Finding ways to raise costs and make us poorer

by Russ Roberts on August 30, 2011

in Complexity & Emergence

Susan Hockfield has a piece in the New York Times on manufacturing. She is probably a very smart person. She is described as a neuroscientist, president of MIT, and a member of the GE board. Here is how her piece opens:

The United States became the world’s largest economy because we invented products and then made them with new processes. With design and fabrication side by side, insights from the factory floor flowed back to the drawing board. Today, our most important task is to restart this virtuous cycle of invention and manufacturing.

Rebuilding our manufacturing capacity requires the demolition of the idea that the United States can thrive on its service sector alone. We need to create at least 20 million jobs in the next decade to offset the effects of the recession and to address our $500 billion trade deficit in manufactured goods. These problems are related, given that the service sector accounts for only 20 percent of world trade.

The piece goes on to talk about why we need government to get involved. But let’s just look at the opening. I disagree with almost every sentence. But the most important error is the idea implicit in this piece that there was a decision made somewhere by someone to gamble on a service economy instead of a manufacturing economy. If the idea of returning to what allegedly made America great is such a good idea, why does she need to write a piece in the New York Times? If making the stuff we invent is so virtuous, why isn’t it happening? There are four possibilities.

1. No one has thought of it.
2. People have thought of it but something stops them from implementing the idea.
3. People have thought of it but the gains go to others so no one does it.
4. It’s not a good idea.

So why does Apple, for example, outsource so much of its production? Because it’s cheaper and it allows more people to be able to afford more Apple products.

Making stuff the cheapest way is the road to prosperity.

Trying to find expensive ways to make stuff (because it once was a good idea but no longer is) is the road to poverty.

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Jack W August 30, 2011 at 11:44 am

“With design and fabrication side by side, insights from the factory floor flowed back to the drawing board.”

It is because this “flow” process continues to happen today in American factories that we get more innovative ways to produce goods within the United States with less labor. So more of this would continue to produce…fewer manufacturing jobs. Is that what she wants? I don’t think so.

Darren August 30, 2011 at 5:38 pm

What’s interesting is that most legislation and regulation has the effect of raising the costs of production. This has the effect of forcing businesses to outsource or come up with better and cheaper ways to produce whatever it is they produce. This means fewer low wage jobs, which means government must step in to ‘protect’ these jobs, which…..

Dan J August 31, 2011 at 12:30 am

Please correct me if I am incorrect, but I have surmised that businesses would be willing to pay the higher American wages in many cases rather than the lower skilled and lowered innovative actions of the likes of China or India. By, higher wages, I refer to our minimum wages over foreign wages.
The amount of legislation, regulation, rules, mandates, and taxes make business in the use too costly to compete in the global market. Add in employee compensation and we, are uncompetitive in comparison to foreign markets.
From anecdotal evidence, mostly, I gather that many businesses would gladly pay more in wages to keep their businesses in the US, but all of the govt added costs do not make it practical.
The US has been barking at the rest of the world for decades to embrace ‘democracy’ (democratic republics over authoritarians and dictators) and freer markets. When that has begun, at least in case of freer markets, China and India (eh… More free than before or let’s just say some tenets of capitalism), the US is not prepared to be competitive.
Our elected officials, instead, regress our markets, more and more, toward centralized authority and more rigid legislation and regulation, which levy high costs.
This may be more 100′s Econ, but…… This is where I am. What seems a more blue collar understanding.
Investment will still occur in India, China, and other immature capitalist markets….. But they should. Huge opportunities in emerging markets. Huge savings for our economy for less expensive products.
With US govt mandated costs, what would be the price of an IPod or IPad? Much higher than it is now, I am confident.

Dan J August 31, 2011 at 2:25 am

With US govt mandated costs, what would be the price of an IPod or IPad manufactured in the US?

T Rich August 31, 2011 at 10:25 am

Someone previously commented on the Cafe, that the biggest deal with Apple’s products was likely NOT the cost of production differences that might exist between US and China. The real issue was more than likely TIME. How long do you think it would take Apple to build a manufacturing facility in Cupertino, California? I mean Ipod’s have all sorts of funky heavy metals and chemicals, etc. And, wouldn’t a manufacturing facility be a blight on rich people’s precious view? And, how would the increased traffic at the manufacturing facility impact the local environment?

