In other words, Bush policies described.
Posted on 09/13/2003 8:49:28 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
Despite the focus of headlines on terrorism and war overseas, polls continue to show that about half of all Americans believe the economy is the country's top problem. Most Americans remain negative when asked to rate current economic conditions in the United States, and it is this factor which is slowly dragging down President George W. Bush's job performance rating.
Defenders of transnational corporations are responding to this crisis of confidence with new arguments meant to distract the public from blaming global managers for the "jobless recovery" in the United States. The current fad is to cite higher productivity for the loss of 2.7 million manufacturing jobs during the last three years. In The Wall Street Journal September 9 edition, Columbia Economics professor R. Glenn Hubbard, who until last March was chairman of President Bush's Council of Economic Advisers, argues, "What has declined is manufacturing employment relative to total employment, as productivity growth in U.S. manufacturing has become a global standard and some 'business services' jobs are outsourced for manufacturing. The decline in manufacturing employment resembles that in agriculture in the last century, in which robust productivity growth characterized American performance, and millions of workers exited agriculture for other segments of the economy."
This supposed comparison between the pattern of agriculture and manufacturing is cited frequently, but is nonsense when seriously examined. The most obvious point is that America has not lost its ability to feed itself, whereas it has lost the ability to provide its people with a substantial share of their manufactured goods. Last year, the United States ran a trade surplus in agriculture of $12.7 billion compared to a trade deficit in manufacturing of -$359.3 billion.
The market for agriculture is fundamentally different than that for manufactured goods. Farm production can satisfy the market. Once a society has become as well feed as America, there is little room for additional growth in demand. People can improve their diet and expand their tastes, but the volume of their food intact is not going to continue to grow. Indeed, one of America's top health problems is a population that is too well feed and overweight. The economic term for this is "income inelastic." As people earn more money, they do not spend much of it on food. Instead, they spend the money on items for which their demand has not been satisfied, like manufactured goods. This is the stuff of every college introductory economics course, so Hubbard clearly knows this. But for political reasons, he hopes his audience does not.
Consumerism drives the modern economy, with new gadgets or "new and improved" versions of older gadgets flooding the market. Productivity means more output can be generated by the same number of workers. As long as that output can be sold, it makes workers more valuable, not less. That is why wages rise in tandem with productivity. Firms do not lay off workers who are valuable.
Productivity leads to layoffs only if the extra output cannot be sold. Then the calculation changes to one of how many workers are needed to produce a limited output. In a recession, reduced consumer spending leads to cuts in output and then to layoffs. This is known as cyclical unemployment. The jobs lost are expected to return once economic activity rebounds and consumers start to spend more freely again. The recent recession hit its low point in November 2001 and the economy has been growing, albeit slowly, for almost two years now. But jobs continue to be lost in manufacturing.
So what is limiting the market for American-produced goods? The answer, of course, is imports. Despite the slowdown in the U.S. economy during the 2000-2002 period, American consumers still increased their annual purchase of foreign-made autos and auto parts by $6.9 billion and of imported consumer goods by $21.5 billion. In all, Americans imported almost $1 trillion worth of manufactured goods last year. Though there was a slight drop in total manufactured imports during this period, the cause was concentrated in certain sectors, such capital goods where imports dropped by $66.5 billion. But capital goods are used in American production, so this decline is consistent with a cut in U.S. manufacturing. Indeed, the main cause of the slow recovery is the decline in business investment spending in the United States, as major firms look to invest in factories overseas.
The result is a loss of jobs that is structural, not cyclical. Two economists at the Federal Reserve Bank of New York, Erica L. Groshen and Simon Potter, have recently published a paper that answers in the affirmative the question they pose in its title "Has Structural Change Contributed to a Jobless Recovery?" They found that 79 percent of employees who have lost their jobs worked in industries affected more by structural shifts than by cyclical shifts, meaning that their jobs are not going to come back by the natural working of the business cycle. "Job losses that stem from structural changes are permanent: as industries decline, jobs are eliminated, compelling workers to switch industries, sectors, locations, or skills in order to find a new job," write Groshen and Potter. They add, "In our view, this shift to new jobs largely explains why the payroll numbers have been so slow to rise: Creating jobs takes longer than recalling workers to their old positions and is riskier in the current uncertain environment."
Oddly, though 90 percent of the jobs lost over the last three years have been in manufacturing, Groshen and Potter never mention this sector. Instead, they note that several of the fastest growing industries in the 1990s, communications, business services, and security trading have suffered as their bubbles have burst (e.g. "structural downturns because of unsustainable overexpansion"). These, of course, were among the much hailed "new economy" jobs which were supposed to replace manufacturing. Groshen and Potter do mention "reorganization of production, and local or international outsourcing" as causes of structural job losses. Local outsourcing would, however, only shift jobs within the economy. It is international outsourcing, along with the "reorganization of production" into global supply chains, which has cost the United States manufacturing jobs and manufacturing capacity.
