“We are not making stuff anymore in America,” is the word on the street. “Our industrial base is eroding,” say the academics. In short the decline of domestic U.S. manufacturing is conventional wisdom. The problem is that it is not true – not even close. And this falsehood has important consequences.
Let’s take a look at the facts. Here are the data as the UN has collected them and as put in chart form by John Hunter, on his web site Curious Cat Investing and Economics Blog.
America manufacturing has not been decreasing – it has been increasing. Far from “losing” manufacturing, the U.S. has seen a steady rise for decades- even after the financial crisis of 2008. No other country comes close save for China, which is now slightly ahead. But consider that China has 20% of humanity, and the U.S. has 5%. Not bad for 5%, not bad at all. Note also the position of India, which is often mentioned along with China as a manufacturing powerhouse. No way – and there are profound historical reasons for that given that India was wealthier than China in the late 1940s when both supposedly achieved “independence.” Finally, note that Japan once came close to the U.S. in manufacturing prowess, but then it took a nose dive which some attribute to actions taken by the U.S.
What about jobs, then? Let’s look at the data, just for manufacturing within the U.S., i.e, domestic manufacturing, this time for the entire post WW2 era. These data were put into graphical form by Mark J. Perry, Professor of Economics at the University of Michigan and author of the popular website Carpe Diem:
Since 1947 the U.S. has seen persistent growth in domestic manufacturing and the rate of growth has in fact increased since the rapid growth of China’s manufacturing in the 1990s. Clearly the China-U.S. relationship need not be a win-lose one. Now let’s consider jobs in domestic manufacturing. They increased in the 1960s and remained roughly constant even as total manufacturing increased – until about 2000. Then jobs took a dive even as manufacturing continued to increase right up until the economic crisis of 2008. These data cannot be explained by offshoring. There is only one explanation – automation. This is not to say that “offshoring” has not occurred – only that it cannot explain these data.
Notice that the automation has been gaining momentum in the last decade with a precipitous job loss even before the economic crisis of 2008. (In fact this must have a lot to do with the development of the current economic crisis – but that is another story, which we will deal with another time.)
Let us consider some of the consequences of all this for the present moment in our political life. The presidential campaign has been marked, as usual, by considerable China bashing with considerable emphasis on “loss of our manufacturing base.” Automation is rarely mentioned by the candidates. In the case of Obama, it is quite amazing that this good news about the continued rise in manufacturing does not come up on the campaign trail since this is basically good for American workers. In fact such data seems to be prominently mentioned only on libertarian sites like Curious Cat and Carpe Diem.
Why the silence on this matter amongst “progressive” politicians? Two reasons are apparent. First of all, the ability to produce more manufactured wealth (i.e., goods) argues that there should be no crisis of consumption, i.e., aggregate demand, which we see in the current economic downturn. The question then arises as to why the current labor leadership and “progressive” Democrat pols cannot deliver a solution and increase aggregate demand and the number of jobs. One way to do so would be to shorten the hours of labor with no cut in pay*, but that would take a political and economic struggle for which the Democratic pols have no stomach. It is far more acceptable and much easier to bash the Chinese. Second, a strong Malthusian streak amongst many progressives means that they see things in terms of a shortage of supply and an excess of demand – precisely the opposite of what is happening now.
What about exports? The U.S. is the third largest exporter in the world after China and Germany. Again, not bad for the U.S. with only 5% of the world’s population. And the U.S., like Germany, exports high value-added, high profit items, something to which China aspires but which it is only beginning to do. You may look at T-shirts and shoes and find the “Made in China” label. But the Chinese look at large airliners and cars and see the “Made in America” label. Which is more desirable?
This false view of America’s position in the world in fact quite is quite dangerous. It leads to demonization of China, which paves the way for conflict and even war. And it has not gone unnoticed in China. On top of that, it is a strange view that America has of itself when it is by far the richest planet on the earth and yet it so readily sees itself as a victim. When the nation with the mightiest military on the planet comes to see itself as victim, that is a very bad sign. It is not hard to find historical or present day instances of unscrupulous leaders claiming victimhood to justify aggression. We should be on our guard against this sort of sickness. For a rich and mighty power to play the victim is a perilous business.
*Shortening the hours of labor automatically exerts an upward pressure on wages since it means more workers are necessarily shifting the supply side of things in favor of workers. Classically the shortening of the work day has been seen as a critical way of improving the lot of the working class, a thought which seems lost in contemporary America.