Here’s a letter that I sent today to the Washington Post:
Harold Meyerson insists yet again that America has lost its manufacturing, alleging also that investors are abandoning the U.S in favor of “nations with far cheaper workforces” (“Obama’s Factory Factor,” August 21). Mr. Meyerson predictably singles out China as one such nation.
Facts utterly contradict Mr. Meyerson’s fantasies. First, U.S. manufacturing revenues (adjusted for inflation) reached their all-time high in 2006. 2006 was also a peak year for inflation-adjusted manufacturing profits in the U.S. and for inflation-adjusted U.S. manufacturing exports. And the U.S. accounts for the largest share of the globe’s manufacturing output; Americans today produce 2.5 times more manufactured goods than do the Chinese. [See here.]
Second, in 2007 the flow of per capita foreign direct investment into the U.S. was up 13 percent from 2006, to $675. In China, it was up 14 percent – to $55. [I derived these these figures from here, here, and here; I got population figures from the CIA World Factbook .]
Harold Meyerson is a perfect example of the Beatles’ “Nowhere Man”: “He’s as blind as he can be / Just sees what he wants to see.”
Sincerely,
Donald J. Boudreaux
I also posted this letter in the Comments section that accompanies Meyerson’s articles. It’s extraordinarily disheartening to read most of the other comments.
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{ 32 comments }
Why do you find the comments to the article disheartening? Did you expect anything else than to watch people reciting their preferred narratives?
Yea, WaPo comments can really ruin your day. If you ever start to think that the world is getting more sensible, that people are becoming more resonable and responsible, the good old WaPo comments section can snap you right out of it.
For what it's worth I recommended your comment to the article.
Isn't the problem the loss of manufacturing jobs? Those jobs helped blue collar workers make their way into the middle clsass.
The sons and daughters of blue collar workers at my university are using degrees in nursing and accounting and others to get into the middle class.
But there is no one better than Dr. Roberts in explaining this issue.
I worked in manufacturing as a teenager, as did my granddaddy and his granddaddy before him (for their entire lives before the army). Before that it was farming; some call it a loss I call it progress.
" First, U.S. manufacturing revenues (adjusted for inflation) reached their all-time high in 2006."
Can some one answer the following?
When an American company moves a plant to China do the revenues from that plant count as "American manufacturing Revenues"?
Did you adjust the exports with government-provided-inflation data or with shadowstats.com inflation data? How does it change if you use his data?
muirgeo: "When an American company moves a plant to China do the revenues from that plant count as "American manufacturing Revenues"?"
Not sure what you are referring to by "revenues from that plant".
The best way to measure the output of U.S. manufacturing is manufacturing GDP. Manufacturing GDP includes only the value added by the U.S. manufacturing operations of multinational and domestic firms. Manufacturing GDP includes the value added – not the total value of the output – of GM's Arlington, TX, plant as well as Honda's Marysville, OH, plant. It does not include the value of manufacturing inputs, such as components imported from Japan and used in Ohio.
Manufacturing GDP was at an all time high in 2007. You can find U.S. manufacturing GDP here. Click on the link "Real Value Added by Industry".
US manufacturing output and productivity continues to rise, while manufacturing jobs are now beginning to fall.
The cause: automation. Watch "How it's Made" and count people versus machines.
Granted, we probably lost our human sock-sewing industry to lower paid foreign labor, but now American companies are re-tooling with robotic sock sewing machines.
http://www.auburn.edu/~thomph1/ft%20payne.htm
Here's my late entry to 'Inequality chart contest':
"IF the average income of the richest 1% was less than or equal to 13.6 times as much as the average income of the poorest 1% in 1976; THEN the total increase enjoyed by the poorest 90% is greater than the total increase enjoyed by the richest 1%; ELSE not."
