Posted on 01/20/2011 7:59:37 PM PST by sickoflibs
If there is one issue that pops up again and again in my conversations about economics with interested noneconomists, it is manufacturing.
There's a genuine concern about the state of manufacturing in the United States, and I am not sure of the reason why. It could be that there is an inchoate sense that manufacturing is dying here, given that so many of our popular-consumption goods seem to be made overseas. Then there is the issue of the trade deficit, which is generally reported on in the mainstream media in a manner that is irresponsible, uninformed, or both.
Personally, I am quite proud of the US manufacturing sector, which still leads the world in manufacturing output. It will surprise some readers to learn that, after an initial decline in manufacturing during the outset of the 2008 recession, manufacturing output in the United States has increased for 17 consecutive months. According to a recent report by the Institute for Supply Management (described by Yahoo Finance),
[ISM's] index of manufacturing activity rose to 57 in December [2010] from 56.6 in the previous month. Any reading over 50 indicates growth. The latest is well above the recession's low of 32.5, hit in December 2008. But it's below the reading of 60.4 in April, the highest level since June 2004.
So the United States has been producing wealth at an increasing rate since the low point of the most recent recession. This has been the norm, not the exception, for decades. In an open letter to protectionist Senator Sharrod Brown of Ohio, economist Donald Boudreax noted, "Just before the current downturn — in 2008 — inflation-adjusted manufacturing output in the U.S. was 13 percent higher than it was in 2000, 52 percent higher than in 1990, 84 percent higher than in 1980, and 133 percent higher than in 1970."
Despite the postwar resurgence in global output and competition, US manufacturing output has remained steady at 21 percent of the world's output. Needless to say, reports of the death of US manufacturing are greatly exaggerated.
But what makes me proud of this sector isn't its aggregate output. Rather, it has to do with its output given the constraints placed on it by the federal government. These constraints have the effect of increasing the cost of capital and labor, which become especially serious when these costs grow relative to those of international competitors. How ironic are the actions of so-called progressives who champion positive interventions in the workforce meant to help the average worker but that actually harm these workers in the long run.
The important question is, why do increases in manufacturing output tend not to lead to increases in manufacturing hiring? When considering this question in class, I like to show students a video clip of the scene in the movie "Back to the Future" when the protagonist, Marty McFly, is transported to the 1950s. There, he drives his car into what was then a typical service station. Several well-dressed men run out to greet him, pump his gas, check his oil, and wash his windshield. To modern generations accustomed to self-service gas stations, such employment seems bizarre.
The message for my students, however, is that such jobs, once a ubiquitous portion of the labor market, were eventually priced out of existence by government interventions. Increases in the minimum-wage, increases in payroll taxes, and other attempts to coerce employers to act in ways others find virtuous often forced employers to cut back elsewhere.
If the cost of labor increases, someone has to pay for it. Laborers may pay in the form of decreased work opportunities, investors may pay in the form of decreased returns on capital, or consumers may pay in the form of higher prices required by increased costs. Society in general pays if simply because we have less wealth and higher costs than would otherwise have been the case.
In the case of the gas stations, we see an effort on the part of service-station owners to organize their operations in ways that make them less labor-intensive than they otherwise would have been. The result is that entry-level workers who might earn income, as well as other valuable workplace skills, must find other uses of their time.
We no longer see certain occupations anymore because of such workplace interventions. For most of us, elevator operators are an amusing curiosity seen mostly in black-and-white movies. Many fast-food restaurants now make customers pour their own drinks in an effort to reduce labor costs. The growth of the temp-worker industry reflects the desire by firms to hire workers without the increased regulatory burden of labor, which is then taken on by the temp agencies themselves.
What impresses me are the heroic efforts of unsung individuals and firms to maintain productivity in spite of such interventions. This is especially shown in the US manufacturing sector. To illustrate this phenomenon, consider the graph below.
This chart shows that while manufacturing employment fell significantly during the most recent recession — which is to be expected as firms correct from the years of malinvestment that characterized the unsustainable boom — the recent "official" recovery has been characterized by at best tepid growth in manufacturing employment.
What is more, recent gains in manufacturing output have occurred amid months of falling manufacturing employment.