So, Apple calls the permitting people in China, and the Chinese ask, “How soon can you start building?” Time is the critical issue in high tech. Hell, it’s critical in blacksmithing – you must strike while the iron is hot.

Andrew B August 30, 2011 at 11:52 am

What about the costs to inventing a product that, as soon as it is manufactured, starts to get reverse engineered in China where IP rights are not enforceable? The costs of enforcing a patent have to be borne by someone… If two countries respect IP rights differently, then the inventor can’t easily cash in on his/her invention. So why try? Its easier and cheaper to operate a local service or a retail location to sell someone elses products.

jjoxman August 30, 2011 at 12:41 pm

You assume that without IP rights the things wouldn’t get invented. Where is the evidence for that position?

vikingvista August 30, 2011 at 1:03 pm

There isn’t any. Even when patent rights are successfully enforced, protected products have nearly identical competing products on the market and not only do all of them manage to be profitable, but consumers benefit from lower prices and greater variety of choices, as well as a decentralization of that type of product development. In fact, that is true even when they aren’t enforced.

EG August 30, 2011 at 12:51 pm

Well, there is some bit of truth in what you are saying, at some level. But its too simplistic. Everything at the end of the day can be copied.

This isn’t a new game. Its a game that has been going on forever. For example, Ford sold the USSR trucks and cars, and even licenses for production. The Soviets copied it, and it started their automotive industry. Douglas sold the Soviets their DC-3 airplanes, and the Soviets copied it and started their bomber industry. And every other thing in between.

Boeing sells 787s to China. Is China going to copy some of it? Probably. Would Boeing have made more money if it didn’t sell it to China (and China probably copies tech from it anyway, since its mostly made in other countries)? Probably not. By the time China gets around to copying some of that technology, the state of the art will have moved beyond that point.

If the fear is that someone will copy your product, then you should never sell anything to anyone. But then what would you have gained?

EG August 30, 2011 at 11:56 am

“She is described as a neuroscientist, president of MIT, and a member of the GE board. ”

None of these are prerequisites for understanding the very simple concept you bring up here. But at the end of the day, what does it matter what she wrote in the NYT? Politicians have been saying these things for decades now, and it hasn’t made a difference to anyone

vikingvista August 30, 2011 at 1:09 pm

Economics is one of those fields, unlike medicine, meteorology, or geophysics, e.g., where anyone happily claims to be an expert, and nearly everyone happily accepts it.

Of course, part of the reason is likely because the actual experts tend to be incompetent, so commentary from a neuroscientist or plumber probably isn’t any worse than what you get from an expert.

EG August 30, 2011 at 1:37 pm

I disagree. A lot of people pretend to be experts in meteorology too. Like Al Gore, or my girlfriend when I was in high school.

I’d say economics, unfortunately, is a science with few “right” or “provable” answers, so pretending to be an expert in it will get you a lot farther than medicine.

vikingvista August 30, 2011 at 4:51 pm

Good point.

rbd August 30, 2011 at 4:45 pm

My micro prof explained economics this way: it’s isn’t so much a body of knowledge, but rather a way of arranging your thoughts (presumably about why humans act).

I really like that definition.

Economiser August 31, 2011 at 9:42 am

Me too…

T Rich August 31, 2011 at 9:04 am

Jonah Goldberg wrote (what I think was) an excellent essay on the issue of experts and their impact on politicians today. Definitely worth the two minutes to read it.

http://www.jewishworldreview.com/cols/jonah083111.php3

neoclassical_libertarian August 30, 2011 at 12:11 pm

Susie doesn’t seem to know what “comparative advantage” means. Typical lefty. She would have at least learned something had she read Paul Krugman’s articles when he was at M.I.T. Krugman, like all economists, supports free trade. Now he’s just a closet supporter. Free trade makes both countries better off. Contrary to what Susie thinks, international trade and off-shoring the manufacturing sector were what made America capitalism and the middle class flourish. Now she wants to raise prices for the average American.

tdp August 31, 2011 at 12:22 pm

Send her an econ 101 textbook that talks about comparative advantage and Bastiat’s essay “The Balance of Trade”. Of all his works, it is by far my favorite.

whotrustedus August 30, 2011 at 12:17 pm

“Making stuff the cheapest way is the road to prosperity. Trying to find expensive ways to make stuff (because it once was a good idea but no longer is) is the road to poverty.”

