Damn Martians!

by Don Boudreaux on April 30, 2011

in Myths and Fallacies, The Economy, Trade

The indispensable Mark Perry offers these data showing that manufacturing’s share of world GDP has declined significantly and steadily since 1970 – from roughly 26.5 percent of world GDP in 1970 to (gasp!) a mere 16.6 percent in 2009.

Recall how some trade skeptics (such as the intellectually flailing Ian Fletcher) – who will (because they must, in order to give their arguments even a patina of plausibility) twist, distort, and misrepresent facts and theories – insist that, even though U.S. manufacturing output has risen in absolute amounts, its decline as a share of U.S. GDP is evidence of economic naughtiness practiced by other countries and, also, a sign of U.S. economic decline.

I wonder how Dr. Fletcher and his like-minded protectionists explain the facts highlighted by Perry regarding manufacturing output as a share of world GDP.  Are aliens from other planets damaging earth’s economy with unfair interplanetary trade practices?  Or is humanity across the entire globe foolishly switching to the production of services out of a collective failure to understand that manufacturing – because only it results in the production of tangible, real, masculine stuff – must not decline as a percentage of world GDP lest we earthlings be cast back into poverty by our short-sighted insistence on consuming and producing too many girly-girl services?

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{ 33 comments }

John V April 30, 2011 at 5:25 pm

Devastatingly wonderful. I can’t stand protectionism.

dan April 30, 2011 at 5:31 pm

Wouldn’t a small tariff for purposes of paying for any inspections or waterway protections be prudent. Like charging motorists (cargo trucks, commuters, or travelers) as they pass through the borders for costs of protecting the borders. Or just add another tax for serving this purpose.

Tim April 30, 2011 at 7:28 pm

I was surprised the other day when I read Bastiat, of all people, arguing along the same lines. I suppose it would depend on which tax leads to the least societal loss.

vikingvista April 30, 2011 at 7:40 pm

Surely it comes as no surprise that a tiny tax of type A is preferable to an enormous tax of type B? And if the victims can more readily escape type A, it will certainly be smaller.

Dan April 30, 2011 at 7:51 pm

I am just asking ? User tax? Port of entry tax. Naturally, the cargo tax is passed along through higher prices. But, there is a price on on border protection and cargo inspections. The cost is directed where it belongs. Travelers pay on their tickets and at port of entry. Rather than a one pot for redistribution and distortion.

vikingvista April 30, 2011 at 9:15 pm

Tariffs are relatively easy to escape because foreigners can choose to trade with other foreigners. Too high tariffs readily reduce government revenue. The same level of negative feedback doesn’t exist for an income tax, or even a domestic sales tax.

All taxes are wrong. But some are more offensive and economically adverse than others.

dan April 30, 2011 at 11:27 pm

Ok. I understand that……as is the case with Magnesium. The effects have been lowered employment in the US in other industries and the inability to sell magnesium on the global market.
Aside from the likelyhood of a Libertarian society breaking out, the taxation will continue as a need to pay for a military and border protections along with inspection of cargo along with the money needed to pay for other parts of our system (judges, police, elected officials, etc.,…).
I do not like property taxes. Consumption tax and a low tariff seems more appropriate than income tax or property taxes. The Thought that after having full ownership of a property (owing no loans or liens on property) that govt can seize it from you for not paying an endless tax on your property is offensive.

kyle8 May 1, 2011 at 2:38 pm

Dan, If we had a national sales tax then I would put the exact same tax on all goods and services entering the country.

The reasoning being that those firms which produce goods and services here would have to pay the sales tax on many of the items and services they use, thus putting them at a legitimate comparative disadvantage.

vikingvista May 2, 2011 at 3:00 am

dan,

There is no appropriate tax. There is no good tax. There is no fair tax. There is no morally acceptable tax. But there are some taxes that result in less stolen booty by government thugs than others. And a lesser offense is preferable to a greater offense. It just so happens that the offense known as tariffs, relative to income or sales taxes, is such a tax.