It is significant that meager increases in manufacturing employment that occurred near the beginning of 2010 disappeared once states began implementing federal health-care "reform," which created added employer costs and uncertainty. Until issues associated with these costs get sorted out, manufacturing employment seems to have been paying for it.
"Reports of the death of US manufacturing are greatly exaggerated."But employment decline in manufacturing is no recent phenomenon, and many economists, including Boudreaux, argue that because US manufacturing output leads the world (albeit with reduced labor inputs) this is not an issue that should be of great concern. I beg to differ, if only on the basis of allocative efficiency. It is one thing if electronic manufacturing moves to Asia because Asians have comparative advantages in their production, but quite another if it moves to Asia because of artificial costs placed on domestic producers.
Similar logic applies to the growth of the service sector in the United States. It is one thing if this sector has grown because of some genuine comparative advantages of US workers in providing service output, but it is quite another if this sector's growth has occurred because workers are forced into it in numbers higher than they otherwise would have been due to artificial costs placed on manufacturing labor.
Does this explain much of the growth of the service sector in the United States? If so, we are witnessing a malinvestment of labor inputs, favoring service over manufacturing, that has been forced on resource markets — and an inevitable change in the character, if not the quality, of national output.
While we laud US manufacturing dominance, the state of manufacturing employment is an issue that should be of great concern to those of us who study the effects of economic interventionism. It is obvious that current levels of manufacturing output could be achieved with higher levels of labor input than we see today.
Unemployed workers in the United States should be up in arms over any legislation that increases the cost of labor. (Employed workers should be up in arms as well, to the extent that they face less job security and lower wages due to such legislation.) Despite the laudable efforts of manufacturing firms to maintain levels of output with increased cost, labor has paid the price with higher levels of unemployment.
Congress conceded as much, if only implicitly, when it allowed for a reduction of payroll taxes in the tax-overhaul bill it passed this past December. Such actions must be expanded and made permanent for the United States to retain its manufacturing competitiveness in the 21st century.
In the end, the depletion of manufacturing employment merely reflects the law of demand in that, by increasing the cost of manufacturing labor, employers have demanded less of it while whole manufacturing sectors have moved overseas. Meanwhile, unemployed manufacturing workers collect unemployment compensation while their former managers work overtime to replace their manufacturing output with higher levels of capital.
These outcomes would hardly surprise Ludwig von Mises, who wrote, "State interference in economic life, which calls itself 'economic policy,' has done nothing but destroy economic life. Prohibitions and regulations have by their general obstructive tendency fostered the growth of the spirit of wastefulness."[1]
I would only add that a serious discussion about some of the costs of intervention in the manufacturing sector, as well as the overall economy, is long overdue. Bring it on.
If you realize both parties in Washington think that our money is theirs and you trust them to do the wrong thing, this list is for you.
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The Austrian School’s Commandments plus :From : link
1) You cannot spend your way out of a recession
2) You cannot regulate the economy into oblivion and expect it to function
3) You cannot tax people and businesses to the point of near slavery and expect them to keep producing
4) You cannot create an abundance of money out of thin air without making all that paper worthless
5) The government cannot make up for rising unemployment by just hiring all the out of work people to be bureaucrats or send them unemployment checks forever
6) You cannot live beyond your means indefinitely
7) The economy must actually produce something others are willing to buy
8) Every government bureaucrat should keep the following motto in mind when attempting to influence the economy: “First, do no harm!”
9) Central bank-supported fractional reserve banking is an economically distorting, ethically questionable activity. In particular, no government should ever do anything to save any bank from the full consequences of a bank run, no matter what the short-term consequences.
10) Gold is God’s money.
Add mine:
1) Businesses don't hire workers just because of demand for products or services, they hire because it makes them money. Sorry to have to state the obvious.
2) Government spending without taxing is still redistribution
3) Taking one man's money and giving it to another is not a job.
4) Paul Krugman and Bernake have been wrong about everything, as well as the other best and brightest Keynesian's who have been fixing our economy for over a decade.
5) Republicans in the minority (esp out of the White House) act like Republicans, in the majority they act like Democrats .
Think about this. Liberals claim that raising the minimum wage and mandating forced benefits on employers making labor more expensive will stimulate the economy by putting money in workers pockets so they spend it, Then they claim that devaluing the dollar making us cost less (paying us less by devalued currency) will make us more competitive and create more jobs.
