Making labor less expensive helps firms hire people.

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history.

If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone - perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers' bottom lines.

If you think about it, candidate Obama, Sen. Obama, was running on sort of long-run economic issues, like restoring prosperity to the middle class, dealing with the perennial problem of health care in the United States. He talked a lot about the budget deficit, about the need to transition to clean energy.

If you look at the studies coming out of the Congressional Budget Office, the number one thing that's going to blow a hole in the deficit as we go forward 20, 30 years is government spending on healthcare.

Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving.

Our estimates suggest that a tax increase of 1 percent of GDP reduces output over the next three years by nearly 3 percent. The effect is highly significant.