lower-cost locations, here or overseas. They erect barriers to entry into the marketplace, by colluding with favored corporations to exclude competitors. They buy goods from connected suppliers, based on politically correct ethnicity or bribery. They favor some workers in certain industries with mandatory high wages. They dilute the workforce by paying people not to work, replacing skilled workers with an entitlement culture. And, of course, they pay themselves handsomely for a job well done.

When the job market undergoes serious change, panicked worker advocates usually apply pressure to powerful government figures to prop up the status quo. When government intervenes on behalf of a particular product or industry, a few individuals benefit in the short run, but opportunities are destroyed for many more in the long run. Just imagine, for instance, if the government had tried to protect buggy-whip manufacturers against the advent of the automobile at the beginning of the 20th century! Such intervention is politically popular, of course, but economically disastrous.

In the face of these government-induced problems, many businesses fold or move away to survive. Frank Chodorov, a journalist of the "old right," described the government class perfectly:

   Today, the government agent holds his head higher than do those who
   furnish him his keep--he is the government while they are only the
   people--and is held in esteem by the very ones he dominates. He is,
   of course, a non-producer, but in the present ethos that
   circumstance does not degrade him, either in his own eyes or that
   of society; indeed, the producer holds an inferior position in
   life than does the government official. The government official is
   the law.

Will the jobs ever come back? Maybe, if government reversed its anti-market policies so that our talented populace could again work in productive endeavors. While the working class is suffering dreadfully, the government-related class is not. Thus, its beneficiaries are not inclined to detach their parasitic tentacles so that the economy can work again.

Is Economic Change Good or Bad?

Economic change can bring spectacular advances in productivity, that reward most citizens with more wealth, health, and a better life. Some workers resent change, since it is painful to be displaced. In a major economic shift, existing workers must be willing to adapt to different jobs skills, a process which causes many families economic distress. Is the pain worth the gain?

The transformation of the telephone and communication industry (telecom) is a good example of such an economic shift. Advances in technology, marketplace changes, and government control have radically altered the entire industry in relatively few years.

The experience of Nancy G. is typical. She was a directory assistance operator for 22 years at New England Telephone, now absorbed into Verizon. After the AT&T telephone monopoly was broken up by judicial order in 1984, things changed for Nancy. The Bell companies started competing in the market, and shed many long-time workers. Computerization reduced the need for operators, who were paid above-market union wages and benefits.

The Bells downsized by offering early-retirement packages and by new onerous job requirements that made staying more painful than leaving. Hundreds of Nancy's colleagues traveled over an hour to work each day to keep their jobs. Others were hounded out by added duties and newly strict discipline. Three feet of snow outside? Show up on time, anyway. Many employees were redesignated as "temps," and rehired with lower pay and fewer benefits.

As work stress mounted, Nancy took a retirement/buyout package, and started over in a government-related field, like so many others. Were the changes which led to Nancy's retirement good or bad?

Thousands of high-wage jobs have been eliminated forever in the former Bell companies. Lucent Technologies stock, formerly Bell Labs, plummeted to 5 percent of its former value. Most new telecom equipment is made in Asia by low-cost suppliers at commodity prices. Computers now do much of the manual work.

By contrast, long distance phone service is now a fraction of its former cost, and we have innovations such as cellphones, Internet service, video conferencing, and GPS systems. These have vastly increased the efficiency of every American business, as well as the convenience of families, for substantially less money. Whole new industries have arisen to provide new products and services, with the remnants of the old Bells retaining only part of it.

These trends also affect other businesses. For example, Internet news delivery is ascending, while newspaper circulation is shrinking rapidly.

Of course, government has had a big role in this transition, with the courts, Congress, and the FCC oligarchs all working at cross purposes.

What is better for America: Ma Bell's security, stability, and high wages? Or the new efficient, higher quality lower-cost telecom services with fewer employees? Or, perhaps, we should have taken a different path altogether and let the market operate as freely as possible.

Despite being hobbled by taxes and regulation, the market continues to operate, although in a less efficient form than its potential. Despite everything, American ingenuity keeps advancing productivity, which has increased by 25 percent in just the last five years. This means that fewer people are needed to produce more goods, leading to the problem of job losses. However, because unit costs go down, more persons can afford to buy more products.

