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The Truly Good Shape of U.S. Manufacturing
Human Events Online ^ | August 22, 2003 | Bruce Bartlett

Posted on 08/23/2003 4:43:06 PM PDT by E Rocc

In a recent column, I argued that the manufacturing sector of the U.S. economy is in relatively good shape, despite the sharp decline in manufacturing employment. I clearly touched a nerve with this column. Not only did I receive a great many e-mails, but my fellow columnist and mentor Paul Craig Roberts took me to task as well. I can't respond to everything I heard, but following is a response to the most frequent criticisms.

One common complaint is that U.S. companies are simply reselling goods actually manufactured in China. This is just a misunderstanding of how the gross domestic product is constructed. All imports are subtracted from final sales to calculate GDP. Therefore, imports from China or anywhere else can never raise GPD; they always cause it to be lower than if they were produced domestically. GDP measures only actual production on U.S. soil.

The equation goes like this. In 2002, final sales to domestic purchasers equaled $10,866 billion. You add $3.9 billion for the change in inventories nationwide, add $1,014.9 billion for exports, and then subtract $1,438.5 billion for imports. This leaves a net figure of $10,466.2 for GDP. In short, imports reduce GDP and exports increase it.

It is always tempting to think that we can ban imports or tax them in some way and thereby raise domestic output, by forcing consumers and producers to "buy American." The problem is that we import a lot of things we can't produce at all or not enough of domestically, like oil. A lot of imports are industrial supplies and capital goods that are critical inputs into the manufacturing process. Banning them or raising their cost would raise costs for producers, reducing their international competitiveness. It would also invite retaliation by foreign countries. The trade deficit might even rise because exports would fall more than imports fell.

In the end, trade protection has never worked in any country at any time. The long-term effect has always been to impoverish nations that engage in it.

Another criticism I heard is that I used incorrect data to support my point. I looked at total goods production in the U.S., which includes things like mining and agriculture in addition to manufacturing. I did this for 2 reasons. First, the concern I most often hear from people is that Americans no longer make "things." Therefore, I thought that a broader view of goods output was justified.

Second, data just for manufacturing are harder to come by. Goods data are compiled every quarter, while manufacturing data are available only annually and with a lag. The latest data for manufacturing is for 2001, while we have goods data through the 2nd quarter of this year. Furthermore, manufacturing data after 1987 are incompatible with those before because of certain definitional changes.

Nevertheless, looking at manufacturing alone still makes my point. Since 2001 was a recession year, it is reasonable to compare it to the last recession year in 1991. In nominal (money) terms, manufacturing has fallen from 17.4 percent of GDP to 14.1 percent. But in real (inflation adjusted) terms, it is actually up a little, rising from 16 percent to 16.2 percent.

It is critical to use real data to make a valid comparison because prices for many goods such as computers have fallen sharply. Since GDP data are calculated in money rather than volume terms, failing to take account of this fact would give a distorted picture of what is going on. For example, suppose output of some product rose by 10 percent in terms of units, while falling 10 percent in price, due to higher productivity. Using the nominal data would make it appear as if there had been no increase in output. Using real data captures the increase.

Finally, many people wrote to tell me that I could not be right because the factory down the street from them just closed. However, one cannot make national policy by looking at isolated events. It would be like trying to tell what the weather is 1,000 miles away by looking out one's window. To make policy, one must examine comprehensive data that account for new factories and increased output elsewhere, which have offset the closed factories in particular places. The Commerce Department's data is the best there is on this score and far superior to any individual's personal observations.

It is worth remembering that when a plant closes, it is likely to make news, especially if it is the major employer in a small town. The local paper is unlikely to note the opening of a new factory on the other side of the country. Consequently, a parochial perspective can produce a false picture of national trends.

I remain convinced that U.S. manufacturing is fundamentally healthy.

(Excerpt) Read more at humaneventsonline.com ...


TOPICS: Business/Economy
KEYWORDS: brucebartlett; chaineddollars; freetrade; leftwingactivists; manufacturing
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A good comeback to the naysayers. While manufacturing has largely decentralized and de-urbanized (the latter due to dumb environmental laws and parasitic politicians), it's very much still there.

-Eric

1 posted on 08/23/2003 4:43:06 PM PDT by E Rocc
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To: E Rocc
Marked for later.
2 posted on 08/23/2003 4:46:52 PM PDT by AntiGuv ()
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To: E Rocc
All imports are subtracted from final sales to calculate GDP. Therefore, imports from China or anywhere else can never raise GPD; they always cause it to be lower than if they were produced domestically.