Don, I think you’ve captured the essence of this debate with this simple refrain. Bravo!

Russ Roberts August 30, 2011 at 1:51 pm

It’s actually my post, but Don and I are on the same page…

amdeming August 30, 2011 at 2:54 pm

I agree with your comment, but I would add that one would need to make sure that the measurement of the costs of production are correct. One benefit of keeping the production in house is the experience that comes along with it. Although it may be very difficult to put a value on this experience, it should lead to improved innovation/discovery down the line. It won’t always outweigh the difference in cost, but it should be considered.

T Rich August 31, 2011 at 10:11 am

Excellent comment. I think that there are generational withering issues that we are not yet seeing with the issue of off-shoring. I read an excellent essay/speech given by James Dyson (regrettably my Google fu is weak and I can’t locate a link to it) about his efforts to design, invent, and perfect the cyclonic vacuum cleaner. He then defends – and well I might add – his decision to move the manufacturing from his hometown in England to Malaysia.

Regarding my concern about the generational effects, Dyson explains that he was able to find and work with a ton of pipe benders and metal fabricators in England when he was in the design stage (and that his knowledge was supplemented having grown up in an industrial town) while producing over 5000 prototypes. My question is whether, his kids’ generation will have that knowledge and access to skilled trades once all the manufacturing has been in Malaysia for 25 years?

I think that the next round of invention of mechanical things will be in the manufacturing sights. With effort (and luck) the next generation of inventors in England will be making electronic rather than mechanical devices. To that end, Dyson started a foundation to foster engineering and industrial design – although I wonder if he is pushing a rope.

whotrustedus August 30, 2011 at 3:01 pm

Oh man! My bad! i deserve some sort of punishment for such a faux pas! i should have known better.

T Rich August 31, 2011 at 10:27 am

Go read a Paul Krugman editorial and then make a strong case defending his position. That’ll teach you to be more careful in the future. ;-)

Jon August 30, 2011 at 12:17 pm

Politicians and academics should have to work a day in manufacturing before suggesting that knowledge workers return to the shop floor. I much prefer working in front of a computer myself…

veritasrex August 30, 2011 at 12:18 pm

Implicit in her piece is the assumption that economies are and must be planned, tweeked, and run. A little manufacturing output here…a little service output there. Perhaps an annointed and enlightened person like Ms. Hockfield can tell us exactly how much of each we should have. Then all I have to do is sit back and play with my abundant, American-made trinket and souvenir collection after we “take back” all those jobs that we shipped to China.

khodge August 30, 2011 at 2:45 pm

Thank goodness we have government bureaucrats who are capable of setting the ideal curriculum that will provide proper training for the (as yet undefined) new manufacturing jobs.

T Rich August 31, 2011 at 10:17 am

A perfect example of Hayek’s “fatal conceit” of some of the brightest in our society. She wants plans, control, organization and leadership because that is what the management books tell her management consists of. The planners need to realize the limits of their knowledge and allow emergent order and mutual self-interest of individuals to spur growth.

My old farmer dad told me that the job of the farmer was to allow the plants to grow – break and soften the soil, remove the rocks, keep the weeds down, and make sure the plants have water and light. The plant does its own growing, we just create a favorable environment.

SweetLiberty August 30, 2011 at 12:23 pm

“But the most important error is the idea implicit in this piece that there was a decision made somewhere by someone to gamble on a service economy instead of a manufacturing economy.”

Well, actually someone did gamble on the service economy versus the manufacturing economy – a whole bunch of someones in a whole lot of somewheres. Individuals are making these choices, not a bureaucrat. But because the service sector is growing in terms of employment as the manufacturing sector shrinks (again, in terms of employment), only means that more entrepreneurs see greater potential in services than manufacturing.

