Here’s a letter that I sent yesterday to the New York Times:
Bob Herbert insists that manufacturing in the U.S. is a mere shadow of its past proud self – and that this alleged decline of America’s “industrial base” is the result of too many Americans concentrating on finance (“An American Catastrophe,” Nov. 21).
The facts speak very differently.
First, the real value of U.S. manufacturing output today is four times what it was during the alleged golden years of American manufacturing might, the 1950s, and more than twice what it was in 1980.
Second, in 1959 the percent of gross value added to U.S. GDP by nonfinancial corporate businesses was about 53 percent; in 1980 it was about 55 percent; today it’s about 50 percent – hardly evidence that the financial sector is growing cancerously and destroying or crowding-out Americans’ capacity to produce non-financial outputs.*
Sincerely,
Donald J. Boudreaux
* The figures in the penultimate paragraph of my letter are calculated from table B51 – and the figures in the final paragraph are calculated from tables B1 and B14 – found here.
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Agriculture in the U.S. is a mere shadow of its past proud self! Bob Herbert should be sent to investigate for us why we aren’t all starving.
This wins the thread! Nomore comments needed.
Well maybe just one more…..
http://www.cattlenetwork.com/AMI–USDA—U-S–Hunger-Rate-Highest-In-Nearly-Two-Decades/2009-11-18/Article.aspx?oid=941620
The poll question matters more than the poll results.
In any case, being a rich (and generous) doctor, you must donate a lot of money to food banks, right?
that guy is not a doctor.
You’re trying to conflate the agricultural decline with the ideas of an unrelated economic subject. Your purpose for doing so is to demonize by extending an unfavorable association.
No thanks.
Who am I demonizing? What unfavorable association? That sentence is barely comprehensible to me.They are not unrelated. It is routinely asserted that the U.S. manufacturing base has been eroding by pointing to declining manufacturing jobs. This is a misguided argument, which I choose to highlight by pointing to similar declines in agriculture (which also once dominated our economy) that happened for the same reason: productivity gains. We employ fewer people to manufacture goods for the same reason we employ fewer people to produce food: we are capable of making more (as we are doing) with less labor. This is not a catastrophe; it is progress.
You’re trying to associate the agricultural decline with the current decline. Where you wish to demonize it is with your reference and indirect association to debunked Malthusian arguments over food supply.
What you wish to have happen in the long run is that US citizens have to be subservient to despotic (Third World/BRIC) nations; if so just because “that is where the jobs are”.
Less labor and increased dislocation is not good practice for keeping a nation prosperous on the long term. But if you wish to allow for a decline to “a nation amongst world peers”, I cannot agree.
“Less labor and increased dislocation is not good practice for keeping a nation prosperous on the long term.”
As in the example of….
Brian Garst, Agriculture and Manufacturing have both seen tremendous productivity gains. The difference between the two industries is that Agriculture value added is almost completely a domestic occurance. Manufacturing value added can have a significant content of foreign sourced inputs for products manufactured in the U.S.The final product being sold as a manufactured item in the U.S. has no accounting for the foreign sourced cost of inputs as far as an economic reported manufacturing statistic. Thus, we don’t subtract foreign inputs from manufacturing output and arrive a reportable U.S. manufacturing figure. I think we should.
Your percentage figures for “gross value added to U.S. GDP by nonfinancial corporate businesses” does not really support your argument about the state of domestic manufacturing, since, along with the obvious percentage decline, the figure does not reflect growth in nonfinancial SERVICE jobs. And does manufacturing compose the same percentage of GDP? If not, is that a good thing or a bad thing or neither here nor there?And you say the “real value,” so I assume you have adjusted for inflation? Have you adjusted for the fact that government inflation statistics have changed since the 70s (and continue to change), resulting in inflation’s being understated? Has the classification of what is or is not considered manufacturing changed? If so, how can we consider such statistics relevant? And why is it that the output of consumer durables has declined by 30% in less than ten years? Is that an indication of anything? If our output of manufactured consumer goods has steadily increased but our output of capital goods has declined, is that something to worry about? How is it that television and other electronic manufacturing disappeared from the U.S. and went to Japan, when they had wages equal to our own? Are the trade and current-account deficits really nothing to worry about, as you have before seemed to imply? Is there no danger to the dollar? How can our deficits not matter when they are being financed by borrowing and the printing press? Don, I agree with you on 99% of everything else, and I think your very existence is invaluable to our country, but I have long disagreed with you concerning the trade and current-account deficits and always found your position thereon slightly suspect.
