For all the hoo-hah and excitement of political campaigns, there is one issue that isn’t being talked about. That’s hardly a surprise, since it’s been a big issue my whole life and no one has really wanted to talk about it. But that doesn’t change the simple reality that a lot of the problems in the USofA today are directly related to the simple fact that we don’t make stuff anymore.
Let’s start with our trade deficit. It stands at about 7% of our entire economy, which is a big number. If that were eliminated, we’d have 7% more money circulating through our own economy, a number that utterly dwarfs any stimulus package that could be proposed. That’s not necessarily a problem by itself, as these things often even out in the long run as money ebbs and flows around the planet. But we’ve had a deficit since the 1970s, and it only gets bigger with time.
This shortfall has been easily described by the oil we import and the cars that burn it, meaning that the automobile is primarily responsible for this loss of money to the outside. If we made it up in other things, it wouldn’t be a problem, but in 2001 we started to run a deficit in manufactured goods for the first time. We’ve simply stopped making stuff.
The change has been remarkable. According to the Philadelphia Fed, which tracks manufacturing, that sector has declined from 28.6% of our economy in 1950 to 15.5% in 2000. The total share of the workforce has declined from 33.7% to 14.0%. Why does that matter?
Because manufacturing jobs are typically the best paying jobs, especially at entry level. The decline of manufacturing is directly related to the decline in the fortunes of the lowest 40% of all American households, who can be described as the working middle class. Since 1965, the year I was born, household income has grown for the poorest fifth by 28% in real (inflation-adjusted terms), but the next highest fifth has seen only 16% growth. The highest fifth saw a 54% improvement.
That “second fifth”, the households that lie in the 21-40% range of all wage earners, was once characterized by Archie Bunker and his pals. They have benefited even less than the poor from the last generation of the American economy. They have to struggle harder all the time to avoid becoming poor. And that struggle is characterized by the lack of manufacturing jobs that plagues us.
I understand that many pundits see us as a developing “knowledge based” economy. There are two problems with this. The first is that we have a lot of people that frankly need something to do, and have capable arms and brains to do it – what will happen to those left behind? The second problem is more subtle, but very important – industrial research is often a series of minor tweaks and advances based on what is already done and ultimately has to be close to manufacturing to be effective. That’s what I did for a living during my 16 years as a Chemical Engineer. This “knowledge product” ultimately has to have some value associated with it if we are to build an economy around it.
If this was all working out fine, I might not worry about the simple fact that we don’t make stuff in the USofA. But it’s rather obvious that we’re bleeding away a lot of money overseas, and this money could represent real opportunities for workers here in the USofA. That’s the real problem that we have. A good hunk of this money leaves due to our dependence on foreign oil; if we consumed only half as much energy per person, as Europe does, that would go away. Ultimately, however, we have to make stuff that is worthy of export.
There are many barriers to manufacturing. It’s hard to site a new plant sometimes due to environmental concerns. Workers demand benefits like health care, which are bizarrely the responsibility of their employer. Payroll taxes of 7.65% don’t make things any easier. Until recently, the dollar was strong and gave us great purchasing power, but that makes our good expensive overseas. Eliminating the barriers and working with companies to expand their ability to make stuff right here in the middle of the largest market in the world has to be our top priority for invigorating the economy and giving the working middle class hope.
If we fail to do that, the long slide is likely to continue. We have to find a way to make more stuff on our own here if we are to reverse direction and make real progress. This issue is at the heart of what we actually do talk about, the issues of foreclosures and health care and reducing our dependence on foreign oil. Let’s talk about the central issue for once, which is why we don’t make stuff in the USofA anymore.