Why not lament the loss of farming jobs to manufacturing during the industrial revolution? Whether it’s farming to manufacturing, or manufacturing to service – these are but evolutions in productivity, allowing more luxury items into our lives which incrementally increase our standard of living. However, none of these labor transitions came at the expense of lower output – in fact, it is the exact opposite; because output has increased with less labor in one sector, labor has been freed to advance to the next desirable level. Everyone focuses on the iPad or iPhone – the devices themselves, getting worked up as to which parts are manufactured in China versus the U.S. But remove the millions of software apps developed in the service sector that make these devices useful and desirable, and all you have is odd looking paperweights no one would want to buy or invest in.

Because we are physical beings in a physical universe, we will always need a certain percentage of labor dedicated to farming and manufacturing. But while bodily comforts are a priority to maintain, once met, what we really desire is the expansion and entertainment of our minds – and that comes from the service sector, a luxury societies should aspire to – not malign.

Methinks1776 August 30, 2011 at 12:53 pm

The United States became the world’s largest economy because we invented products and then made them with new processes.

She’s wrong. The United States became the world’s largest economy because government got out of people’s way and innovation, so natural to humanity, was allowed to flower. The government mostly stuck to maintaining Rule of Law, protecting the rights of individuals and protecting the realm (mostly). This was unique in the world.

In other words the United States became the world’s largest economy exactly because government didn’t do what this woman prescribes.

SweetLiberty August 30, 2011 at 1:49 pm

John Galt would approve.

Dan J August 31, 2011 at 12:37 am

Would I be wrong in adding, that the US was a huge beneficiary of the rest of industrialized world being torn to shreds after WWII, giving the US a huge advantage and shifting more investment into what was already operable instead of a rebuilding effort across Europe?
And, the US reaped benefits of having infrastructure and capability of supplying Europe with needs for rebuilding?
This on top of minimized govt interventions.

T Rich August 31, 2011 at 10:31 am

Dan,
I think that is a strong argument for the post WWII growth. However, we were among the strongest economies in the world in the 1870′s through 1930′s as well. It all boils down to the fact that the government was not actively killing the golden goose.

Dan J September 1, 2011 at 11:36 am

T Rich, I agree. The greatest strength was less govt interference. Even though FDR interfered heavily, our economy was much more freer than others.
My argument is not meant to diminish the significance of freer markets and capitalism. But, to diminish FDR positive impacts theories of 10-14yrs of malfeasance ‘finally coming together’.
And, with he emergence of largely populated regions moving in direction of some forms of capitalism, we are starting to have more competition for investment dollars. Therefore, we must stop the govt from pushing us into more central authority markets, which inhibit growth and innovation. To combat cheap labor, we only need to reduce huge govt. imposed costs of regulations, complicated tax code, high taxes, burdensome govt imposed employee compensations, ever increasing govt paperwork, rent-seeking etc.,… Rather than the Clinton/Bush/Obama massive govt build up.

Economic Freedom August 31, 2011 at 8:39 pm

Would I be wrong in adding, that the US was a huge beneficiary of the rest of industrialized world being torn to shreds after WWII, giving the US a huge advantage

Yes, I think you would be wrong. Strong “economy A” doesn’t benefit by being surrounded by weak “economies B, C, & D.” Economy A benefits by being surrounded by other strong economies.

It wouldn’t benefit the US to be surrounded only by weak economies like that of Cuba and North Korea.

Dan J September 1, 2011 at 4:50 am

Mexico? Canada? Was Canada a strong economy in the 50′s? I am by no means suggesting that US economic strength was due strictly to not having it’s landscape devastated by war, including much if it’s infrastructure and production capabilities. I am only asserting that it may have played a large role in conjunction with other factors.

Economic Freedom September 1, 2011 at 8:15 pm

Mexico? Canada?

Huh? You are comparing Mexico and Canada – whether today or in the 1950s — to a completely bombed-out economy in Europe immediately after WWII?

Anyway, the premise from which you’re making that statement is incorrect. If you’re producing and selling lemonade, do you have some sort of economic advantage if you set up your stand in the South Bronx of New York City? Or would you do better setting it up on a corner in Scardsdale? Is it better to trade with economically successful customers? Or is it better for you — “less competition” and all that — if your customers are poor, or, at least, poorer than you?

