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Obama and manufacturing

President Obama spoke in Iowa the other day about the economy. In a sense, it was the launching of the re-election campaign. I thought it might be interesting to evaluate the economics and see what he thinks is going to be effective politically. The full text is here. I’ll be commenting on most of it. Here we go:

Let’s start with the White House title for the speech:

Remarks by the President on the Critical Role the Manufacturing Sector Plays in the American Economy

The manufacturing does not play a particularly critical role in the US economy. Employment in manufacturing as a percentage of total employment has been falling steadily since the end of World War II. But a lot of people think there is something special about manufacturing so the title strikes a resonant chord for many people even outside manufacturing.

The opening of the speech itself is a lot of nice stuff about Iowa and the innovative and productive nature of the factory where the speech took place, an Alcoa aluminum factory in Bettendorf, Iowa. Then he gets to it:

So you know that times change. You’ve seen times change. Alcoa has grown as America has grown. Now, you also know that sometimes change can be tough. Sometimes, the old ways of doing things just won’t cut it anymore. I was just talking to Klaus; he was talking about some sheet metal that you guys produce, that for a while you guys lost market share completely. You got your team together, redesigned it, and now you have 80 percent of the market back. That’s adapting to change. (Applause.) And see, when change happens, you’ve got a choice. You can either keep on doing what you were doing and hope things work out, or you can make the decision that not only you can meet the challenges of the future, but you can help set the pace.

That’s true for this company, and it’s true for America. For better or for worse, our generation has seen more than our fair share of economic change. Revolutions in technology have changed the way we live and the way we work. A lot of jobs can now be located anywhere there’s an Internet connection. And companies have become more efficient, so they get by with fewer workers.

This is reminiscent of the President’s recent remarks about ATM’s putting bank tellers out of work. Of course it’s true that technology can make life hard for bank tellers or telephone switch board operators. But as I alluded to above, that process has been going on for the last 60 years (and longer). Most of the economic times for America since 1960 have been pretty good for most Americans. And if it wasn’t good for someone, it turned out pretty well for their children and grandchildren. (If you’re interested, I talk about the role of technology (and trade) on our lives in The Choice and in The Price of Everything.)

Then the President talks about the human costs of a dynamic economy:

Now, in some ways, these changes have made our lives a lot easier. It makes products cheaper. You can produce them faster. But for a lot of our friends and neighbors, these changes have also caused a whole lot of pain. Today, for example, a high school diploma no longer guarantees you a good job. I met a couple of the guys here whose fathers had worked at the plant. Now, when the previous generation came to work at this plant, it didn’t matter what kind of education you had, it just mattered whether you were willing to work hard. But these days it’s hard to find a job without a high school diploma. And in a lot of cases, it’s hard to find a job without a college diploma.

He says:

Now, in some ways, these changes have made our lives a lot easier. It makes products cheaper. You can produce them faster.

I’d say in most ways, these changes have made our lives a lot easier. But the next part is the interesting part. He’s right. It’s harder to find a job if you’re only a high school graduate compared to say 50 or even 30 years ago. But it’s also harder to find a job if you’re trained as a blacksmith. It’s a good thing, in general, for most Americans that our productive processes use more technology and that many jobs that were once filled by high school grads don’t exist anymore. Having said that, it’s simply a fact that if you only have a high school diploma, it’s a lot harder to find a good-paying job than it used to be. The interesting question is what are the implications of that fact.

The President continues:

Over the past 13 years, about a third of our manufacturing jobs have vanished. It’s not just that they’ve gone overseas, it’s also that you guys are just better at producing stuff now than you used to be, so you use fewer workers. And meanwhile, a lot of workers have seen their wages not keep up with rising costs.

So I spent a lot of time thinking about these issues when I ran for this office in the first place. When I ran for President, before I came to Iowa, when I was still a senator in Illinois, I kept on thinking about all the folks I would meet in my travels who were feeling that squeeze of wages flat, costs going up. And then in the closing weeks of the campaign, the bottom fell out of the economy –- and the middle class got hammered some more. And I know talking to Klaus, Alcoa got hit pretty good too.

I really like that first paragraph–it’s a concession that you can’t blame all the ills of the manufacturing sector as a source of employment on foreigners stealing our jobs. The next part is OK. The President continues:

That demanded that we make some tough decisions –- decisions that we now know have pulled our economy back from the brink and put us on a better path. We’ve created more than 2 million new private sector jobs over the last 15 months alone, including almost 250,000 in manufacturing. (Applause.) That’s in the last 15 months.

And here at this plant, the workers that were laid off during the darkest days of the recession have all been hired back. And in fact, you guys are telling me that you’re thinking about hiring some more folks in the near future. That’s worth applauding. Somebody was — (applause.)

But for a lot of Americans, those numbers don’t matter much if they’re still out of work, or if they have a job that doesn’t pay enough to make the mortgage or pay the bills. So we’ve got more work to do. And that work is going to take some time. The problems that we developed didn’t happen overnight. We’re not going to solve them overnight either. But we will solve them.

