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Making Stuff

If’ you pay any attention to the things you are buying this holiday season, you’ve probably noticed that very little of it is made in the USofA.  That’s been true for an extremely long time – for many of us, our entire lives.  We simply don’t make much stuff in this country anymore.

We don’t have to speculate as to what that means over the long term because we have been living the long term.  We have run a net deficit against the rest of the world almost continuously for 30 years. Some have speculated that this is a good thing, as the rest of the world can make products cheaper than we can – why not run through their resources rather than our own?  The Depression that we are in, this Managed Depression, explains just how wrong that is.

But if you want some data to show the problem there is plenty.

I’ll start with this chart from the St Louis Federal Reserve – a treasure chest full of graphs for any economics geek.  It shows total manufacturing employment over the last 70 years:


There are several dramatic things here. First of all, there is indeed a real inflection point around year 2000, from which point we lost about 6 million manufacturing jobs (about 1/3 of the total).  Second, we have not had this few jobs in manufacturing since we were starting to gear up to fight WWII – when our population was much less than half what it is now.  But what is very chilling in this graph is that you can see that half the recent job loss occurred outside of the shaded “recession” times – it was a quiet loss of jobs, one that left manufacturing states like Michigan and Ohio behind long before the official “recession” started.

This is part of the reason why I believe that when we look back on this period economic historians will say that the Managed Depression started in 2001.

But why should we care?  While manufacturing jobs are decent paying, they aren’t the only ones out there where you can make a good living.  Does it matter that total manufacturing employment has hit the skids so badly?

Yes, it does matter, because of a simple formula:  GDP = C + I + G + E .

This is the ultimate balance of a nation over the long haul.  Gross Domestic Product, or the sum total of all the good and services produced, is equal to Consumption plus Investment plus Government Spending plus Exports.  That last term, which has been negative for a full generation, is what is pulling us down.  It is much more difficult for us to grow GDP as fast as we need to in order to create jobs – about 3.3% per year or more – if we are a net importer of products.

How can we increase manufacturing in the USofA?  The most obvious method is to reduce the net value of the US Dollar abroad.  That is what we are in essence doing through the quiet Currency War that has been brewing, with salvos of “Quantitative Easing” marking the skirmishes on the front lines.  But if we do this, the oil we import will only become more expensive, setting off a terrible inflation that will ease concerns about Deflation but wreck the rest of the economy.

A problem that has been allowed to fester this long – between 10 and 30 years – is not going to be fixed overnight.  But be assured that not making stuff in the USofA is a serious problem that demands attention.

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36 thoughts on “Making Stuff

  1. That is one scary looking chart. This explains a lot of the Tea Party strength in Ohio and Indiana, which is where a lot of seats went from blue to red. Those are manufacturing states that have really taken it hard lately.

    You may need to explain to people why manufacturing jobs are so important. When I try to explain this I get a lot of people who tell me that loss of manufacturing is a good thing because it means less pollution, which makes no sense at all to me!

  2. Part of the demise of (particularly) heavy manufacturing…for example: cars, trucks, heavy equipment, ships et al, includes, but is not limited to the demonizing of unions, treaties like NAFTA, WTO.
    If a World War (perish the thought) were to occur today, we’d be in very-deep trouble…we no longer have the heavy manufacturing capability to gear-up.
    I don’t have the answer…but perhaps…reciprocal tariffs? For now, there are still American made products available. Check out “Made in USA Forever (dot) com.”

  3. Anna: I’ve heard that argument, too, and I have to tell you I just don’t get it. There’s always hope that we’ll consume less, much as that would hurt GDP, but as long as we do consume what we do the least we can do is make it ourselves. Sending the pollution problems out to developing nations isn’t helping anyone in the long run – including Americans who need jobs!

    Jack: Good link, thanks! Want to include a live version: http://madeinusaforever.com/ Buy your holiday stuff from these guys, please! Meanwhile, it is true that any kind of sustained war (or anything!) would be very much ours to lose at this point. Demonizing unions is certainly part of the problem – and a very silly thing to do, IMHO.