“Has the classification of what is or is not considered manufacturing changed?”
Great question I would love to see the answer to. I can’t seem to find it anywhere.
Basbarossa, you ask a lot of questions without providing any answers. Why don’t you contribute a little more to the discussion by providing a few answers yourself? We’re not all here to do your legwork for you.
Barbarossa: “Has the classification of what is or is not considered manufacturing changed?”
What has really happened to skew the figure about manaufacturing: jobs once part of manufacturing plants – and the dollars they represented – have been outsourced to service firms and are now considered part of the service sector. As factories have outsourced everything from janitorial staffs to security guards to computer programmers, the manufacturing sector has seen an artifical reduction and the service sector an artificial increase. Yet despite this shift, manufacturing GDP has continued to grow.
How do you know these outsourced jobs are now considered service sector? You make no support for your claim, nor give any rationale why their classification would change simply because they have been “outsourced”? Whether security guards or janitors have been outsourced by factories is irrevelant anyway, now that I think about it; we’re talking about manufactured goods produced by factories, not whether they continue to employ such people. What you’re saying is akin to the “lost jobs” fallacy that Brian mentioned.
barbarossa: “How do you know these outsourced jobs are now considered service sector? “
1. Because I’ve owned businesses, I’ve worked as a controller for others, and I’ve contracted with suppliers for both. I know how businesses I owned, businesses I worked for, and suppliers for each have classified their firms when they file reports with state and local governments.
2. Because I have read explanations from the Bureau of Economic Analysis about the method used to calculate GDP by industry. Page 29 of Advance Statistics on GDP by Industry for 2008 (the 8th page at the PDF link I just provided) is one place where you can learn how BEA uses the NAICS codes supplied by businesses in deriving the value added by industry and by industry sector.
barbaossa: “Whether security guards or janitors have been outsourced by factories is irrevelant anyway, now that I think about it; we’re talking about manufactured goods produced by factories, not whether they continue to employ such people.”
Perhaps when you learn how the federal government calculates GDP by industry you will understand why it is relevant that the jobs of security guards, janitors, and computer programmers were outsourced. Until you take the time to do so, please accept this brief explanation:
For each firm, the federal government ( the BEA, I believe) adds the total compensation for all employees, the gross operating surplus (operating income), and taxes on production and imports. This sum is the estimate of the value added by each firm. Such value added sums are then classified according to the NAICS code supplied by the firm. BEA then totals the values for NAICS codes, and greates grand totals for each sector (goods producing, service, government, etc.)
What that means, barbarossa, is that the compensation for a janitor in a factory is included in manufacturing GDP if the janitor is employed directly by the factory. But when the janitor is employed by a janitorial firm, the compensation for that janitor is included in the service sector.
Hope this very brief explanation helps.
It does help: to support the irrelevance of your point. If janitorial salaries are used to determine the value of final manufactured products, then that is a bogus statistic. If the firm produces the same value of manufactured goods while outsourcing the janitor, how can it be said that the value of such goods has increased (or decreased)? It CAN’T, so your point is irrelevant (though very pretty in the knowledge it invokes).
Don is the expert here; I am not; therefore, I ask a lot of legitimate questions that were not answered in his letter in support of his claim. Don’t bullshit me about “legwork.” How are questions not a form of contributing to discussion? Are we never to ask questions, only to accept answers from on high? That’s called arrogance; that’s called stifling intellectual inquiry; that’s called Stalinism. Ever heard of the Socratic method?
If your entire contribution to this blog continues to be asking a bunch of questions, you’re going to soon be ignored. No one has time to research a bunch of questions just to satisfy your curiosity. Research them your self.