House of Cards August 30, 2011 at 1:02 pm

If you had the choice of working on an assembly line, or managing a hedge fund, which would you choose? A hedge fund manager can make billions of dollars in a year besides. I don’t care if the autoworker is unionized or not, she has a lot of catching up to do if she wants to make billions of dollars. This is a no-brainer to me. There is clearly a lack of competition in the hedge fund business that allows their managers to take home billions annually. What we need is a “Sputnik moment” to realize that our economy must be based on hedge-fundization rather than throwback industrialization.

Re “Sputnik moment” :

The phrase “Sputnik moment” has been tossed around during recent debates and press conferences regarding the technology gap between the United States and other nations, but what does the evocative phrase mean?

Government officials, including Sen. John Kerry (D-Mass.) and President Barack Obama, have used the term “Sputnik moment” to describe the United States’ need to catch up to the rapid development of other countries, especially when it comes to clean energy and technology.

“From wind power to nuclear reactors to high-speed rail, China and other countries are moving aggressively to capture the lead,” U.S. Secretary of Energy Steven Chu told press sources on Nov. 29. “Given that challenge, and given the enormous economic opportunities in clean energy, it’s time for America to do what we do best: innovate.”

Dan J August 31, 2011 at 12:40 am

A big fat NO to govt mandated, subsidized, or competition being penalized in the name of ‘Green Tech’.
Either, the tech is economically viable in the market void of govt intervention or it is not….. SPAIN!!

T Rich August 31, 2011 at 10:42 am

I think that there is room for publicly funded basic research. The NSF does a large amount of the funding in these areas for about $8 billion per year. Yes, it is a big number, but it is a trifle of the budgets of DOE and DoEd. The one major challenge of government funded basic research is that they tend to be incrementalist rather than revolutionary in the grant making and review process. The second lesser challenge is that grant making is based on consensus (you know like anthropogenic global warming) to a large degree.

It galls me to hear that China is doing more advanced research on pebble bed reactors and the like than the US is. Not because we have any entitlement to lead, but simply because a free market and reasonable regulations on nuclear power would have made the research worthwhile here a long time ago. We gutted our capabilities in the 1970s when we put regulators in charge of the nuclear industry and we have not built much since then.

Japan just scrapped plans for future nuclear facilities because of the earthquake and the problems at Fukushima. That plant was old and still held up pretty well – in fact, it sounds like the small change of relocating their back up systems to above ground rather than below ground (where the tsunami killed them) would have tremendously reduced their problem. Instead of the panicky decision to stop nuclear production, they should have learned from the problem and said that there goal was to build smarter new facilities that are safer and gradually replace older designs with ones that are cleaner, safer and more efficient.

And Dan, I join you in shouting …. SPAIN!!

Manfred August 30, 2011 at 1:09 pm

This woman is president of MIT and she never heard of Paul Samuelson and his papers on International Trade? What kind of president is she?

Methinks1776 August 30, 2011 at 1:13 pm

There is clearly a lack of competition in the hedge fund business that allows their managers to take home billions annually.

You clearly have no idea what you’re talking about. That’s like saying there’s clearly no competition in retail because Sam Walton became one of the richest men in America. Just because a tiny minority becomes that wealthy doesn’t mean there’s no competition in the industry and most hedge fund managers do not make millions and their income is far more variable than an assembly line employee.

to describe the United States’ need to catch up to the rapid development of other countries, especially when it comes to clean energy and technology.

This is particularly hilarious. Those countries are very far behind the United States. I realize Obama has been desperately trying to impoverish us to catch down to them and painting it as “progress”, but I’m afraid I just don’t have the same goal. I came to this country to move forward, not to live in hovels of Europe and China.

Your “clean energy jobs” that the Bamster is so keen on will cost nearly $1MM per job. He and his fellow politicians are more destructive than natural disasters.

EG August 30, 2011 at 1:41 pm

If they are more destructive than natural disasters, than you mean that they are stimulating to the economy? Because natural disasters tend to be good for an economy.