  4. No live version from me as it is considered a spam-comment. Thanks for making it live. USCofC, Koch brothers, the conservatives make it their business to demonize unions. Working class folks buy into this, thus fueling the downsizing, outsourcing, and WaltMartization of working & middle-class jobs…ie production jobs in factories. IMHO

  5. If you were to superimpose a chart of productivity gains from the past thirty years you would see a high inverse correlation. Year over year average increases of about 2% every single year! The jobs are disappearing, but the manufacturing isn’t. Your chart is on manufacturing jobs, not manufacturing. If you looked at the economic census reports on Manufacturers’ Shipments, Inventories and Orders the picture is actually one of nearly continual growth (recent recession aside).

    A few years ago our family rebuilt our garage. Aside from the crew that poured the foundation (a morning’s work) and the two guys who did the stucco, one guy put up all the pre-fabricated sections by himself. I doubt there was much factory labor involved in assembling those sections.

    I am anticipating the shift to more service-based employment will continue. Like the movement away from an agrarian economy decades ago, I have no doubt there will be bumbs, but I don’t think we need to be Chicken Little about it either.

  6. Bruce, I see your point – and I’ve made it many times. I’d accept that if we weren’t running such a consistent balance of trade deficit over such a long period of time. It’s been said that “Machines should work, people should think” and I’m all for that if we’re making about what we consume. We aren’t, and haven’t been for an awfully long time. A few years out of what is not a big problem but we’re looking at a whole generation.

  7. Maybe somebody should just give me $2000. I could easily spend it on domestic products and services. Erik I am curious, if you would include some of the Nafta production of automobiles and large appliances near our borders would the production shift be less pronounced?

  8. This has alredy occured in the UK the demise startted during the Thatcher administration when we shiftged from manufacturing and other heavy industries to being predominatly a nation that would concentrate on services some might say in particular finacial services – look at where the UK is now. It’s also interesting to note that the demise or running down of our manufacturng base went hand in hand with Thatcher’s policy to neutralise the Unions

  9. Dan: Some of our production shifted to Canada and Mexico, so perhaps I should calculate the total balance of trade of North America – I’m always going on about how we’re one people, so that might well be fair. Let me look into that and see if things look better – they should.

    Gwei: Thank you for taking this out of the US and towards the developed world. I don’t know the details as well as my own nation, but I do know that the UK is in a position very similar to ours – and you say it’s for very similar reasons, which only makes sense. So here is another connection to be looked at – what has been the net balance across the developed nations (say, G7) over the last 30 years or so? If it is a net negative it would be an interesting angle on all the things Brazil and China have been chiding us for lately.

    I think I have some interesting homework from these two comments. Thanks (I think … 🙂 )

  10. I want to get back to what Bruce said because it’s important – and I don’t think I’ve explained m’self very well.

    I’m trying to tie up a lot of loose ends here, and that includes making the connection between GDP growth and job growth. We saw in the regression line that we won’t have serious job growth until we’re well above 3.5% gains in GDP each year – and that’s the link I want to make.

    So from the formula above we have all these independent variables. Neglecting any change in consumption, investment, or government any net increase in GDP comes from an increase in exports. Which is to say that in order to grow more jobs we need to grow more exports – or at least not have such a net negative in that category.

    Given that consumption is pretty much maxed out (like our plastic) and investment is just not going anywhere anytime soon AND our government is not likely to spend even more lately this is a pretty reasonable correlation. The only area that has potential for serious growth in the near future is probably exports – IF the stars and currencies align properly.

    Absent any of that, I don’t see us getting the GDP growth we need to absorb the unemployment anytime soon.

  11. I remember in the 1990’s in govt. economic and education circles talk of a post industrial or neo industrial nation or whatever slogan you wanted to attach to it. Clinton with his bridge to the 21rst century (which I thought was a great slogan/ideal, albeit not with much teeth i.e. law behind it, sort of like a german industrial retraining program for those laid off from old industries)
    But in the back of my mind I always thought that a lot of people in general are not cut out for cubicle jobs. I mean we are only a couple of generations cut off from the land and not that far from our primate cousins in some ways. In fact you never know perhaps some primates could outlive us.

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