Not everything I have contributed has been questions, and thus far YOU have contributed no real answers. My questions are for the most part very broad (and did I mention before, legitimate?), so that no real research is necessary, only accessing one’s own knowledge on the subject (as you did previously concerning GDP). I ask these questions while operating on the assumption that SOMEONE (Don, you, not Muirgeo, whoever) can quasi-extemporaneously respond to such questions, if only in brief. All you have done is spat vitriol and hostility, which to a casual observer seems only to indicate an irrational intellect incapable of any real discussion.
barbarossa: “How can our deficits not matter when they are being financed by borrowing and the printing press?”You seem to be simultaneously referring to our current account deficit and our federal government deficit. Those are two separate entities. The federal government deficit will have to be paid for at some point by the taxpayers – either through taxation or through inflation. But that federal deficit exists whether or not U.S. consumers import more goods. Those T-Bills would be there regardless of whether China bought them up. In fact, if China and other nations did not buy them, the Fed would have to raise interest rates, and the federal government deficit would crowd out the legitimate borrowing needs of the private sector.Don’t confuse a mere accounting device which has no negative economic impact – the current account “deficit” – with a legitimate deficit which will lower our standard of living – the federal government deficit.
Funny how you and our illustrious Treasury Secretaries always refer to the current-account deficit as a mere “accounting device.” I’m glad someone here besides muirgeo is eager to advance any and all government agendas. I understand the difference between the two, but you’re telling me that the fiscal deficit DOESN’T contribute to the current-account deficit? Seriously? Who do you think the government borrows from?
“Those T-Bills would be there regardless of whether China bought them up.”
That is the sad fact of the matter. Our government would continue its profligate ways even if it had to turn to its last resort, the Fed. Hyperinflation would ensue. And this is the problem that concerns me.
“the federal government deficit would crowd out the legitimate borrowing needs of the private sector.”
How is that not already occurring?
barbarossa: ” but you’re telling me that the fiscal deficit DOESN’T contribute to the current-account deficit?”
Yes, I am telling you exactly that.
barbarossa: “How is that not already occurring?”
It hasn’t to the extent that it might because China and other nations have been buying our federal debt.
barbarossa: “And this is the problem that concerns me. ”
And well it should. But eliminating the current account deficit will do nothing to stop Washington from spending.
“… hardly evidence that the financial sector is growing cancerously and destroying or crowding-out Americans’ capacity to produce non-financial outputs.”
I’ve read tis 5 times over or more. It’s unfathomable. But I guess there are climate scientist who think we aren’t responsible for climate change and biologist who don’t believe in evolution. But the statement does seems extraordinary.
http://www.monthlyreview.org/images/080401foster-tbl-1.gif
http://www.monthlyreview.org/080401foster.php
Your link has a little bit of useful information and had at first a lot of promise, until I realized that the author was shoveling implicitly Marxist bullshit.
Yasafi posted the links.
What did you expect?
You need to realize that being against unregulated capitalism does not make you a marxist.
If fact my position and most rational people who warn of the dangers of unregulated capitalism do so for fear of the loss of liberty and control such a system foist on the majority of people.
I may be wrong. I don’t think I am because I have facts and history on my side. But even if I am wrong my goal is one of an efficient economy and maximized liberty.
Most people like me support capitalist competitive markets we just understand they need to be balances by a government of the people.
The idea that markets are more efficient then democracy has been thoroughly debunked IMO.
“…my goal is one of an efficient economy and maximized liberty.”
“[markets] need to be balanced by a government of the people.”
The economy isn’t yours to make efficient. Neither free markets nor the wealth created there belong to “the people”. The free trade agreements made by productive neighbors are no business of government, democracy, society, etc. They are our agreements, and you have no right to exploit us.
“The idea that markets are more efficient then democracy has been thoroughly debunked…”
You compare apples and oranges. The legitimate purpose of markets is to create wealth. The legitimate purpose of democracy (or any government), is to preserve life, liberty, and property. A market that does not create wealth is a failure. A democracy that does not preserve life, liberty, and property is illegitimate.
The economy isn’t yours to make efficient. Neither free markets nor the wealth created there belong to “the people”.
Bull F’ng S*it. The economy also isn’t yours to design either.
The economy exist FOR the people… the people DO NOT exist for the economy. Man have you got it ass backwards.
We provide a common defense and infrastructure and to hell if the people are going to do so for the benifit of a wealthy elite few.
http://ablankspotonthemap.blogspot.com/
ydmfi
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“If fact my position and most rational people who warn of the dangers of unregulated capitalism do so for fear of the loss of liberty and control such a system foist on the majority of people.”
