US manufacturing output may well attain new highs, but manufacturing employment probably won’t.
After World War II, US industry and manufacturing reigned supreme. Most other countries’ industrial infrastructure had been destroyed and their economies were in ruins. Detroit and its car companies were emblematic of the time. General Motors was the world’s largest corporation, the big three dominated the US and many export markets, workers in their unionized workforces made wages that could sustain a family in middle class comfort, and Detroit was the third largest American city. This was the halcyon period that commentators invoke when they talk of a “rebirth” of US factories and restoration of manufacturing jobs.
But can there be a rebirth of something that never died? While the number of manufacturing jobs has been in a long-term decline, the output of manufactured products has not. U.S. factories produce twice as many goods as they did in 1984 with one-third fewer workers (“Opinion: Think nothing is made in America? Output has doubled in three decades,” Marketwatch, 3/28/16). Output, a substantial portion of which is exported, is close to the all-time high it reached just before the financial crisis and at 36 percent of US GDP is the largest sector of the US economy. Notwithstanding shuttered factories that have moved to lower wage jurisdictions (sometimes outside, sometimes inside the US, mostly the south), America’s industrial capacity is as high as ever.
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However, by the late 1960s the auto industry had a target on its back, for reasons that have general applicability. While a middle class lifestyle for assembly line work is great for the employee, it’s an opportunity for the employer’s competitors. If they can get the same work from the same number of workers at lower wages or fewer workers at the same or lower wages, or if they substitute capital for labor and automate, they can offer the same or better products at a lower price. The auto industry at first dismissed the competitive threat from Japanese car companies, but by the 1970s they were losing market share, especially in lower-end economy cars.
The mercantilist policies of the Japanese government undoubtedly helped their car companies, at the expense of the rest of Japan. At the government’s behest, its industrial conglomerates borrowed at preferential rates. Smaller, entrepreneurial firms could only access credit at much higher rates. Floating exchange rates allowed Japan to depreciate its currency, reducing citizens’ purchasing power, to further game the terms of trade for the car companies and other exporters. American car makers did not have reciprocal access to the Japanese market because of often hidden trade barriers. They complained loudly to Washington, and the Reagan administration got the Japanese to agree to “voluntary” trade restrictions. In response, the Japanese car companies brought their factories to the US, set up non-unionized shops offering about half of unionized wages, found plenty of takers, and continued to gain market share.
Nobody pines for the glory days of the 1870s when half the American workforce was agricultural. Now 2 to 3 percent of the workforce produces multiple amounts of the crops produced back then for the same reason two-thirds the manufacturing labor force produces twice as many goods as it did in 1984: increased productivity. Competition drives that productivity; the requirement to do more with less is relentless, especially when international trade means that competition is global. We are not moving to a post industrial society any more than we have moved to a post agricultural one. People still need food and manufactured goods, but the number of workers required to generate either will continue to shrink, as it has for decades.
Mercantilist governments like Japan’s depreciate their currencies, suppress interest rates, and restrict access to their home markets, screwing most of their citizens for the benefit of favored export industries. Take a look at how those policies have worked out. Its stock market topped just as Japan was supposedly going to take over the world at the end of 1989 (its main averages are still less than half of what they were then), and it has had multiple recessions since. It staggers under the developed world’s highest government debt load (as a percentage of GDP) and huge private debt, with an aging population and well below replacement birthrate. As debt continues to grow and opportunities dwindle, the Japanese are foregoing children.
China, whose mercantilist policies provoke Donald Trump’s wrath, is due a reckoning as well. Its credit outstanding has gone from $500 billion to over $30 trillion in three decades, a sixty-fold expansion. Much of its miraculous growth has been the same kind of “growth” you get when you run up your credit card. Because of its one-child policy, its demographics are almost as ugly as Japan’s. It has to cheapen the yuan to keep the export machine humming, but that’s spurring capital flight. It has gone beyond the point where a yuan’s worth of credit buys more than a yuan’s worth of output, but if it turns the credit spigot off or even raises interest rates, it tanks its economy, financial system, and housing market. The next few years should demonstrate that the brilliant bureaucrats in Beijing are no more brilliant than their counterparts in Washington, London, Brussels, or any other apparatchik-infested burg.
Trump’s recent Carrier deal is mercantilism: tax Indiana’s taxpayers to preserve Carrier jobs. His proposed 35 percent tax on American companies that move factories to foreign nations and then export to the US market is more of the same. He may keep US companies in the US, but the competition is global. Unless he’s going to impose across-the-board tariffs—more mercantilism—nothing stops foreign companies from availing themselves of the lower labor rates denied US companies and exporting to the US market.
No matter what tariffs and other trade barriers Donald Trump and team enact, in the face of relentless automation the halcyon days of manufacturing employment aren’t coming back. There will also always be competitors, including American companies, who actually compete, who drive productivity gains that both destroy and create jobs. If Trump wants to ensure that US companies and workers lead the pack, he has to make America competitive again. Counterproductive mercantilist gestures won’t do it. He has to tackle multiple Augean stables befouled by the government he will soon lead. It shall indeed be a Herculean task.
Next: Making America Competitive Again
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Reblogged this on Starvin Larry.