Methinks1776 August 30, 2011 at 1:57 pm

LOL!

Dream House August 30, 2011 at 1:57 pm

I won’t get in a pissing contest with a skunk like you. But, I doubt seriously that even a ruthless tycoon like Sam Walton would appreciate being compared to the thieves on Wall St. You foolishly compare apples with oranges. Вы по-дурацки сравниваете яблоки с апельсинами.

You’re understanding of the world that you alledged live in is appalling. It must be due to all the time you’ve wasted in front of a computer screen.

Methinks1776 August 30, 2011 at 3:24 pm

You’re not a native Russian speaker. An attempt at an insult in Russian would not start with the formal and polite address and there are far better insults than “you’re comparing apples and oranges”.

That you’re an asshole with no sense of irony is amusing to me. But, there’s really no excuse for being tedious.

Dan H August 30, 2011 at 4:45 pm

Dream House,

My girlfriend agrees with Methinks. Furthermore, she says “Ti debil”.

That is all.

House of Cards August 30, 2011 at 2:05 pm

What is stopping your from making billions on Wall St.? Please explain in detail. Also, what makes you job so invaluable that it can’t be offshored. What special knowledge do you possess? I haven’t seen a original thought out of your nasty mouth, so I wonder if you are involved in some kind of illegal pyramid game.

Methinks1776 August 30, 2011 at 3:34 pm

What is stopping your from making billions on Wall St.?

Nothing is stopping me. What’s stopping you? Obviously a rhetorical question.

Also, what makes you job so invaluable that it can’t be offshored. What special knowledge do you possess?

I know how to provide liquidity and make a lot of money doing it. If at any moment I don’t, my investors will “offshore” to another trader or money manager and my job will be over. Actually, they don’t even have to leave for me to no longer make money. The arrangement I have does not include a management fee, so I only make money if I make money for my investors. It’s the risk I take – a risk no employee takes. It’s hard to run a pyramid scheme when your fund has been closed to new investors for years. Ponzi schemes rely on fresh meat.

I’m sure my response will send you into the only thing you’re capable of – a murderous rage. I just can’t wait for the jealous sputtering and spitting as you choke on your own rage.

EG August 30, 2011 at 4:22 pm

Just admit it. You’re a greedy thief.

Methinks1776 August 30, 2011 at 4:56 pm

As is anyone who becomes wealthy. What was it we were taught as children (I’m assuming you’re old enough to remember a good Communist education)? The bourgeoisie, the capitalists are exploiters. Nobody can become wealthy without being an exploiter of the Proletariat.

Unfortunately, this is what they teach in NYC public schools too.

EG August 30, 2011 at 5:25 pm

I’m not old enough to remember a good communist education. By the time I was in school, all I got to learn were some poems about the Mother Party and go on field trips to visit the Dear Leader’s birthplace etc. They never got a chance to get into the ideological stuff with me.

Mesa Econoguy August 30, 2011 at 5:58 pm

Like.

:)

T Rich August 31, 2011 at 10:51 am

Doubleplusgood comment, M’lady.

I think that I will trust your understanding of a communist system’s actual outcomes better than this House troll.

kurlos August 30, 2011 at 2:07 pm

Progressives are desperately clinging to the past. She failed to mention the need to have chickens in our backyards.

T Rich August 31, 2011 at 10:52 am

Maybe instead of chickens, each of us should have a steelmaking blast furnace. Oh wait, Mao tried that…failed.

Invisible Backhand August 30, 2011 at 2:12 pm

Here’s the link for people without a NYT subscription:

http://www.nytimes.com/2011/08/30/opinion/manufacturing-a-recovery.html

John Dewey August 30, 2011 at 2:51 pm

Susan Hockfield: “These problems are related, given that the service sector accounts for only 20 percent of world trade.”

Our measurement of world trade may incorrectly give this impression, but this assertion cannot really be true.