Freedom is Slavery, Ignorance is Strength…just keep chanting that party slogan.
“But I guess there are climate scientist who think we aren’t responsible for climate change”
Muirdork the sheep. Baa baa. Lead me to the slaughter, baaa baaa. Call yourself a scientist and I’ll believe anything you say. Baa baa.
First, the real value of U.S. manufacturing output today is four times what it was during the alleged golden years of American manufacturing might, the 1950s, and more than twice what it was in 1980.
–
Explain the declines in quality that logically happen when you cut out First World nations from production?
You mean the like the declining quality of computers and cell phones?
Who boy!
You’d really like to compare American cars of the 1970s to cars made in Korea today? Used to be that a car that reached 100,000 miles was a great car. Now if a car doesn’t reach 100,000 miles, it’s a piece of crap.
Also, we didn’t cut out First World nations from production. Unions can take the bows for that one.
brotio: “Unions can take the bows for that one.”We usually agree, but not on this point. First, as I pointed out to sethstorm, First World nations have hardly been cut out from production. Many First World production workers have been “cut out” as their mindless, dangerous jobs have been automated.I agree that concessions to unions by past generations have made some American plants, with their productivity-limiting workrules, no longer economically viable. But I do not fault the unions for that. They were properly acting in their own self-interest. It is the manufacturing executives and Congress who jointly share the blame for any union-related job exodus. The executives didn’t have to give in to union demands. They were charged with balancing the demands of workers with the economic requirements of the business. They failed.Congress equally failed. For too many decades they ignored the welfare of consumers and implemented laws which allowed unions more power.You can argue that union bribery assured the downfall of some sectors of U.S. manufacturing. If that is true, the fault is not with the unions but rather with the representatives of the people who made such bribery legal.
John,
No major disagreement to your points. It was probably too much of a shortcut on my part to just simply say ‘union’, when it would have been more accurate to say, ‘unions and and their enablers’, which includes the parties you listed.
Congress equally failed. For too many decades they ignored the welfare of consumers and implemented laws which allowed unions more power.
That’s probably the most significant point of your post.
Thanks
sethstorm: “Explain the declines in quality that logically happen when you cut out First World nations from production?”What logic is that, sethstorm? from some parallel universe?Have you lived in the U.S. the past five decades? Have you not seen how companies in Japan and other Asian nations adopted Deming’s quality control methods and forced U.S. manufacturers to follow? Have you not observed the productivity increases realized in all sectors as Asian robotic technology eliminated so much of the defective crap we were once forced to consume?Of course, your question is not valid in the first place. First World nations have not been “cut from production” Manufacturing output in First World nations is higher than ever before in history. The U.S. and Germany and Japan and the other First World nations continue to produce and sell medical equipment, aircraft, complex chemicals, automobiles, and all sorts of goods – most of which are many times more sophisticated than what we produced four and five decades ago.
Prof. Boudreaux et. al., would you mind linking me to a brief paper/article that accurately describes the state of manufacturing in the US?
Cheers
Prof. Boudreaux et. al., would you mind linking me to a brief paper/article that accurately describes the state of manufacturing in the US?
Cheers
Then why is New England dotted with mill-less mill towns?
Oh, let’s see. Minimum wage laws? Health insurance mandates? Environmental regulations that drove up costs? American consumers who refused to “Buy American” because they didn’t want to pay high prices for the clothes they wear?
Here’s a question for you, JohnK. How do New Englanders happen to enjoy the highest standard of living in the world if those mills were so important?
Whether we enjoy the highest standard of living in the world is irrelevant. The question is: is it sustainable? And I would answer in the negative. Remember, booms caused by artificial credit creation give the appearance of a high standard of living, but they aren’t sustainable. Tell me, if we have been the de facto world central bank since 1971, how has there not been decades-long malinvestment and misallocation of resources? If Bernie Madoff’s pyramid scheme was not sustainable, how is the American economy supposed to be? Is long-term vendor-financing by China, Japan, etc., not akin to a pyramid scheme? Why is it that our government is increasingly unable to sell long-term debt to foreigners? Is that a dangerous sign? How is our economy going to thrive when we have a negative net savings rate? When the vast majority of services are non-tradeable and we spend the vast majority of our money on services here at home and goods from abroad, how are we going to pay back our debts to foreigners, manufacturing “growing” or not? Ultimately, we have to pay back foreigners in tangible GOODS, not additional IOUs. John, pardon the questions; I’ll leave them to someone who is actually interested in learning and solving problems. I replied to your post merely out of convenience.
