Prosperity and making stuff

by Russ Roberts on February 21, 2008

in Standard of Living, Work

Harold Meyerson thinks we’ve become a nation of shoppers rather than a nation of producers:

If 19th-century England was a nation of shopkeepers, the United States today is a nation of shoppers, and our role in the world economy is to buy what other countries — or U.S.-based corporations with factories in other countries — make. It was not ever thus. In the four decades following World War II, our largest employer was General Motors; for the past decade, it’s been Wal-Mart.

It’s a fact. Sort of. Actually, the federal government is the largest employer—1.7 million employees and that excludes the Post Office. Does that mean we’ve become a nation of bureaucrats because a little over 1% of all employees work for the government? Does it mean we’re on a perilous downward path where instead of making things, we regulate things? That would be a silly statement. It is equally silly to conclude that because Wal-Mart is the largest private employer we’ve stopped making things.

Actually, making things is not the road to prosperity. The road to prosperity for a nation is to use the skills of its citizens wisely. The wise use of those skills depends on the skills and desires of people in other nations. Sometimes that means making stuff. Sometimes it means providing services in exchange for making stuff.

And as it turns out, we do make a lot of stuff here in the United States. Manufacturing output is dramatically greater today than 30 or 40 or 50 or 60 years ago, the halcyon era that Meyerson imagines once existed. Manufacturing output has almost tripled since 1970. What has happened over the last 60 years is that productivity in the manufacturing sector has increased greatly. That has allowed the US manufacturing sector to produce a lot more stuff with  roughly the same or even a declining number of employees.

Wal-Mart is a red herring. It’s success hasn’t come at the expense of the manufacturing sector. The trends in the manufacturing sector go back 60 years, long before Wal-Mart existed.

Meyerson continues:

GM followed in the footsteps of Henry Ford, who by 1913 had concluded that he needed to pay his workers enough that they could afford to buy a new Ford. Wal-Mart, by contrast, pays its workers so little that they are compelled to shop at Wal-Mart.

But even if Wal-Mart weren’t a downward force on wages throughout much of the economy,

Sorry to stop the quote in mid-sentence, but it’s such a great stopping point. Wal-Mart is a downward force on wages throughout much of the economy? What does the word “much” mean in that sentence? I think it’s a hedge for the author. It covers a lot of ground. It would be absurd to argue that Wal-Mart lowers wages in Manhattan so maybe it’s a geographical qualifier. It would be absurd to argue that Wal-Mart lowers wages in baseball or journalism or the computer industry, so maybe it’s a sectoral qualifier.

But where is the large part of the economy (much, after all, means a substantial part) that Wal-Mart does affect wages in a downward fashion? Is it in certain geographical areas where Wal-Mart stores have opened, like say, in DeKalb county, outside of Atlanta? When Wal-Mart opened a store there recently, 7500 people showed up for 400 jobs. Did Wal-Mart attract those people by offering LOWER wages than were being offered elsewhere?

And how is it that a company that employs slightly less than 1% of the labor force affect wages in much of the economy, however you define “much?”

But Meyerson has a worse problem to explain. How does a nation of shoppers thrive when incomes are stagnating, as he believes they are?

Here’s the full quote:

But even if Wal-Mart weren’t a downward force on wages throughout much of the economy, consider the implications of a nation whose chief economic activity is personal consumption — more particularly, personal consumption at a time when incomes are stagnating. The only way such a nation can get along is to go into debt, which is precisely what Americans have done.

Do you see the problem? How can a nation of stagnating incomes get to enjoy so much stuff? It must be debt. We’re living beyond our means. We’re borrowing to support a lifestyle we can’t afford.

Debt is up in recent years, but so is wealth. I’d like to see evidence that the prosperity of say the last 25 years is due to borrowing. The prosperity of the last 25 years is real. It has been driven by productivity increases in manufacturing and the service sector, created by an explosion of innovation in how we handle information.

Meyerson’s solution to our alleged economic crisis is to elect either Hillary or Obama:

One of the crucial differences between the two parties this year is that Hillary Clinton and Barack Obama have both revived the idea of a national industrial strategy — better late than never — while John McCain still acts as if banks and corporations, left to their own devices, would revive our economy through their investments. Problem is, we’ve left banks and corporations to their own devices for decades, and they’ve funded the rise of low-wage, high-profit East Asia

Nonetheless, McCain calls for across-the-board corporate tax cuts, though that money may well be bound for Shanghai. Clinton and Obama, by contrast, call for the public sector to take up the slack created by the private sector’s reluctance to invest in the United States.

Ah, that’s the ticket. Let’s try the Japanese economic strategy. And what does he mean by the private sector’s reluctance to invest in the United States? Everybody wants to invest in the United States. Foreign governments, foreign investors, American investors and American companies. The money flows in because the United States is the most productive economy on the face of the earth. Would someone let Harold Meyerson in on this secret?


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