Replayed October 27.
Replayed Feb. 13th 2011.
Replayed March 24th 2012.
Replayed June 7th 2012
Note (3/25/2012): The “comparative advantage ” argument is important to the discussion below. The concept of comparative advantage stumps many intelligent people including some of my former academic colleagues I could name (but won’t). It’s a central concept if you want to understand globalization. I have on this blog nine consecutive essays dealing slowly and in detail with the issues of comparative advantage and of its implications. The relevant essays are easy to find because each has the word “protectionism” in its title.
I had a troubling encounter in the past few days. It was on Facebook and it was with a stranger. Here is how it went: I patronize several organizations’ and people’s Facebook pages, to stay informed and also to learn from them. There is a man, X, who is my Facebook “friend” and whose page I like because he is a libertarian, or a libertarian conservative like me, who knows useful things I don’t know. X has a talent for firing up debates on Facebook. In one debate a propos of I don’t remember what, one person, followed by several others, kept referring to the de-industrialization of America, its putative loss of manufacturing industries specifically.
I intervened calmly and politely to point out that there was no such thing. I remarked that the height of American industrial production was either 2008 or 2007, or maybe even 2006, not 1950 as they seemed to believe. I directed the debate participants to a couple of government sources. One woman responded almost insultingly, alleging that I was trying to send her on a wild goose chase. She appeared to think that I was referring her to the whole Census with its thousands of pages of documents. I took the trouble – obligingly, if I say so myself – to direct her through Facebook to a source I though was easy to read, NationMaster. In addition I summarized what NationMaster had to say on the topic.
Here is the summary:
The total value of the production of American manufacturing keeps going up except for small annual variations.
The woman on Facebook answered with vulgar statements including: “… just poop off,” “I don’t do stupid.” The vulgarity is not what troubles me, obviously. (I am a married man, I have heard worse and much more personal, including regarding the sexual proclivities of my forebears.) What disturbs me is her demonstration of furious obduracy. The woman felt so much out of her depth that she could not even begin to consider the possibility that my statement was correct, or at least, arresting enough to be worth looking into.
These tiny events struck me as a dramatic demonstration of the failure of our educational system. First, let me grant that it’s possible that the woman is not a college graduate, not even perhaps a high-school graduate. I can’t tell because her Facebook profile is masked and because, well, in general, I can’t tell. Her faulty grammar leads me to suppose she is not well educated. Her active interest in politics, as evidenced by her participation in political debate on Facebook, argues against her being very young. I am sure she is not an immigrant. (Don’t ask; it takes one to tell one.) I think she is a normal person with above-average capacity for self-expression. As such, she must have had some schooling.
I had already blogged on de-industrialization, by the way, on August 15th 2009, “The De-Industrialization of the US: A String of Enlightening Fallacies; Essay On International Economics in Plain English.”
Let’s see what I think underlies her obduracy, her close-mindedness.
First, a confession: Finding and putting together figures on the simple topic of American industrial production over recent years is not easy. It may take an untrained person several hours. I blame the laziness of the specialized press for accrediting – passively – the false myth of American de-industrialization. I blame my Facebook correspondent for not paying attention when someone gives counterintuitive information that is both important if it’s correct, and verifiable. The fact that is is verifiable is an assurance of good faith. The fact that the announcer’s credentials are all over the Internet- as mine are – is another assurance of good faith and, possibly, of competence.
I blame the schools for three things:
1 Not instilling in people the idea that beliefs not backed by facts are worthless or dangerous because they lead to bad policies;
2 Not giving regular people the tools required to work through complex issues whose components are themselves simple. Craftsmen with a primary school education used to know how to do this not so long ago, as with the problem of long-sawing an irregular tree trunk into well-shaped boards.
3 Failing to give ordinary people an understanding of simple quantities used daily in ordinary life.
Here we go:
It’s true that many manufactured objects ordinary Americans purchase used to be made in this country and are now made somewhere else. That would be true for most tools, nearly all batteries, and almost all clothing, for example.
Nevertheless, the value of American manufacturing went up about 4.5 times (four and a half times) between 1963 and 2007. (Nothing magical about these two dates, they are just a convenience. Any other two dates more than five years apart would give you a similar picture.) Incredible as it sounds, the value of American manufacturing production even went up a tad between between 2007 and 2008. I would not be surprised if it went down between 2008 and today. (Those figures are not readily available yet.) This small, short-term event would not speak to the issue of a trend of massive de-industrialization I am addressing now anyway. (Ask for the technical appendix for sources and for my treatment of the information I found there.)