Maybe I don't understand GDP, but, what if the domestic (re)seller makes a profit? On the other hand, if GDP is purely a measure of domestic production, then why would imports be factored in anyway?

3 posted on 08/23/2003 4:52:06 PM PDT by KayEyeDoubleDee (const tag& thisTagWontChange)
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To: E Rocc
Finally, many people wrote to tell me that I could not be right because the factory down the street from them just closed. However, one cannot make national policy by looking at isolated events. It would be like trying to tell what the weather is 1,000 miles away by looking out one's window.

Something to bear in mind when listening to individual complaints of gloom and doom.

4 posted on 08/23/2003 4:56:01 PM PDT by Agnes Heep
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To: E Rocc
"Nevertheless, looking at manufacturing alone still makes my point. Since 2001 was a recession year, it is reasonable to compare it to the last recession year in 1991. In nominal (money) terms, manufacturing has fallen from 17.4 percent of GDP to 14.1 percent. But in real (inflation adjusted) terms, it is actually up a little, rising from 16 percent to 16.2 percent."

There is that niggling little FACT that folks are just going to have to deal with, eh? Take his two articles now and boil it all down to this paragraph. That's all he really needed to write.

5 posted on 08/23/2003 5:02:33 PM PDT by anniegetyourgun
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To: harpseal
"In the end, trade protection has never worked in any country at any time. The long-term effect has always been to impoverish nations that engage in it."

According to Bartlett, America must have been a dismal failure for its first 200 years.
6 posted on 08/23/2003 5:05:26 PM PDT by LibertyAndJusticeForAll
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To: All
"It is worth remembering that when a plant closes, it is likely to make news, especially if it is the major employer in a small town. The local paper is unlikely to note the opening of a new factory on the other side of the country."

Now this guy is trying to put Willie Green outta business. That is his job, after all.....searching out the most obscure outlets for his depressing stories of RIFs in booming metro areas like Shade, OH.

7 posted on 08/23/2003 5:10:18 PM PDT by anniegetyourgun
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To: E Rocc
In the end, trade protection has never worked in any country at any time. The long-term effect has always been to impoverish nations that engage in it.

The important thing to remember when reading an article is that truth matters.  If you find one whopper in there, you can bet there are more than one.

While the statement above wasn't a direct lie, it is an indirect whopper!

The United States wasn't a protectionist nation before 1992, but it's trade deficits never went much over $100 billion.  None the less it's GDP outstripped every other nation on the planet.  It was the number one economic Giant on the planet, and I mean with a capital G.  Where it's GDP was something like $8 to $10 trillion dollars, it's nearest rival was something like $3-4 trillion.  Were we impoverished in 1992?

Today our trade deficits are three hundred and fifty-percent more than they were around 1992.  Are our citizens wages going up like they used to?  Is our standard of living improving?  Is GDP going up?  The answers are a resounding NO.

Outsourcing has been the hugh and cry of the industrail elites.  They have been so loud in their screaming for it, that other voices are not heard.  I do not share in the enthusiasm for this.  We are selling out our own citizens on the corporate profits auction block.

GDP is down.  Government receipts are down.  Jobs are not plentiful.  The fastest growing jobs sector is still the rock bottom service sector.  Trade deficits are simply enormous.  Outsourcing, illegal immigration, and other factors are too overpowering for this nimnal to make some of the claims he does.

In short, he's full of it.

8 posted on 08/23/2003 5:14:36 PM PDT by DoughtyOne
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To: E Rocc
The problem is that we import a lot of things we can't produce at all or not enough of domestically, like oil.

Looks like Bruce Bartlett is an eco-whacknut surrender monkey to the government bureacracy that places utilization of our vast energy resources off-limits.

9 posted on 08/23/2003 5:15:12 PM PDT by Willie Green (Go Pat Go!!!)
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To: E Rocc; harpseal; Willie Green
A good comeback to naysayers from someone who never worked in a factory and saw it go to China...

I have. several times.