What were those tough decisions? Spending over $800 billion dollars in careless ways? Maybe he’s talking about bailing out GM which was unpopular. And I love the confident “decisions that we now know have pulled our economy back from the brink and put us on a better path.” That’s all he has to sell. It could be true, but it’s not something we know. But my favorite part is this:

So we’ve got more work to do. And that work is going to take some time. The problems that we developed didn’t happen overnight. We’re not going to solve them overnight either. But we will solve them.

Unfortunately it isn’t necessarily true that problems that take a long time to develop take a long time to solve. But it sounds pretty good. It would be nice to let us know how he plans to solve the problems rather than simply reassuring us that it will happen. Why is he optimistic?

We’ll solve them because after all we’ve been through, we are still the United States of America. We’ve got the largest economy. We’ve got the best universities. We’ve got the most successful companies. We’ve got the best innovators and entrepreneurs. We’ve got the best workers in the world. (Applause.) Together, we’ve got the capacity not only to get back to where we were, but to get to where we need to be.

He’s basically right. There’s a lot of talent on the team. But it’s our talent, we, the people. What is his role? What’s the government’s role? He continues:

That’s why I ran for President — to get us where we need to be. I ran because I believe in an America where working families aren’t just treading water but they’re moving forward, and where our businesses lead the change on new technologies like clean energy and advanced manufacturing of the sort you’re doing right here at this plant.

Doesn’t answer my question. What is the President’s role in getting us where we need to be? He continues:

I believe in an America where our government lives within its means while investing in things that will help us grow, like a world-class education system and cutting-edge innovation and the best transportation and communication systems anywhere in the world. That’s how we’re going to make America the best place to create good, middle-class jobs. That’s how we’re going to win the future — by doing the smart things right now to help the middle class grow and feel more secure.

That first sentence is hard to take. Lives within its means? Liar liar pants on fire. As for the rest of the sentence, if those things are so important and precious, then why did you spend so little of your $800 billion spending spree on those things. Why did 2/3 of it go to the states and tax rebates? The President continues:

And a big part of that, a big part of our future has to be a robust and growing manufacturing sector. We’ve got to make things right here in America. (Applause.) We’ve always made things here in America. It’s in our blood. This plant has been in operation for 60 years. And what you’ve learned is that if you want to beat the competition, then you’ve got to innovate. You’ve got to invest in new skills, you’ve got to invest in new processes, you’ve got to invest in new products. I was just learning that some of the equipment right behind us — this was a huge investment. How much did you guys — $90 million. Think about that. That’s what made you guys competitive, having the best workers but also having the best equipment. You had to up your game. And that’s what we’ve got to do as a country as a whole. I want the cars and planes and wind turbines of the future to bear the proud stamp that says “Made in America.” That’s what I want. (Applause.)

This is a little confused. Forget about whether manufacturing is a big part of our future. He champions the acquisition of a big piece of equipment that made the workers competitive. That’s the problem he was complaining about earlier–innovation to stay ahead of the competition. And then he sums it up by saying the reason this plant is doing well is that they upped their game and that’s what the rest of us have to do. We have to up our game, whatever that means so that stuff will still get made in America, evidently the same stuff we’ve always made. Then it gets worse:

That’s why two years ago, we stood by the auto industry and kept some of our nation’s largest automakers from being sold for parts. And today, for the first time in years, the Big Three automakers are adding jobs and turning a profit and putting steel workers to work. (Applause.) We also told those companies, though, that they’d have to make some changes to compete, so we brought people together and set the first new fuel-mileage standards in more than 30 years. And that means fewer trips to the pump and less harmful pollution. And this plant has something to do with it, because I was just seeing some doors and some hoods made right here — more lightweight, more efficient, saves on fuel economy. And that means your business is improved as well. Everybody wins.

GM wouldn’t have been sold for parts. They would have gone into bankruptcy, and creditors and the union and their workers would have taken a haircut. But just look at the logic. He’s applauding Alcoa for upping their game. But the bailout of GM and Chrysler is the opposite of upping your game. It’s running to your parents to change the rules when you don’t like losing.

The rest of it isn’t very interesting. Read it if you want. He does get into his role. Pretty small:

That’s also why I announced last week a new partnership between our top engineering schools, our most innovative manufacturers, and the federal government to get American products from the drawing board to the factory floor to the marketplace as quickly as possible.

Hmm. I wonder what the federal government has to to do with it. And then there’s this:

And so three weeks ago, we announced new commitments from businesses and universities to make it possible for 500,000 community college students — half a million students — to earn industry-accepted credentials for manufacturing jobs that companies across the country are looking to fill. So basically what happens is the companies, they’ll say to the community colleges, here’s what we need. The community colleges will design a training program that certifies that if you get through that training program, and you’re working hard, you are prepared and equipped to get that job. And so we’re also making it easier for workers to get retrained and move up into better positions.

Again, no idea what really happened here or what it has to with Washington.

He ends by saying that just like Alcoa uses teams, America is like a team and if we all work together instead of the kind of partisan squabbling you see around Washington these days, then we’d all be OK. Blah blah blah.