Williford on Perry

by Don Boudreaux on March 5, 2011

in Balance of Payments, Myths and Fallacies, The Economy, Trade

Here’s a letter to the Wall Street Journal:

Struggling to refute Mark Perry’s data showing that U.S. manufacturing output is growing, Sam Williford writes that “Nowhere does empirical evidence tell the story of a growing manufacturing sector” (Letters, March 5).  Mr. Williford’s evidence?  “Manufacturing as a percent of GDP has dropped from 21% in 1980 to 13% in 2008.  The U.S. share of world manufacturing production has declined from 31% in 1980 to 24% in 2008.  While it is still true that the U.S. is the world’s largest manufacturer, we are also by far the world’s largest importer.”

Let’s take these two arguments in turn.

First, just because manufacturing as a percent of GDP is falling does not mean that U.S. manufacturing output isn’t growing.  If I get a raise during the same year that my teenage son first enters the workforce, my income falls as a percent of my household’s income, but my income is still properly described as “growing.”  Ditto for U.S. manufacturing output as a percent of “world manufacturing production.”

Second, it’s hardly surprising that, being the world’s largest manufacturer, the U.S. is also the world’s largest importer.  One should expect nothing else.  Not only are at least one-third of U.S. imports used as inputs for U.S. manufactured goods, but also – being the world’s largest suppliers of both manufactured and service outputs – Americans are wealthy.  And wealthy people can afford to spend lots money buying things from others.

Sincerely,
Donald J. Boudreaux

For purposes of length, I left out of my letter one other piece of evidence that Williford unthinkingly thinks he mustered against Mark’s data:

Since 1975, America’s trade deficit has increased at a rate faster than our increase in exports. A surplus of $12.4 million in 1975 turned into a $834 billion deficit by 2008.

Regular Cafe patrons know what I have to say about this ‘argument.’  But, just for fun, in the comments section let’s see how many different, sound reasons can be listed for why Williford’s ‘trade deficit’ claim is not evidence against Mark Perry’s proposition that U.S. manufacturing output is growing.

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