Oh, and forget the fact that some estimates place our national debt at 100 trillion dollars. That’s manageable, I’m sure.
>>How do New Englanders happen to enjoy the highest standard of living in the world if those mills were so important?
I’m not sure how it is sustainable. The only ones paying taxes are the ones in the service industry, and everyone else is either part of the public sector or sucking off the government teat.
I’m not disagreeing with you about minimum wage, insurance, and other regulations. I’m just not so sure that one can reasonably argue that manufacturing is just fine when idle mills are being replaced with welfare housing projects.
JohnK: 90 percent of the U.S. workforce today is in the service industry. You seem to suggest in your e-mail that that’s an unfortunate fact. If so, can you tell me what’s so unfortunate about this fact? What’s so unfortunate about working in the service sector?
I did not mean it that way. I just don’t see how it is enough. I see mills closing and be replaced with housing projects, I see once productive people becoming wards of the state. It just doesn’t seem sustainable. I hope I am wrong.
JohnK: “I’m not sure how it is sustainable. The only ones paying taxes are the ones in the service industry, and everyone else is either part of the public sector or sucking off the government teat.”
That’s not correct. The growth in value added by the goods producing sector outpaced the service and government sectors every year from 2004 through 2007, as reported in December, 2008. Since value added includes both employee compensation and operating profits, it is the goods producing sector (manufacturing) which has seen a larger increase in taxes paid.
Of course, the service sector is larger than either the goods producing sector or the goods producing sector. That’s been true for at least 60 years. So, if you are meaning that the service sector is paying more taxes, you would be correct in 1950 and you would be correct today.
What about the service sector makes you believe it’s jobs and profits are not sustainable? Do you understand what firms are included in the very broad sector known as the service sector?
“We show that, under the same assumption, fiscal deficits
can have worrisome implications if they turn out to be permanent. First, if they occur in large
countries they significantly raise the world real interest rate. Second, they cause a short run
current account deterioration equal to around 50 percent of the fiscal deficit deterioration.
Third, the longer run current account deterioration equals almost 75 percent for a large
economy such as the United States, and almost 100 percent for a small open economy.”
–IMF working paper
“The economy exist FOR the people… the people DO NOT exist for the economy. ”
The economy is the actions of the people, you dork muirzebub! And according to you Barney Frank and Chris Dodd had it working perfectly until just a little while ago!!!
HAHAHAHAHAHAHAHA
“The economy also isn’t yours to design either.”
Not all of it, of course. Just the part of it that I create. The economy as a whole is just an idea, a classification, and it doesn’t belong to anyone.
“The economy exist FOR the people…
First, there is no such thing as “the people”. Second, the economy is the creation of the productive class, and each member of the productive class has a property right in his or her part of the creation. That is, a labor theory of property.
“…the people DO NOT exist for the economy.”
Of course not. Who ever said that they did? No one is required to create and trade.
“We provide a common defense and infrastructure…”
On the day that the political class starts selling these “services” on a voluntary basis then I will give them credit. Until then, the logical conclusion based on the evidence of forced participation is that they are doing these things for their own benefit, not mine.
Wrong the economy is policy and rule deopendent. And yes there ARE the people… as oppopsed to THE people like those that live in a different country under different rules… like say China. Yes the people CAN be made to exist for the economy as history shows. Railroad batrrons and Coal Mine owners basically enslaved their workers who had no other options.
“On the day that the political class starts selling these “services” on a voluntary basis ….”
You ARE accepting them on a voluntary basis by choosing to be secure and use these services nearly every hour of your lfe and NOT choosing to relocate to the country of your choice.
Man Randy you are a guy who wants all the comforts of a planned civi; society but non of the responsibilty. You must have neen a spoil litle brat as a child.
“people CAN be made to exist for the economy as history shows. Railroad batrrons and Coal Mine owners”
HAHAHAHAHAHA We’re back to coal mines and robber barons!!!
“you are a guy who wants all the comforts of a planned civi; society”
Planned. Spoken like a true totalitarian. Nice job, muirquack!