The contribution of the service sector is included in the price of every good traded. We may refer to the purchase of an Airbus jet aircraft as an imported good, but much more than a good has been purchased. Some of the service sector costs imbedded in the price of that aircraft would include:

1. financing costs
2. transportation costs, both within the producing nation and across its borders
3. government services cost (taxes)
4. legal fees where outsourced by the producer
5. management consulting fees
6. information services costs where outsourced
7. insurance costs
8. waste management and environmental costs

We probably list a dozen more.

Our measurement system can easily measure the final sale price for imported and exported goods. It cannot easily show the majority contribution made by the service sector in creating those goods.

EG August 30, 2011 at 3:10 pm

“its products are used by hospitals for diagnoses and by the Postal Service to screen mail for anthrax. ”
But those are all service industries.

“A young company called Lilliputian Systems has developed handheld chargers for mobile devices. The chargers use a recyclable high-energy butane cartridge to replenish cellphones and laptops more efficiently than wall chargers. ”
But cellphones and laptops are mostly for people who provide services.

“Like the jet aircraft made by Boeing,”
But people buy Boeing aircraft only because there is demand for people to travel around. Airlines are a service business.

“Ten years ago, we enjoyed a trade surplus in advanced technology manufactured goods; today, that category accounts for an $81 billion annual trade deficit. ”
Boeing needs to buy machinery made in Germany to make its airplanes. Boeing needs to buy components and parts from Japan and Ital and Turkey…in order to produce as many airplanes and as cheaply as it does. And this is…”bad”?

“Countries that used to make inexpensive goods at low cost have developed the capacity to produce high-value goods ”
And that makes Boeing airplanes with components made in Turkey…CHEAPER for the rest of us to fly in. Boeing also designs stuff in Russia or in Poland, and builds it here!

“But factories abroad attract design and engineering talent; over time, manufacturing off shore leads to innovation off shore. ”
First off, she should take a walk around her own campus. Its like walking in Calcuta. I don’t think the problem is MIT grads going off to India. Second, so what? Then we can buy composite components made in Turkey to put in planes which we can then sell cheaper and airlines can operate cheaper…and we can all fly cheaper.

“The private sector cannot do this alone.”
?? You mean professors at MIT can’t get funding without the government? Thats what you mean

“Since World War II, federal investments in scientific research have set off waves of job-creating innovation in aviation, electronics, computing, the Internet and biotechnology.”
And since the 1970s, the private sector has left all gov-sponsored or military sponsored innovation in the dust. Why are we going back to WW2 to find an example of when the gov “drove” innovation”?
“A new era of advanced manufacturing also requires more graduates with greater proficiency in science, technology, engineering and mathematics. ”
We have the best and most graduates in any of these fields in the world. Thats because the rest of the word comes here to study those. Go walk around your school.

“Germany and Japan enjoy high wages and run major surpluses in manufactured goods; so can we. ”
But they sell that stuff to us. Who are we going to sell it to? Just because someone else makes money doing something, doesn’t mean you can too.

“Our economy will thrive only when we make what we invent. ”
No matter what the cost?

“But the recent debt-ceiling compromise could compel some 10 percent in cuts to federal research and development money in 2013. That could lead to a decade of stagnation. ”
Ohh!! Why didn’t you just say that in the very beginning, instead of wasting our time with the usual NYT talking points. That was the whole point here: us professors at MIT and us Government Electric cronies need more government grants to make useless junk no one wants to buy, like windmills and electric cars

Dan J August 31, 2011 at 12:53 am

Nice job!
Boeing needs to buy machinery made in Germany to make its airplanes. Boeing needs to buy components and parts from Japan and Ital and Turkey…in order to produce as many airplanes and as cheaply as it does. And this is…”bad”?- eg
Is magnesium a material used in the machinery or components? I offer this due to the protectionist tariffs on Magnesium and wonder if the tariff contributed to the manufacturing elsewhere?
Businesses can and will sustain many of the govt imposed costs, which are staggering, but often get just one more straw to break their back and force relocation. Whether it be competition, new govt mandated compensations, taxes, regulations (directly or indirectly -like costly regulations on energy forcing up energy costs), or advantages given to competition by crony capitalism, the newest govt Imposed costs mat be what finally pushes a business into bankruptcy… To never get started… Or to foreign lands.

Kenneth McClure August 30, 2011 at 4:31 pm

Who is TheOldGuyPhD?

