portant, if overlooked, aspects of the globalrneconomy. FPE rests on the idea thatrnsupply and demand eventually equalizernproduction factors such as capital and laborrnbetween nations by combining themrninto one market. Wage rates for steelworkersrnin capital-intensive nations likernthe United States are bid down by thernmarket, while rates for those in labor-intensivernnations in emerging economiesrnare bid up over time. One does not havernto be a Keynesian or a Marxist to believernin FPE; the concept is accepted amongrnfree-market economists, including membersrnof the Austrian School.rnThe United Steelworkers of Americarn(USWA) are focusing orr legal, not economicrnarguments, in challenging NAFTA.rnIn July 1998, the union and thernMade in the USA Foundation filed suitrnin U.S. District Court in Birmingham,rnAlabama, challenging NAFTA’s constitutionalityrnon the grounds that it was notrnadopted in conformity with Article II,rnSechon 2 of the U.S. Constitution. ThernFovmders declared that the executive hasrnthe power to make treaties, provided twothirdsrnof the senators present concur.rnNAFTA passed in the Senate by a 61 torn35 vote, thus falling short of the twothirdsrnrequirement. The U.S. government’srnresponse has been to argue thatrnNAFTA is “a nonjusticiable politicalrnquestion.” Furthermore, the governmentrnmaintains, the steelworkers, amongrnthem veterans of World War II, Korea,rnVietnam, and other conflicts, “lack standing”rnto sue. According to the U.S. Departmentrnof Labor, more than 215,000rnU.S. workers have lost their jobs due tornNAFTA, including thousands atrnMcLouth Steel when it finally went imderrnseveral years ago. The Orange Sky atrnMidnight is no more.rnToday, the steelworkers hanging onrnDownriver at Great Lakes Steel (ownedrnby National Steel of Mishawaka, Indiana)rnor other firms in the area facernanother economic phenomenon oncernconsidered highly unlikely: deflation.rnMacroeconomic events in remote outpostsrnof the global economy, such asrnThailand (summer 1997) and Russiarn(August 1998), have contributed tornfalling prices in commodity-based industriesrnlike steel. This development is goodrnfor consumers, but it forces firms to increasernproductivity even more to stayrnahead of falling prices. In the post-WorldrnWar II era, large firms such as U.S. Steelrnor General Motors routinely passed onrnprice increases to consimiers and wagernincreases to workers; they were operatingrnin an inflationary price structure. Today,rnthese same firms are forced to increasernproductivity or downsize in response torndeflation. The U.S. high-tech sector, to arngreat extent, has been operating in a deflationaryrnpricing structure for most ofrnthis generation. Moore’s Law, at the centerrnof Silicon Valley’s product cycles,rnholds that productivity doubles nearly everyrn18 months due to technological advances.rnFirst steel and now auto are beingrndragged into a deflationary pricernstructure, although productivity gainsrnlike those in the high-tech sector are unrealistic.rnUnskilled, nonproductive jobsrnwill continue to be eliminated in areasrnlike Downriver.rnMany economists are still trying tornmake sense of these developments. Considerrna recent publication of the FederalrnReserve Bank of Chicago, which irotes:rnSeveral manufacturing industriesrnin the Midwest faced great challengesrnduring 1998 . . . Foreignrnsteel producers sharply increasedrntheir exports, doubling the U.S.rnmarket share held by foreign steelrnfrom 20 to 40 percent. This steelrn”dumping” caused severe cutbacksrnand layoffs among domestic steelrnproducers and pushed several smallrnfirms into bankruptcy.rnElsewhere, the report observes;rnIn southern Illinois, at least sixrnfirms in the steel industry laid off arnsignificant number of workers inrnthe third and fourth quarters ofrn1998. With a continuing build-uprnof demand for labor in other partsrnof the state, the laid-off workersrnmust decide whether it is worthrnmoving or commuting great distancesrnin order to obtain employment.rnUnfortunately, the workers and theirrnfamilies do not have “the option of deciding”rnwhether to eat. “It is not yet clear,”rnthe Chicago Fed Letter notes, “how thisrndynamic will play out.” Other facts citedrnin the report give some indication:rnThe problems facing the steel industryrnaffect Indiana more than anyrnother state in the region, since Indianarnproduces roughly 25 percent ofrnall the steel produced in the U.S.rnThe state has been struggling tornmaintain its relative economic positionrnover the past 20 years.rnAs has Michigan, where a governmentrneconomist ignores steel but observes:rnManufacturing employment hasrnbeen losing its share of total employmentrnin the state over thernyears. In 1969, manufacturing jobsrnrepresented a third of all workers,rnin 1977 it had fallen to 28 percent,rnand in 1997 it reached 19 percentrnAt one point in recent history, steel wasrnequated with the U.S. manufacturingrnbase. Not so anymore, as the process ofrnglobalization continues to unfold. In arn1998 speech at Notre Dame, USWArnPresident George Becker said:rnEven National Steel, which isrnheadquartered a few miles fromrnhere in Mishawaka, isn’t so national.rnFor some time, the majorityrnowner of National Steel has beenrnNippon Steel, a Japanese steel firm.rnAs the U.S. manufacturing base continuesrnto decline, middle-class jobs and arnway of life disappear for low-skill workers.rnOn a recent trip Downriver, I ran into arnclassmate from junior high. A highschoolrngraduate, now nearly 40 years old,rnhe operates a cash register at a conveniencernstore.rnGreg Kaza is a former Michigan staternrepresentative.rnLetter From Apuliarnby Andrei NavrozovrnAt the End of ItalyrnI am writing this from a cottage near SantarnMaria di Leuca, on the southernmostrntip of Italy in the Adriatic. As the luggage,rnincluding my maps and guidebooks, onlyrnarrived yesterday, I cannot really be expectedrnto say anything worth believingrnabout the land or the people. As for therncurious inner workings of the local airport,rnsome 50 miles away in Brindisi,rnthese are best left to the reader’s imagina-rnOCTOBER 1999/35rnrnrn