Here’s a letter to a reader of my blog:
Mr. C__:
Thanks for your e-mail in which you write:
As evidence bearing on the question, ‘has the American manufacturing sector significantly declined in recent years?’ you frequently cite the metric “real industrial output” (which indicates that it has not.) I suggest that in the future, if is convenient, you use instead per capita real industrial output, which astute readers will realize is less misleading.
With respect, I don’t believe that – even without adjusting for population changes – it’s misleading to point out that real industrial output in America has generally risen over the years. Protectionists and industrial-policyists incessantly insist that America has become deindustrialized – that, in Trump’s words, “we don’t make things anymore.” Yet just one month after Trump offered this assessment, industrial output in the U.S. hit its all-time high. That was in September 2018; this output today is just a fraction lower than that all-time high. It’s also 17 percent higher than when China joined the WTO and 144 percent higher than in 1975, the last year that America ran an annual trade surplus.
Nevertheless, let’s look at industrial output per capita. The higher the ratio of the index of industrial output to population, the greater is per-capita industrial output. In 1975, the index of industrial output was 40.9148 and U.S. population was 216 million, giving a ratio (40.9148/216) of 0.189. In 2001, the index of industrial output was 89.6854 and population was 285 million, yielding a ratio of 0.315. Today (May 2024) the index of industrial production stands at 103.1187 and there are approximately 336 Americans, yielding a ratio of 0.307. So even on a per-capita basis, America hasn’t deindustrialized.
I end with a more fundamental question: So what? It happens that the constant assertion that America has deindustrialized is mistaken, and this error should be pointed out. But there is, in fact, nothing special about outputs classified as “industrial.” The ultimate source of value is human creativity – innovation, the application of the human mind and the effectiveness of this application to produce goods and services that improve human lives. If we Americans were to specialize even more than we already do at producing outputs classified as “services” – specialization driven by income earners voluntarily spending their incomes as they choose – the result would be nothing to bemoan.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