If you must choose between two tax options, always choose the one that is easier for people to avoid–legally or illegally.

John V May 1, 2011 at 10:17 am

Perhaps. But that isn’t really protectionism to me. It’s more like a user fee that pays expenses of the apparatus being used. It’s more like tolls on a road.

And what is really needed to pay such things? Perhaps .05% or something like? That’s probably even too much.

Then there’s the other argument that tariffs can be used to replace/reduce taxes on income and other personal property. That certainly broadens the tax base but that will always have issues that some parties don’t like. Strangely, it also puts the government in a position of encouraging imports for more revenue. ;)

kyle8 May 1, 2011 at 2:41 pm

a simple tariff may not be protectionist. I view protectionism as something that targets either a particular nation, a particular industry, or even a particular company.

Of course I suppose you could just have a blanket tariff that would be punitive, and that would be protectionist.

Ken April 30, 2011 at 5:25 pm

Clearly, data is the enemy. Stamp it out!

Joe Concordia April 30, 2011 at 6:08 pm

Please provide some data tat would indicate that US manufacturing is not in decline.

W.E. Heasley April 30, 2011 at 6:35 pm
vikingvista April 30, 2011 at 7:41 pm

You don’t come here often, do you?

Harold Cockerill May 1, 2011 at 7:23 am

Decline in relation to what? Is all decline bad? If manufacturing increases in real terms but declines as a percentage of GDP would that be a bad thing? Does the government have some kind of mandate that requires manufacturing be a set percentage of the GDP? There are scenarios where an increse in manufacturing would be bad for America.

John V May 1, 2011 at 10:26 am

Agriculture went through a massive decline as well depending on how you want to look at it.

I suppose 100 years ago, Joe Concordia’s counterparts were lamenting that as well and looking for info to back it up. Now, we have moved mentally far enough from placing some undeserved value on Ag in a “make work” way that Ag is no longer on the radar of the “Worrying Class” as something that is constantly referred to as a reason for supposed economic decline and hardship and loss. Before Ag, it was the artisans like the blacksmith and the shoemaker.

Maybe in another 50 years, manufacturing writ large will pass into that class of toil that the Concordias and Ian Fletchers of the world no longer use as a target for lament.

kyle8 May 1, 2011 at 2:45 pm

You don’t have to wonder, that was EXACTLY what charlatans were yelling about 100 years ago.

I took three special history classes about the progressive period. It is not surprising that all of the same arguments about all of the same subjects is being replayed today.

Immigration, terrorism, taxes, tariffs, and government spending. All the same things.

John V May 1, 2011 at 6:18 pm

Kyle,

Thanks. It was just a hunch…but an educated hunch based on how people act today about what amounts to the same thing as what others in yesteryear whined about as the world evolved.

Newspaper from the period are probably a treasure for studying this stupidity of the Worrying Class who mistake economic progress and evolution as doom when seen from the narrow and ignorant view at the end of their pointy noses.

John V May 1, 2011 at 10:19 am

What the hell?

The article is about that very issue.

Richard W. Fulmer April 30, 2011 at 5:26 pm

We may be on the verge of another industrial revolution based on “3D printing” (see links below) in which we produce more goods in greater variety and at lower cost than we can now imagine. Yet it could be that much of this production will be off official radar screens and will not be included in the GDP.

http://www.economist.com/node/18114221
http://www.economist.com/node/18114327
http://en.wikipedia.org/wiki/3D_Printers

W.E. Heasley April 30, 2011 at 6:51 pm

“Are aliens from other planets damaging earth’s economy with unfair interplanetary trade practices?”