Groshen and Porter do not make policy suggestions, but the implications are obvious. Macroeconomic policies like tax cuts, deficit spending, and low interest rates will not revive the manufacturing sector because they do not address the structural challenge of imports and outsourcing. The structure of American production for the American market has to be purposely rebuilt. The foundation of a new American economy that preserves manufacturing as the most important sector is a new trade policy that restricts imports.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
Sounds like this guy is in the pocket of big labor, which does have blame for their current predicament.
In other words, Bush policies described.
I would rather have a "Busheconomy", than a "DeanGephardtKerryadnauseumeconomy".
Can anybody say tax hikes and more regulations that will send more jobs offshore.
Manufacturing is NOT in a steep decline in the USA. As a percentage of GDP it is just about at its all time high. What is in decline is manufacturing jobs >per dollar of output<. The US is now producing the more manufactured goods as a % of GDP, in nominal dollars, and in inflation-adjusted dollars with fewer people...which is a rather long way of saying that:
*** PRODUCTIVITY IS INCREASING ***
This is a GOOD thing folks. Pretty much all wealth in our economy is created through increased productivity.
Remember that it used to take 90% + of the population working in the agricultural sector just to keep us all alive each year. Now it takes less than 10% of the population to keep us fed (not only fed, but chronically obese for the most part).
Should we lament that all the people who "should be" farmers are unemployed? Or should we rejoice that 80% of the population can now work in other sectors to provide additional output/wealth for the rest of us?
If you are one of the people who is temporarily unemployed from your former manufacturing job, then increasing productivity feels like a bad thing (until you get a new job). But reallocation of resources (people, plant, capital, etc.) to more productive uses is what capitalism is all about.
If you want to subsidize those poor folks who lost their jobs then fine. Throw some cash and training at Johnny Lunchpail to teach him how to program in Java.
But DO NOT erect trade barriers. They serve only to impoverish those they intend to protect through higher prices, reduced employment, reduced productivity, etc.
jas3
But this is precisely the fallacious propaganda that William Hawkins debunks in the article I posted.
IOW, Mr. Hawkins thinks that increasing productivity is evil, thus parroting a major labor union tenet.
Actually, he correctly points out that job losses are not due to increased productivity but to loss of market share within our own domestic economy.
But it's not surprising that you'd distort and misrepresent his position. Afterall, you have little else to offer anyway.
Ok lets get to the meat of his point.
As long as that output can be sold, it makes workers more valuable, not less
Huh? The whole point of productivity is to produce the same or more amount of a product with less resources.
That is what is exactly happeneing in the manufacturing sector.
BTW, Willie do you think increasing productivity is evil, like the unions think?
As an Industrial Engineer, my professional credo is "Work Smarter, Not Harder."
I am a staunch advocate of true productivity improvement through application of labor-saving technology and time-saving methods simplification. Such gains in efficiency benefits all of society, not just the companies that practice such an approach.
I am philosophicly opposed to those who misdefine "productivity improvement" to apply to enslaving employees to work harder and longer hours for less pay and benefits. While that approach may attain short term profits, it is regressive, abusive and detrimental to society in the long run.
That is why I find your position so morally reprehenisble and despicable.
Huh could of fooled me with your calling to use govt. force to manage legitimate private business practices.
The Bush Administration already utilizes the force of the bloated government regulatory bureacracy to oppress our domestic industries. Instead of alleviating our businesses from this burden, he compounds the tyranny by undermining our industries with imported goods that are not subject to the same regulation. He does so for the profitable benefit of an elite minority and to the detriment of our nation as a whole.
Huh???? Bush put in steel tariffs.
JMO, Willie, you are having an exorcist type of moment, your head is spinning out of control.
Dubya's "targetted" steel tariffs are an excellent example of what a hypocritical, micromanaging pander-monkey he actually is. Guided by special interests, those tariffs were excessively high on some items and riddled with hundreds of loopholes and exemptions for others. Such inept polical bungling produced tariffs that are not only ineffective, but were also damaging to domestic industries in many instances.
"Targetted" tariffs specified by the demands of special interests DO NOT WORK.
What our nation desperately needs is a relatively low (10~15%), flat-rate, "revenue tariff" placed on ALL imported goods. As James Madison noted, such a tariff is "consistant with the principles of free trade". And the proceeds could be utilized to further reduce other forms of domestic taxation, thus stimulating our domestic economy WITHOUT bankrupting our Treasury.
Bush refuses to do this. Instead, he continues on a path that buries us in debt while stifling our domestic production efforts.
Huh, I guess Ronald Reagan was just as hypocritical for imposing the same type of tariffs.
Willie not only is your head spinning like the exorcist girl, now you are vomiting pea soup, IMO.
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