The two facts above are not incompatible. In reality, they are predictably linked. That’s the way it would be in a good, productive, capitalist world: Americans are doing more of what they do well. Others are doing more of what they do well. Everyone ends up richer. Others have more money to buy what we still make. We have more money to buy what others now make.
We are all richer for two simple and connected reasons:
If I stop doing what I am doing badly (not so well, or frankly horribly) and I focus on what I do well, I will be more productive. I will earn more, as a result. If others do the same, we will all be more productive that is, richer.
Note that this happens even if greater specialization does not result in improvement of the quality of one’s performance. That will probably take place too, providing additional benefits
By and large producers in other countries have also specialized in what they did well. They have more money than before to buy whatever we make. That would be true if we made only one item, as long as others made all the things we and others need (clothing, batteries, tools).
But, US employment in manufacturing has been declining for many years. That is true and in no way incompatible with bigger production. American manufacturing keeps improving its productivity. (Productivity is the average value of production per worker, in this essay. There are other kinds. They are all rising.) Manufacturing is doing exactly what American agriculture did before. (Overall, American manufacturing probably has the highest productivity in the world. If it does not, it’s very close to the top. Not that it’s either here or there. This interesting fact plays no part in my argument. I am only testing your attention span.)
As a result of their ever-rising productivity, American industries (manufactures, I am using the old fashioned concept of “industry”) make more with less. “Less” includes fewer workers.
Employment in manufacturing has been declining steadily as a result of this increase in productivity: If one worker can turn out $150 worth of widgets in one hour when two workers used to produce only $120 together, one of the workers is gone. He is not needed. Of course, he and his family may well be pissed off. That’s true although everything they can still afford to buy is cheaper than it used to be.
Note what I have not spoken about: the “export of jobs.”
Manufacturing employment would decline if no American factory ever moved any part of its production overseas.
In fact, as we all know, some do. When they do, specific workers lose their jobs; there is no denying it. This leaves open two questions: First, to what extent is this purported “export” of jobs responsible for the shrinkage of industrial jobs in America? Second, do the same factors that contribute to the shrinkage of certain jobs also contribute to the expansion of other jobs?
The answer to the first question is: Not much. The answer to the second question is: Yes. I am not going to explain why here. First, you would not have the patience and second, I am only trying to convince you to think things through. I just wish to undermine determined ignorance.
Let me just say that my understanding of this complex issue leads me to the following policy position: If we stopped American manufacturers from moving any of their operations overseas, American unemployment would grow and wages would decline.
The impression of a de-industrialization of this country is further aggravated by the fact that many people don’t seem to understand simple arithmetic. How percentages are made is one striking example of this deficiency.
Imagine a small country where many young people suddenly start making children, for whatever reason. It could be new government economic incentives, or a shortage of contraceptives, or something added to the water. In that situation the % of old people in the population will decline. That does not mean the old are dying faster than before. They might die less than they did before. Here is another example: I have two jobs. I get a raise of 2% in one job and a raise of 4% in the second job. When that happens, the second job will contribute more to my income than before both raises took place. The percentage share of the second job in my income will rise. This does not mean that my pay rate on the first job has been lowered. It has only been raised: plus 2% more is more, not less. Period!
People keep hearing from the mouths of lazy or ignorant media personalities that services now account for 70% of the total production of the country, of its Gross Domestic Product. (See the link “Dr J’s List of Words….” on this blog explaining simply GDP and other economic terms.) That percentage is more or less correct. It does not mean that the value of manufacturing is not also growing.
The value of America manufactured products keeps going up and the value of services delivered in American goes up even faster.
This is pretty much what you expect if the country is prosperous: I can only have so many cars in my garage (manufactured product). After the seventh car, it all gets old. But there is almost no limit to how much I can use of some services. Services include plumbing, surgery, and education, for example. I have a limited interest in plumbing and only so many organs that can be replaced. So, plumbing and surgery are somewhat like cars and other manufactured products. However, I can absorb almost infinite amounts of education, another “service.” By the way, that’s pretty much how Americans have been acting: Education forever, at any price!
We have become richer in all manufactured products, including those we make and the many more we don’t make. We have become richer, even faster, in services. This country is no becoming de-industrialized.
Incidentally, if you look at dramatic upsurges in unemployment such as took place between Fall 2008 and now (Fall 2010), you will find that they don’t seem to have anything to do with the “export of jobs” or with anything in or around our manufacturing sector. Pretty much everyone, Left and Right, agrees that they are mostly caused by crises of confidence located mostly in the financial sector, more or less helped by government action.