The world’s supply of aluminum fosdec, the shaving cream atom, is alarming low…enter…..Ian Fletcher Dodgers in the 24 ½ century!

http://www.youtube.com/watch?v=0vBqAPuhoPs&feature=related

Adam April 30, 2011 at 10:53 pm

I like the “masculine” and “girly-girl” language. I think that a significant number of men hold asinine beliefs because of a need to look and feel manly and a fear of appearing weak or effeminate. Nothing more manly than a shiny new SUV rolling off the production line. Nothing more wimpy than some pencil-necked geek sitting in an office pushing paper.

Grunt, scratch, burp.

Harold Cockerill May 1, 2011 at 7:28 am

Is the fear of appearing weak asinine?

Fart.

Gil April 30, 2011 at 11:35 pm

How could protectionists restrict trade to one planet with onerous tariffs and condemn people into poverty?!

Harold Cockerill May 1, 2011 at 7:26 am

Yes, how could they? It’s probably because they are evil.

Gil May 1, 2011 at 10:58 am

People see large space freighters coming to Earth and argue about the cost and energy of doing space warps but transportation costs don’t really add much to the sale price of food.

Martin Brock May 1, 2011 at 3:48 am

Services are fine. I work in the service sector myself, though I could also be said to “manufacture” something (software).

On the other hand, I’d like to see figures on the growth of government “services”. The state sector is growing as a percentage of GDP, and its “product” typically involves “services”, so this growth must account for some of the global growth in services as a percentage of GDP.

I’m all for free trade, but when you freely exchange your goods for goods I’m effectively compelled to surrender, the trade is not free, even if it seems free to you.

Randy May 1, 2011 at 5:28 am

It seems wrong to me to roll government “production” into GDP. It seems more accurate to record it as a cost – a reduction of GDP.

Martin Brock May 1, 2011 at 9:39 am

GDP presumably measures what is sold. You don’t “produce” anything until someone buys it. This measure omits goods that households and other groups generate for themselves, outside of the market, but it seems a reasonable measure of “production” regardless.

I produce lots of sh*t, but my sh*t doesn’t contribute to GDP, because it has no market value, so I don’t sell it. My sh*t is the end of the consumption line. I’ve extracted all of the value from goods I’ve consumed to generate it.

State spending reasonably contributes to GDP in a limited sense. The state buys many genuine goods produced; however, with the power to tax and impose debts, the state has little need to economize, so it can (and routinely does) pay more than the market price would be without a state taxing and imposing debts.

Of course, sellers welcome the higher price, but it’s not a free market price, because “free market” excludes involuntary transactions definitively. Furthermore, we all pay the state’s premium, because we must bid against it.

The premium that states pay over a free market price does not contribute to “free market GDP”, but we don’t know prices unaffected by the state’s bidding, so calculating a “free market GDP” for comparison is problematic.

In other words, the state consumes whatever it can forcibly command, so much if its sh*t does contribute to GDP.

Frank33328 May 1, 2011 at 11:25 am

I find this metric confusing. Are we measuring the cost of manufactured goods versus the combined cost of all goods? If so then isn’t the metric just confirming of obvious?

If the point of progress is to do more with less then wouldn’t one expect for the cost of manufactured goods to decrease over time. If mankind ever gets so good at making things that everyone has all they want of whatever they want for free, then the metric would show that cost of all manufactured goods was 0% of the world GDP.

I guess I miss the point of the chart.

John V May 1, 2011 at 11:46 am

The point is that the value of manufactured is shrinking as a share of the total value of economic activity….not just in the US but globally.

anonymous coward May 1, 2011 at 11:52 am

You summed up the point of the chart. It’s an alternate hypothesis to the one protectionists so often offer.

They say:
Manufacturing has declined because foreigners are stealing our jobs! And bought off politicians let them!

The chart says:
Haven’t you heard of “Frank33328′s Law”? I think that that is what is actually happening. Yes, jobs flow across various borders (city, county, state, country, region) in various directions to various degrees . But the important trend here is the fact that the whole world is simply getting better at making things for less. That’s progress, not something awful.

They respond:
You are evil and stupid and hate America.

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