Alternate data CPI adjusted using John Williams shadowstats.com. I used their web interface and some magic, so I might got something slightly off. Any recomputation welcome:)
Manufacturing:
Year – shadowstats – CPI – GDP deflator(?? BEA number)
2002: 1143 – 1288 – 1384
2003: 1061 – 1262 – 1400
2004: 1026 – 1300 – 1478
2005: 964 – 1312 – 1493
2006: 922 – 1318 – 1536
2007: 873 (-24% since 2002) – 1346 (+4.5% since 2002) – 1571 (+13% since 2002)
Now the question is which statistics is relevant (should we adjust it by CPI or GDP deflator, why..), which is comparable (you certainly cannot compare pre-1980 data computed with their CPI method to the current one, on the other hand you could say that they did underestimate the growth, while the current one computes it correctly), or, you may end up with the austrian 'CPI does not make sense'.
I feel uncomfortable with everyone picking his own data to make his point, and so I would like to pick my own data. I do not have the figures but within the context of this debate, instead of manufacturing revenues, I believe it would be more interesting analyzing the evolution of total salaries paid in the manufacturing sector.
Per, unfortunately your numbers would suffer from the same fault: you would have to adjust them for inflation. Which CPI adjustment are you going to choose?
Per,
Salaries in manufacturing say nothing about the total manufacturing output of a nation. All over the world, automation has been eliminating manufacturing jobs for decades.
All consumers benefit when manufacturing productivity is increased, of course. But increased productivity does sometimes lead to job losses. Certainly some former manufacturing workers must seek employment in new fields. Such adjustment of human resources has been ongoing for centuries.
Andy,
Adjusting GDP using any measure of CPI is just not valid. Manufacturing GDP measures the value added by manufacturing operations. Manufacturing GDP does not include:
- raw material and other inputs such as imported energy;
- transportation costs;
- most marketing costs; and
- retail costs.
If we used any measure of CPI in the denominator, we would be adjusting for price changes in goods and services not included in the numerator, which is nominal manufacturing value added.
James Hamilton provides a very simple explanation of the difference between inflation and the GDP deflator.
I know many of you guys are skeptical of those government officials who derive such measures as GDP deflators. But they really do know so much more about this than you do.
John…I am sceptical of measuring CPI/deflator/etc. at all. There simply is no 'average price' to measure, that is matematically impossible term.
However, we can have some statistics and if we keep it stable, we can compare different times and deduce possibly something from the data. The government didn't keep the CPI calculation the same, therefore pre-1980 and post-1980 data simply is not comparable. Any intelligent person could easily defend his position for including/excluding some goods in CPI, making hedonic adjustment etc. You can measure CPI by measuring price of apples and it would be perfectly defendable. However, you simply cannot compare CPI measured by different methods.
Having (shadowstats) CPI over 10% and deflator about 1-2% is quite an interesting coincidence. John, can you come up with some reasons why it is so? (btw, as far as I remember, the PPI is not exactly low as well…)
It could be:
- high imported inflation (the USD depreciated a lot)
- the profit margins/wages are not getting higher in the US?
However, one would expect that with depreciating USD there should be more incentive to produce.
Anyway, thanks for the link, I did wonder what the meaning of the deflator actually is
"Salaries in manufacturing say nothing about the total manufacturing output of a nation. All over the world, automation has been eliminating manufacturing jobs for decades."
Posted by: John Dewey | Aug 22, 2008 10:18:38 AM
Absolutely, but if you just want to look at the impact on jobs, then salaries paid is a better way to start than looking at total manufacturing output.
per: "but if you just want to look at the impact on jobs, then salaries paid is a better way to start than looking at total manufacturing output."
Not sure what you mean, Per. If one wants to lack at the impact of what on jobs?
- the impact of automation on jobs/salaries?
- the impact of globalization on jobs/salaries?
- the impact of low-skilled immigrants on jobs/salaries?
- the impact of right-to-work laws on jobs/salaries?
- the impact of corporate re-engineering on jobs/salaries?