Did you know that Americans can’t build or register ships in the U.S.? Been going on for years. Too many regulations. Notice that most cruise ships are Liberian registry. http://money.cnn.com/magazines/fortune/fortune_archive/2001/06/11/304620/index.htm
Way to go, Libtards! You’ve regulated America out of an entire industry.
This piece is a near-complete load of twaddle.
Want to know why manufacturing employment has been going down?
It isn’t because wages are too high in the US.
It is because the US has been exporting manufacturing to China. And why do they keep going to China?
No. It has to do with currency pegs and absurdly low wages for the Chinese labor force.
How low?
$0.95/hour for urban manufacturing workers, $0.41/hour for rural manufacturing workers, as of 2002.
The BLS estimates Chinese labor costs are 3% of what US manufacturing labor costs are.
OK, so you say that US workers are overpaid. That’s nice. Now, how do you think Mexican workers, or Brazilian workers are paid? Too much?
Well, the total labor costs for Mexico or Brazil are about four times what they are in China. Are manufacturing employees in Mexico making out like bandits?
Didn’t think so.
The free trade advocates who think that the US can compete with China based on nothing but cutting regulations, unions and comp packages are simply full of crap. None of that will address the effective subsidy that China gives their manufacturing sector with a currency peg, and there is no way that manufacturing wages in the US will ever come close to those in the PRC.
http://www.bls.gov/fls/chinareport.pdf
This piece is a near-complete load of twaddle.
Want to know why manufacturing employment has been going down?
It isn’t because wages are too high in the US.
It is because the US has been exporting manufacturing to China. And why do they keep going to China?
No. It has to do with currency pegs and absurdly low wages for the Chinese labor force.
How low?
$0.95/hour for urban manufacturing workers, $0.41/hour for rural manufacturing workers, as of 2002.
The BLS estimates Chinese labor costs are 3% of what US manufacturing labor costs are.
OK, so you say that US workers are overpaid. That’s nice. Now, how do you think Mexican workers, or Brazilian workers are paid? Too much?
Well, the total labor costs for Mexico or Brazil are about four times what they are in China. Are manufacturing employees in Mexico making out like bandits?
Didn’t think so.
The free trade advocates who think that the US can compete with China based on nothing but cutting regulations, unions and comp packages are simply full of crap. None of that will address the effective subsidy that China gives their manufacturing sector with a currency peg, and there is no way that manufacturing wages in the US will ever come close to those in the PRC.
http://www.bls.gov/fls/chinareport.pdf
Government regulations? What government regulations? All levels of government are about to default and drop most of their regulatory enforcement employees. The problem with that for free traitorous favored constituents is that their politically correct anti-domestic-competition and family busting regulatory enforcement will go right out the window, too. Globalist big shots, meet the groups of new, small businessmen in all American locales. Coming to a county or neighborhood near you (without local governments and HOAs—de facto governments—further empowered by ill-gotten revenues).
Whatever the US is still manufacturing in force, I’d like to see a list of it. (Farming doesn’t count.) It sure doesn’t seem to show up in households where most of the doodads are now “made in China.”
Made in China actually means Assembled in China. I believe someone examined an iphone and discovered hardware and software were manufactured all over the world (including USA) for final assembly in China. Made in anywhere does not really mean anything anymore in the global market. One of the biggest costs to hiring manufacturing workers in the country is the FICA taxes. Since the Democrats will never support SS privitization the best way to level the playing field is to junk the payroll tax and just have a national sales tax which would in effect act as an import tax on non-US products.
“It is because the US has been exporting manufacturing to China.”
If that were true, then we would expect to see a corresponding decline in US manufacturing output. Unfortunately for your argument, US manufacturing output has more than doubled since 1975.
See data here:
http://www.federalreserve.gov/releases/g17/gvp.htm
The increase in US worker productivity in manufacturing has led to a corresponding decline in the number of manufacturing jobs.
See data here:
http://www.federalreserve.gov/releases/g17/gvp.htm
US manufacturing is simply going through the same progression that US farming went through.
