February 28, 2010 AT 12:46 pm

US Manufacturing Is Not Dead

Industrial+Production
Excellent article – US Manufacturing Is Not Dead

US Manufacturing is alive and well. The real issue is manufacturing employment, which is dropping like a stone. And the reason for the drop is an increase in productivity.

Read the entire article… or skip to the end…

Here are some general conclusions.

1.) The US still manufactures goods. In fact, the US still manufactures plenty of goods. Take a look at the types of exports in the latest trade data from the Census. It includes exports of industrial supplies, capital goods, autos and consumer goods.

2.) While outsourcing does happen — that is, companies do go overseas to open new factories at the expense of US employees — it is not the primary cause of manufacturing job losses.

3.) Going back to the recent post on employment remember that in this recession the unemployment rate of specific groups was heavily influenced by education level. In fact, according to the BLS, higher education levels (college graduates and above) were remarkably untouched in the latest recession while lower education levels (high school graduates, high school with some secondary education) had higher rates of unemployment. Lower levels of education are typically associated with manufacturing and construction employment — the two areas of jobs that account for the largest percentage of job losses in this recession.

US manufacturing would be greatly helped by two developments.

First, China needs to float its currency. A country that has 10% GDP growth but little currency appreciation is obviously manipulating its currency’s value to a high degree. Given China’s growth rate, investors should be flocking to China driving up the yuan’s value. That is not happening. A real free-floating currency would cure a lot of the trade deficit problems.

Secondly, there have been calls for a US industrial policy — that is, for Washington to essentially “pick winners and losers” by promoting some industries that they feel have a high probability of success. Asian countries have been doing this for years with remarkable success and it is a policy which we clearly need to copy. I’m a big promoter of nano-technology, alternative energy and stem cell research, but those are just my choices. There are plenty others out there that would also make sense.


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5 Comments

  1. I think I’ve mentioned that I’m learning (at least a little) electronics by watching lectures out of an Indian university, via YouTube. Strange loops.

    How do you think Asian and American “making” cultures are interacting at this point?

    I’m sensing sort of an “outsourcing bad, cheap parts good” tension, which is maybe a broader American vibe at the start of this century.

  2. Basic takeaway. You will not be working as a low skill worker in US Manufacturing. If automation can do it you won’t be doing it.

    You will have to be skilled in keeping CNC machinery and robotics up and running.
    You will have to be an engineer developing the part through CAD/CAM to directly program the equipment that creates the parts.
    You will have to be a skilled technician involved in quality control for the output from automated manufacturing.
    You will have to be an entrepreneur in a niche market who can specialize if you intend on being an independent manufacturer.

    If your industry used 50 workers two decades ago to do a particular operation, they probably only use 5 now for the same workload.

  3. >First, China needs to float its currency.

    That won’t help like you would think. The exchange rate does not create the trade deficit. The trade deficit is created by credit. The US buys China’s goods for US dollars. Then China loans the dollars back to the US, mostly exchanged for government/corporate bonds.

    Floating China’s currency wouldn’t reduce the trade deficit, instead it would mean that China would sell less goods to the US and/or demand more debt (bonds) in exchange. To put that another way, floating China’s currency would just make the US poorer.

  4. Heh, “China needs to float its currency” depends on values of “needs” and “float” … they have a fair amount of leeway there.

  5. The one thing the government should NOT do is pick winners and losers – when they do, the best connected get tax money and never become efficient. Jobs aren’t created. TARP could have paid off every mortgage, but it went to the banks instead.

    Government has no special wisdom. What do they use? Astrology? Roll Dice? New jobs are by definition new. Surprises. Unexpected.

    There is something the government could do – get out of the way. The tax laws, ninny-nanny regulations (who cares if your workplace is safe as long as the rails are 29.75 inches exactly; and you really need to put braille on your “simon” buttons).

    And it is small businesses that create jobs, not the big corporations. But the small businesses don’t have lobbyists.

    Read “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)” by David Johnston. You want to make that worse instead of better?

    Asia? Yes, they pick winners and losers and never innovate since they always pick safe, well known things. They imitate if not outright mock what we do.

    No, an industrial policy should not “pick winners and losers”, but it should level the playing field. Someone already mentioned currency manipulation. Under “free trade”, a country can’t impose a 10% tariff on imports and a 10% subsidy on exports, but instead devalues its current 10% which does exactly the same thing. (Look what happened to the Mexican peso just after NAFTA).

    China lets their businesses dump garbage and toxic waste directly into the rivers and pollute the air – maybe if we do pollution taxes we should count it from the source or simply ban items made in a dirty way like we do here. If they pirate IP, let’s put the money going back to china in escrow and calculate what they owe the RIAA and MPAA. Or failed to pay wages (merchandise produced with stolen labor is stolen merchandise).

    To police the marketplace – to make sure no one is cheating or defrauding or selling stolen merchandise – is government’s job. To protect your crony’s business while closing down their competition is pure corruption.

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