The number of manufacturing jobs in the U.S. has been dependent on so many factors I don't see how anyone could make conclusions about causes.
IMO, manufacturing salaries and total manufacturing output are two completely different numbers, and one does not indicate much at all about the other.
In any case, the competing claims under discussion are:
Myerson – America lost its manufacturing to nations with cheaper labor;
Boudreaux – America manufacturing is stronger than ever in history.
All the relevant data I've seen support Don's position. Do you have any data which does not?
per,
I just thought about why you and I may see this issue so differently.
Your comment seems to indicate you believe the purpose of a manufacturing operation is to provide jobs – which sounds vaguely like a European socialist concept I once read.
I believe the purpose of a manufacturing operation is to produce a good.
Where you would measure the success of a plant in salaries, I would measure it in number of goods produced.
Andy: "btw, as far as I remember, the PPI is not exactly low as well"
I have no doubt that is true. Of course, the PPI is used to adjust for price changes in manufacturing inputs. The GDP deflator is used to adjust for price changes in manufacturing value added. So all the high inflation in energy and other commodities would be included in PPI but correctly excluded from manufacturing GDP deflator.
“per, I just thought about why you and I may see this issue so differently.
Your comment seems to indicate you believe the purpose of a manufacturing operation is to provide jobs – which sounds vaguely like a European socialist concept I once read.
I believe the purpose of a manufacturing operation is to produce a good.”
Posted by: John Dewey | Aug 22, 2008 1:48:35 PM
Of course I don’t mind manufacturing producing goods and jobs.
Nonetheless I read this post commenting on “Harold Meyerson insists yet again that America has lost its manufacturing, alleging also that investors are abandoning the U.S in favor of "nations with far cheaper workforces" as a discussion of losses of job in the manufacturing sector, and if so, I felt we should be looking at figures related to that workforce…that’s all.
Now if it is only in about losing out “manufacturing” in general then I misread it, though I do not understand why anyone would be interested in just discussing that in just a general way.
Doesn't the same explanation cover agriculture in America. We produce more crops with fewer farmers than we used in our past and fewer farmers than are used in China to produce comparable output. So what does Meyerson want? I guess we should dump the John Deeres and have thousands of workers break their backs in the fields. Then there may be comparable outputs with more employees. It will keep them out of easy chairs and universities.
Putting my three cents in (inflation means it is no longer two cents, thanks Bernanke!), it is worth looking at the jobs per product lifecycle.
A new product is invented, perhaps the washing machine. Manufacturers start hiring workers to make them, then start making them, and then start selling them.
Over time two different things happen with very different effects on employment. One thing that happens is that a bigger and bigger percentage of households buy them, which means more units are sold, and more hiring to make them is done.
The second thing that happens is that employers figure out how to make more of them with fewer workers per 1000 washing machines sold. This is called productivity. If the market for washing machines keeps growing faster than the rate of productivity, then there will be more hiring, otherwise there will be fewer workers making washing machines one way or another (i.e. either layoffs or attrition).
In a competitive market higher productivity means that prices get lowered, or quality increases, or both, as different companies compete for customers. The lower prices means that more and more households can afford to buy washing machines.
Eventually this simply has to lead to fewer workers making washing machines as productivity increases but sales slow, and quality improvements mean fewer replacement sales, which simply accelerates the decline in the number of manufacturing employees making washing machines.
Repeat this process in all manufacturing industries of consumer durables. Most households don't want to buy a second washing machine if the one they won works well enough, preferring to spend their money on something else.
They don't want to buy a third car (for the parents anyway) in general, preferring to spend their money on something else. If cars were cheap to buy, then sure people would buy lots of them, just the way many women buy shoes they rarely wear. But cars aren't that inexpensive to buy, unless you're rich, which helps explain why many rich people own lots of cars. Because they can.
They may buy more than one tv, but eventually they stop as they prefer to spend their money on something else.