See data here:
http://www.agclassroom.org/gan/timeline/farmers_land.htm
In the 1700s, farm jobs accounted for over 90% of all jobs; today — thanks to better technology leading to far higher productivity per farmer — farm jobs account for less than 3% — that’s a lot of lost farm jobs. However, the US didn’t “export its farm jobs” abroad; it developed tractors and chemical fertilizers and other productivity-enhancing technologies, so that it doesn’t need 90% of its jobs to be in farming — it can produce more than those original 90% of all jobs with a mere 3% of all jobs. We are all better off because of increased farmer productivity, just as we are all better off with increased manufacturer productivity.
They have been "fixing" the economy since FDR. They just get more influential and effective as the government gets more and more powerful and makes for itself more and more leverage on economic interaction. Swapping them for "monetarists" is no improvement, either. Monetarists tend to call for less statist outcomes but their methods are just as statist as those of the Keynesians. They ARE Keynesians in their perception of what makes an economy work. Monetarists like to think they promote the free market but they still believe the "free market" can/should only work if there are experts at the controls behind the scenes, manipulating and tweaking so that outcomes will look like the Free Market."
Keynesians.
We already know this but still it's so nice to hear it again. The focus of the piece is jobs though, and Westley does a better job than most in bringing us to the fact that factory jobs aren't being stolen by cheap foreigners, they're being stolen by cheap capital.
Low wages in China are not low when output per dollar of input is considered. Productiveness of those low wage workers would be less than that of American high paid workers if the tax and regulation burden were equal. Remove all the excess regulatory and tax costs and American workers are more productive- produce more gain for their employers- in the US than in China or anywhere else. Tax and regulatory costs are not amenable to employers’ attempts to reduce costs per unit of output. Employee costs are. In order to remain competitive when tax costs are high and rising and unavoidable and regulatory costs are high and rising and unavoidable, then labor costs must be reduced. Automation is one response and offshoring is another. Our tax and regulation regime is what makes offshore labor relatively more productive than domestic. The prospect of the tremendous new costs that are coming-some already arrived- is a huge new incentive to send manufacturing offshore.
Offshoring does not occur because offshore labor cost is less per hour than American labor cost or because it is less per unit of product(it is not). It is because labor cost PLUS regulatory and tax costs is higher per unit of output in the US than it is offshore.
And yet you're on FR shilling for who-knows-which RINO Free Traitor, and against the only conservative, pro-American, real Free Enterprize, potential candidate on the horizon (that would be Sarah Palin).
The Market does, in fact, work. The freer it is the better it works. Really, the only restrictions to that are a Judeo-Christian framework and stable and uniform laws(arguably most likely in a JC framework). There is no other basic framework for society wherein if two make an agreement to perform certain acts for their mutual benefit there is a reasonable expectation that those acts will be carried out. All other systems are less conducive to such mutual trust with the least conducive being Islam. Chinese business historically could become huge corporations but there were certain limits on them that still pertain to some extent. They were all family businesses and still are except that the government/army have substituted for family to a large extent. In countries with significant Christian presence, Korea being the prime example, there are economic “miracles” when the corruption and inefficiency of autocracy are successfully replaced with rule of law and stable government.
Small detail: Making frozen pizza for home cooking is considered’manufacturing’ now.
The article mentioned the elevator operators.... the only place I have seen them lately, in DC, where our royalty ruling class live - I assume our goobermint offishuls aren’t smart enough to operate elevators, they can’t figure out how to get to their floor! LOL
AHHH, you missed the heated argument I got into with pissant the other day when he made a critical comment of Palin over Abortion and the US constitution and I told him Palin was right (she agreed with me anyway) and he was wrong.
To: shibumi; calcowgirl by pissant critical of Palin on abortion/constitution#13
Response to: pissant; calcowgirl by sickoflibs on US constituion and Palin #36
Response to pissant by sickoflibs on US constitution and Palin #40
The problem you have with me is I don't drink the Koolaid, if you claim something you better have proof, same with any potential candidate.
You made a claim the other day that Palin didnt need to do real interviews (to be elected president) because she had written on every possible issue in detail and you were an expert at her writings. When I called you out ON some specific examples you were shocked that I would call your bluff. I wouldnt tolerate such nonsense over any blindly worshipped icon no matter who it was.
So is brewing beer. Do you think we drill for it?
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