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“(China’s) credit outstanding has gone from $500 billion to over $30 trillion in three decades”
You’re probably including unfunded liabilities. What is usually called national debt is much lower. I found that it’s more like $5.5 trillion.
http://www.nationaldebtclocks.org/debtclock/china
Meanwhile, the US national debt (also excluding unfunded liabilities) is rapidly approaching $20 trillion.
http://www.nationaldebtclocks.org/debtclock/unitedstates
Bad as that disparity is, it’s more useful to normalize those national debts to the size of the population. China’s debt per person is $4,065 while the US per capita debt is $61,475.
The gloom and doom you predict for China’s debt problem is 15 times more problematic for the US. And it’s even worse when we consider that China is doing a much better job educating their children. The US is spending a lot more on education, and getting a lot less education. The US has grown fat and lazy, figuratively and in many cases literally, based on the unearned advantage of printing the world’s reserve currency, and that abuse is coming to an end. It’s going to be ugly in the US when the world stops shipping us flat screen TVs and iPhones in exchange for some bits that The Fed conjures in a computer.
China has a different problem. Their one child per family program has led to the export of baby girls and the abortion of baby girls. A generation later, China has millions of young men with no potential mates. What to do with hundreds of millions of surplus young men? The globalists have a plan. It’s the same old plan they turn to over and over. War. This dovetails nicely with a collapsing US economy. War is good for the economy. It’s not, but people believe that it is and that’s all that really matters.
Trade sanctions levied against China for daring to send us inexpensive goods we’re now too complacent to bother making for ourselves could make the US a shining city on the hill for decades to come. How long? Well, that depends on the half life of the isotopes used.
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The figure you’re quoting for China’s debt is their national government’s debt. The $30 trillion figure I used is their aggregate of all levels of government debt plus business and individual debt. That is an estimate that I took from one of David Stockman’s columns.
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Thanks for the clarification. I knew you weren’t making up numbers.
Americans have $18 trillion in individual debt, so the comparative debt figure for the US is $38 trillion to China’s $30 trillion, but again, the US has about a third of the population, so approximately four times the debt per capita as China. I’m too lazy to look up the estimates, but it’s my understanding that the Chinese also save a lot more than Americans, and I don’t think that’s reflected in the individual debt figures.
No matter how we slice it, any debt problems that China has, the US has to a much larger extent. 😦
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I believe when you kick in business debt, total US indebtedness before unfunded liabilities is in the neighborhood of $60 trillion.
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Carrier not moving?
The EPA, BLM, USDA, etc. moving to Mexico instead…would make America great again.
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Can’t argue with you there.
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In the event of a full-blown, global economic collapse, I’d be more inclined to place my bets on the United States maintaining/regaining its status as the world’s most powerful economy. Our nation has a wealth of natural resources that are unparalleled – not least of which is sharing the world’s largest single reservoir of fresh water with a reasonably stable neighbor state with which we share a common heritage and language. Minerals, timber, fossil fuels, arable soil, temperate climate, communications infrastructure, et al. We’ve just allowed ourselves to become hidebound by various regulations and an overbearing nanny state. Shed those impediments, and the learned helplessness mindset that it has engendered, and we’ll be fine. As an aside, the middle class “comfort” of the 1950’s and 60’s was more modest than what we wold define as “comfort” today. Typical residential houses was less than half the current size, two cars was unheard of, televisions and, to a lesser extent, telephones were still something of a novelty. That’s the world I was born and raised in. Were we to regain a measure of modesty in our expectations, return to that standard of “comfort”, which is considerably greater than most of the world’s population, again, we’d be fine.
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Yes, it takes a tremendous amount of idiocy to so badly screw up a country with all the natural and human advantages the US has.
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Idiocy? I’d say it takes a serious plan and decades of work by some people to screw up the US, because there’s no way a prosperous and free US is going to submit to an elite oligarchy masquerading as socialism.
Just last week, we learned that life expectancy has decreased in the US for the first time since… forever. The US lost its AAA credit rating for the first time ever in August of 2011 and realistically, it may be time for another downgrading when the debt ceiling is pushed to $22 trillion soon. The US has been consistently dropping in the Freedom Index and is now #11. US Millennials are the first generation to be less prosperous than their parents. The US pays more for education than other countries and gets less for our education dollar. The US pays more for healthcare than other countries and gets less for our healthcare dollar. Real unemployment is running at Great Depression levels but government unemployment figures tell us that unemployment hovers around 5%, even though there are 95 million able bodied Americans without jobs, out of a population of a bit over 300 million. Wages have been fairly flat for the last decade, and in terms of buying power, US workers are far poorer now. A single worker could support a family of seven in the 1970s. Today, two adults need to work to provide a similar standard of living for a family of four. The birthrate in the US is below replenishment levels, and the US population is only increasing via immigration, much of it illegal. The US dollar only has about 4 cents worth of buying power compared to the dollar prior to the creation of the Federal Reserve. The US is now fighting perpetual wars overseas and has been since 2003.
This reminds me of the famous scene from Planes, Trains and Automobiles. “You’re going the wrong way!”
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I would say you have a comprehensive grasp of the problem.
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“I would say you have a comprehensive grasp of the problem.”
So THAT’s why I’ve been so angry all of the time lately.
🙂
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