They will only buy one lawnmower, seeing little point in buying another and lots of point in spending their money on something else.
And so on. How do you increase, or even stablize, manufacturing employment when the number of workers needed for each different type of (durable) manufactured ware eventually turns down and goes down "forever"?
The only feasible way is if people choose to spend their money on buying more and more "things", instead of buying more and more services.
The verdict is in, and has been for over a generation. People will only buy so much "stuff", preferring to buy services instead once they own "the usual" stuff. This holds true in economically developed countries all over the world.
Thus manufacturing employment as a percentage of the economy will inevitably keep falling, and falling, and falling, much the same way that the percentage of Americans working in the farming industry has fallen steadily pretty much since the industrial revolution started improving agriculture productivity.
Thus any politician, or tv talking head, or newspaper editorialist, who proclaims that we must "save manufacturing jobs" is telling you, whether or not they realize it, that either productivity must stop(!!!), and along with it wage increases (you can't sustainably have one without the other), or that the people must be forced to stop buying services they want in order to finance their purchases of new "stuff" they don't want but which they must be forced to buy anyway.
happyjuggler: "People will only buy so much "stuff", preferring to buy services instead once they own "the usual" stuff."
I agree with just about everything in your comment. But I'm not so sure about this limit on "stuff" that Americans will buy.
Yeah, we might not need a third TV, but I did just buy another one for my workout room. Americans may limit the number of cars to the number of drivers, but that won't stop them from adding a jet ski and a motorcycle to the fleet in the garage.
Consumers and businesses seem to be buying all sorts of goods that weren't necessary until prices came down. Defibrillators are being purchased for aircraft, school buildings, and workplaces. Upper middle class families found a place on the counters for espresso machines. All my golfing buddies have sky caddies, though it'd hard to see any improvement in their games.
No doubt we're devoting a larger share of disposable income to services, as you point out. But I don't think the era of stuff accumulation is over by any means. We've got to fill up all these big houses with something.
Ettubloge's comment looks a bit long but actually it's a very good explanation.
Ettubloge's comment looks a bit long but actually it's a very good explanation
His(hers?) post is reasonable in length. It is my post that looks, and is, long. And thank you.
In the future I'll try to make it shorter somehow so that readers eyes don't glaze over.
John Dewey,
You make good points, as usual. I'll modify my general argument in the future to make your point clear as well about previous luxury goods becoming more and more commonplace.
John Dewey,
I almost forgot. Your point about businesses buying manufactured goods is also insightful and pertinent, and something I and others tend to overlook, or not realize, in talks about manufacturing.
If we can get people who want to tax the crap out of businesses to realize they are a significant source of demand for manufacturing, perhaps US corporate tax rates will become lower, leading to more companies actually opening up shop in the US than otherwise would have been the case, which in part will manufacturers….
which in part will manufacturers….
should read:
"which in part will be manufacturers…."
There is nothing holy about manufacturing jobs or any other type of job for that matter. All that matters is becoming marketable for the types of jobs that the economy currently supports or will support in the future. If you don't really like that model, get the FUCK out of my country and go lick the grass in North Korea.
happyjuggler: "Your point about businesses buying manufactured goods is also insightful and pertinent, and something I and others tend to overlook, or not realize"
I worked in the Purchasing department of a large transportation company for a couple of years. I was once a buyer for a national restaurant company. I'm probably more aware than most of the variety of goods that big corporations buy.
"Total goods produced" and "total salaries in manufacturing" are BOTH interesting numbers. Higher productivity should in theory allow higher wages, and historically it has done so. Remember, Henry Ford was able to increase production, lower prices, and increase wages, all at the same time.
The "salaries in manufacturing" number, though, should include jobs other than direct labor: design engineers, industrial engineers, procurement people, etc–both automation and shortening of product lifecycles will tend to shift more of the personnel to these categories. Unfortunately, it would probably be very hard to pull out the domestic-only component of these functions in most companies.