Wrongheaded Policies Hobble Market

Specifically, what's to blame? Blaming one factor like "the Chinese," taxes, or gas prices fails to account for the complexity of our economy and its natural changes over time, technology advances, money-supply manipulation, government regulations, foreign politics, our ambitions to empire, financing of foreign competitors, and other factors. Government action looms large in many of these changes, which subverts their natural metamorphoses. Without its heavy hand, there would be far fewer negative consequences because of these changes.

Japanese auto makers are a good study. They have built 11 monstrous new auto plants in the United States, while our native auto companies have closed dozens of theirs. Workers in Japanese auto plants in America get good wages, but there is still an incredible $30 per hour wage/benefit gap between Japanese and American auto labor in American plants, almost all of it traceable to some government intervention. These are all American workers, so there is no issue of Chinese influence to account for the difference.

Doesn't the influx of imported Chinese goods change America's economy and destroy families, altering the very fabric of society? Yes. And no. Certainly many jobs are gone forever due to Chinese imports, but other factors are also at work. The government deepens the losses by funding foreign competitors, manipulating the money supply, and providing favors for connected importers. Imports are not all negative for the job market. Many jobs are created by trade, in shipping, transportation, dock handling, retail, and in industries that can now obtain lower cost parts for manufacturing and exporting.

Government mandates add about five dollars per hour to already high U.S. labor rates, putting us at a 31.7 percent labor-rate disadvantage compared to our closest trading partners, according to a September 2006 report from the National Association of Manufacturers. That group reports that the wage cost to produce one dollar of output in the U.S.A. is 47 cents, in contrast with Mexico at 18 cents, and China at 13 cents.

We are also losing many strong working families to divorce, a cost which is rarely tabulated in statistics. Few have considered the productivity reduction of so many broken families, including legal fees, missed work days, more wayward or maladjusted children, and the explosion of mental-health problems which follow.

Our government continues to entangle itself in the affairs of other nations, including nation building and war, which diverts our productivity to military uses that have little general economic benefit. Currently, one-third of a million troops are deployed in 134 countries in 1,000 locations.

The newest threat to economic stability is uncontrolled illegal immigration, with government allowing it to continue virtually unopposed. Illegal workers in the underground economy put downward pressure on wages, since they are not subject to the costly taxes and mandates imposed on the regulated economy.

Yet while manufacturing shrinks, some business sectors are expanding to meet government "needs." Healthcare, education, and research are burgeoning because the bulk of their funding is now from the government. Additionally, armies of social workers, therapists, court workers, police, lawyers, corrections officers, planners, and other "private" businesses labor to keep the creaking machinery of a broken culture from tearing apart, but at great financial cost.

The Way Back

Middle-class people once had an expectation that jobs would "be there" in manufacturing. Because of the changes in the economy discussed above, that dream is being crushed.

What would restore American economic might? The five-dollar-per-hour competitive disadvantage in our manufacturing can be recovered by measures like lowering taxes, eliminating government healthcare inflation, converting defined benefit pensions to a contribution system, easing absurd regulations, and getting control of the tort litigation system. Those reforms would result in millions of new manufacturing jobs being created. Ending our endless foreign military deployments and wars would open markets for our goods and reduce the astronomical cost of standing armies and their armaments.

The "underground economy" now provides drugs, construction, lawn care, domestic services, and other items that people want. If government eased taxes and regulations on the "above-ground economy," it could provide the same goods and services competitively. When Ireland did this, its economy began to boom as capital poured in, underground workers went legit, and jobs were created.

The current global-trade regime, as managed and regulated by the UN's World Trade Organization (WTO), NAFTA, and their progeny, favors politically connected elites and is stacked against America's middle class and entrepreneurs and working people everywhere.

The Price of Survival

To survive today, it seems like the average family needs to have three jobs, or have no jobs and be on the dole. More people are now choosing handouts as a shortcut to survival and prosperity. Until our lawmakers allow a truly free market for manufacturing and trade, the economy will continue to devolve into one dominated by government and its adherents. Liberty and prosperity could be near at hand, if we would only reject the notion of a government-related economy.

by Gregory A. Hession, J.D.

Gregory A. Hession practices constitutional & family law in Springfield, Massachusetts.