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Finding ways to raise costs and make us poorer

Posted By Russ Roberts On August 30, 2011 @ 11:30 am In Complexity & Emergence | Comments Disabled

Susan Hockfield has a piece in the New York Times [1] 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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[1] a piece in the New York Times: http://www.nytimes.com/2011/08/30/opinion/manufacturing-a-recovery.html?_r=1

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