“You ARE accepting them on a voluntary basis by choosing to be secure and use these services nearly every hour of your lfe and NOT choosing to relocate to the country of your choice.”
This is my home, an essential human condition. As I live in my home, and care for my family in my home, I obey the rules made by the rule makers because it makes my life easier than to not obey them. It doesn’t follow that the rules are good rules just because they exist.
“…you are a guy who wants all the comforts of a planned [civilized?] society but none of the responsibilty.”
Responsibility to who? To those who claim a right to speak for “society”? To those who exploit? Not a chance. The only responsibility I accept is the responsibility to deal fairly with those who deal fairly with me.
I just don’t see how if our country is tending toward a 100% service economy, and manufacturing growing or not (and if growing, obviously growing at a rate smaller than the service sector, otherwise, obviously, the service sector would not be an increasing percentage of the economy), our debt to foreigners is increasing relative to the GDP in terms of BOTH the service and manufacturing sectors, and services are largely internationally non-tradeable goods, how we can ever repay these debts while on this path. Perhaps I’m being simplistic and ignorant, I’ll allow that, but no one has convinced me otherwise, and I’ll give my integrity this much credit: when I know I’ve been proven wrong, I’ll admit it and shut up. I’m earnestly pleading here. It was initial disrespect on the part of others that evoked my sarcasm, and if someone could simply be civil about answering me, I would reciprocate.
“Provoked” would have been better.
I’m not sure how you’re linking debt that the US government owes to foreign governments to how the US economy is divided between service and manufacturing.I have no formal training in economics, but from my vantage point, the US government’s growing debt to foreign governments is a reflection on the US government’s inability to control its own spending, and that debt is going to be paid back by taxing the productive, whether they’re productive in manufacturing or productive in writing software.
“bo” is actually me. Damn, I must have been drinking longer than I thought.
Purchases by foreigners of our debt will tend to strengthen the dollar; dollar strengthening will tend to give an advantage to foreign manufacturers over domestic; such an advantage will tend to reduce the presence of domestic manufacturers; such a reduction will increase our reliance on and the advantage of foreign manufacturers; such reliance will increase our need for foreign debt; our decreased manufacturing base will reduce our ability to repay said foreign debt, since service production is internationally non-tradeable; the process repeats, until the entire U.S. economy is unsustainable and breaks.
In the case of the mill towns without mills, the government has stepped in to take care of the now jobless people, and these social services are paid for in part with foreign debt.
So instead of producing goods to be sold overseas and having that money keep the town alive, we’re selling debt overseas and paying people to do nothing.
Such a system can’t go on forever.
And it’s not like most of this debt was actually accumulated for investment purposes, in which case it might legitimately be said that the debt was a “good” thing or “indeterminately good or bad.” So much of the debt was not done on the free market, but was done by foreign central banks/governments and/or through our own central bank/government. And any debt that our government incurs can rightly be categorized as wasteful consumption, something on which Mises, certainly Hayek, would agree. Foreigners see Treasuries as “investments” because they are “guaranteed” by the U.S. taxpayer, but Austrians of course know that government expenditure and debt can never be considered investment in any real sense, only in a faux or illusory sense, as has been the case with foreign creditors. Though they may perceive such debt as investment, it is only investment insofar as it is able parasitically to drain the productive sectors of the economy through taxation or inflation, and thus such debt, if continually increased, can never be sustainable. Even if foreign central banks (read: non-free market entities) weren’t such major purchasers of T-bills and our debt was purchased entirely by private economic actors, such purchases would nonetheless remain non-free market and would therefore be tantamount to wasteful consumption expenditure as well as a real loss to the productive sector. I’ve been drinking, so I hope at least some of this makes sense, but I won’t begrudge anyone who shuts me down or dismisses me simply as an alcoholic.
And don’t forget, we, unlike every other country or any involved in a theoretical model, can repay our debts in our own currency. Surely, that has some effect on the outcome.
Barbarossa,I just skimmed, because I’m on my way to bed, but even if your assertion that service jobs can’t be exported is true, I don’t see that it matters. The debt will be paid by the US government taxing the shit out of producers, even if those producers are only producing services for their fellow Americans.And, even if our economy was driven by heavy industry selling locomotives to Bolivia, the debt will be repaid by the government taxing the shit out of locomotive builders.