Mesa Econoguy August 30, 2011 at 6:02 pm

Well if this woman is on the board of GE and runs MIT, she’s talking from 2 positions, specifically capture of public education spending, so she can prop up her institution, and capture of trendy (and incredibly wasteful) “green energy,” infrastructure, or any other branded jobs or stimulus cash du jour.

All at taxpayer expense, of course.

T Rich August 31, 2011 at 11:03 am

Oooooh, that’s a bingo! Mesa wins.

http://www.youtube.com/watch?v=EDkQZVJshgc

Sam Grove August 30, 2011 at 6:39 pm

All jobs are service jobs.
Why is pushing a wheelchair any more a service than hammering a nail?

John Dewey August 31, 2011 at 10:17 am

I agree, Sam. When government started to differentiate between goods producing and services producing sectors, no one could have imagined the foolish arguments which have evolved.

I suppose protectionists focus on manufacturing jobs only because they have not yet realized how easy it is to offshore service functions.

vikingvista August 31, 2011 at 4:06 pm

It is almost entirely due to the UAW.

mattmc August 30, 2011 at 10:26 pm

There is a loss of bottom up innovation. However, if bottom up innovation works, the solution should be to educate people that bottom up innovation is worth the cost of producing components. This is more or less the Clayton Christensen argument, about how companies can destroy themselves by exposing their business to disruptive innovation. So, perhaps, the solution is better expressed in business books than by distorting the market with government investment.

Bob August 30, 2011 at 10:40 pm

As president of MIT and GE board member Ms. Hockfield must submit to her overlords of conventional rethoric (BS) in order to curry government favor in the crony capitalist and educational mind control enviroment. Just this evening I saw a story about the lack of skilled machinists to fill current high paying jobs it was attributed to misdirected educational policy.

T Rich August 31, 2011 at 11:05 am

Link would be great. I am hoping that they stated that the “misdirected educational policy” was one which pushed everyone to attend college and looked unfavorably upon the trades.

Julian Nott August 31, 2011 at 12:09 am

>>United States became the world’s largest economy because …..<<

As an immigrant from Europe it is clear the US became the largest economy because it was the freest from self-important people like her. It is absurd to try to turn back the clock. When people are free they will invent the smart phone to tell the time instead.

steve August 31, 2011 at 2:18 am

You need a micro-scope just to see the relevant components (integrated circuits and software maybe the screen I am not sure) being designed by most Apple engineers. Being next to the shop floor may be useful for some few specialists in the design and automation of the factories, but for most of the engineers it doesn’t matter at all since their work is basically invisible on the factory floor. Furthermore, the factory equipment specialists that may benefit aren’t even employed by Apple. They are employed by other companies that specialize in that kind of equipment.

John Dewey August 31, 2011 at 11:14 am

The marketing network for Apple – the advertising, distribution, service, partnering, etc – is as important to the company’s success as the physical product and its design. Yet foolish protectionists would focus only on the production facilities of Apple in their criticism of offshoring.

Gerald D. Quill August 31, 2011 at 1:11 pm

Excellent Riposte to the President of MIT. Capital always flows to where it is best deployed. What does the good doctor say about the negative impact of consumers paying more for Apple products because they are made stateside and cannot make other purchases because too much has been spent on the Apple product? Who benefits from that? Also, what does the good doctor say when Apple goes bankrupt and all its jobs are lost because some foreign manufacturer steals its market share by selling an almost equally desirable product at a lower price?

Absurd thinking on her part.

Jerry Quill

fsm47 August 31, 2011 at 7:33 pm

Aren’t neuroscience and MIT mostly Government supported entities ? Makes sense she would opt for the ‘Government’ answer.

Slocum September 1, 2011 at 8:03 am

Boy, that critical lack of information flow back from the local production line has really crippled Apple’s engineers and designers, hasn’t it?

Dan S September 1, 2011 at 3:15 pm

Ironic that she mentions Boeing in her piece, given that the Obama administration has tried to appease its labor union allies by thwarting the proposed opening of a Boeing plant in South Carolina. Lady, you can’t have it both ways!

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