Unemployed since March 14

Bartlett is just another one of those armchair economists who never held a real job, so he plays with numbers on paper, instead of seeing how things are made and where they are now made.

http://www.freerepublic.com/focus/f-news/959787/posts
Lawmaker predicts defeat for 'Buy American' language (Defense Department procurement update)


"But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade." ~ Karl Marx, On the Question of Free Trade, January 9, 1848
http://www.marxists.org/archive/marx/works/1848/01/09ft.htm#marx


"Communists and socialists feel sure that setting up international “free” trade systems which impose regulations chuck full of intrigues, redistribution plans, arbitrary law, and interdependence schemes, will win out against the conservative interests of every free nation. What could be better than to use “free” trade to reverse the advantage of the relatively free, moral, prosperous, and strong nations of the Earth, so that the tyrannical, amoral, poor, and weak nations of the socialist bloc might get the upper hand? What could be a more cunning approach than to market the idea that those who oppose “free” trade are enemies of freedom?"
http://www.newsmax.com/commentarchive.shtml?a=2000/6/27/105655


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10 posted on 08/23/2003 5:15:53 PM PDT by RaceBannon
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To: LibertyAndJusticeForAll
That's such an easy thing to observe. It's so simple even a fool off the street could understand it. None the less, the leading economic giants of our day haven't a clue when it come to this simple concept.

You are absolutely right on.
11 posted on 08/23/2003 5:16:09 PM PDT by DoughtyOne
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To: RaceBannon
My hat's off to you. Nice work.
12 posted on 08/23/2003 5:17:13 PM PDT by DoughtyOne
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To: LibertyAndJusticeForAll
According to you, the Founding Fathers would have approved of the UAW leeching off the rest of us so that Chevy could continue to produce the Vega.
13 posted on 08/23/2003 5:19:22 PM PDT by 1rudeboy
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To: 1rudeboy
Ok, so we were actually stymied from 1781-1992 before NAFTA and GATT. Good thing we got rid of that little blip in the radar of our nation's history.

My dad should be getting his pink slip in a few days, weeks, months now.

You see, when Boeing fires workers, and builds planes in China, they also fire Boeing subcontractors. My dad works at a non union shop btw, making machine tools for Boeing. Sure they aren't union workers, but they also aren't willing to work for 50 cents an hour either, go figure that.

So now that the planes are moving to China, it is 10 times easier to move the subcontracting jobs as well. He is 58, and has been a machinist for 30 years. I am sure there is a job out there for him that pays as well.

14 posted on 08/23/2003 5:23:41 PM PDT by dogbyte12 (Let's Outsource CEO's to the Third World)
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To: 1rudeboy
"According to you, the Founding Fathers would have approved of the UAW leeching off the rest of us so that Chevy could continue to produce the Vega."

You are the one equating Unions with "regulating commerce", not me.
The Constitution grants the power to "regulate commerce" to Congress; there is nothing about Unions. That is entirely your misconception and yours alone.
15 posted on 08/23/2003 5:25:18 PM PDT by LibertyAndJusticeForAll
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To: *"Free" Trade
http://www.freerepublic.com/perl/bump-list
16 posted on 08/23/2003 5:37:37 PM PDT by Libertarianize the GOP (Ideas have consequences)
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To: DoughtyOne

Interesting study coming out this week. Average CEO pay of top 365 companies on the Fortune 500 list rose 6% from 2001 to 2002 to an average pay of $3,700,000. However, of the 50 companies who layed off the most workers out of the 365 top companies, their salaries rose 44% to $5,100,000.

If you want to get ahead as a Fortune 500 CEO, you need to layoff workers.

Here is what you also should do to get ahead as a CEO of a Fortune 500. The companies with the 30 most at risk defunded employee pension plans, paid their CEO's 59% more than the median Fortune 500 company. At least somebody is getting paid.

17 posted on 08/23/2003 5:39:02 PM PDT by dogbyte12 (Let's Outsource CEO's to the Third World)
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To: dogbyte12
"However, of the 50 companies who layed off the most workers out of the 365 top companies, their salaries rose 44% to $5,100,000."

Wow, think what they could have saved just outsourcing one CEO. How many Americans could still be employed from just one CEO's salary?
18 posted on 08/23/2003 5:45:32 PM PDT by LibertyAndJusticeForAll
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To: dogbyte12
You can bet we'll see that line graph in DNC ads next year.
19 posted on 08/23/2003 5:49:55 PM PDT by GraniteStateConservative (Willie Green for President...)
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To: E Rocc
Manufacturing as a Share of GDP (percent)
YEAR
NOMINAL
REAL
1987
18.7
17.1
1988
19.2
17.6
1989
18.5
16.9
1990
17.9
16.4
1991
17.4
16.0
1992
17.1
15.8
1993
17.0
15.9
1994
17.3
16.4
1995
17.4
17.0
1996
16.8
16.8
1997
16.6
17.0
1998
16.3
17.0
1999
16.0
17.1
2000
15.5
17.2
2001
14.1
16.2

Source: Department of Commerce
20 posted on 08/23/2003 5:52:59 PM PDT by gitmo (Press any key to continue ... NOT THAT KEY YOU FOOL!)
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