Why Our Economy Isn’t Going Down the Tubes
This week I received one of those alarmist chain letters decrying the collapse of the American economy and using for argument “19 shocking statistics” like:
- #1 The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation.
- #2 Dell Inc., one of America’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.
- #4 In 2008, 1.2 billion cell phones were sold worldwide. So how many of them were manufactured inside the United States ? Zero.
- #10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul , Minnesota . Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford’s new “global” manufacturing strategy.
- #16 Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.
I’m sure you get the idea, so I’ll spare you the rest of the letter and the dramatic call to pass this on to everyone you know.
In reality, what we today call the industrial economy could have also been labeled the “post-agricultural” economy. Before America became a great industrial power, we were a great agricultural power. In fact, you could have decried (and many did) that the hollowing out of our agricultural sector (big cotton and tobacco, for example) would lead to the collapse of America as a regional power and the eventual inability of us to even feed ourselves.
It is perfectly clear that the agricultural road we were on, while a very successful course in its day, bypassed all of the technical and manufacturing achievements of which the author is so deservedly proud. In order to make those gains, we needed to leave the past behind. And here we are again, just a hundred or so years later, at a similar crossroads.
It is absolutely true that we live in a post-industrial economy. This simply means that the source of wealth and power has shifted away from manufacturing and over to other parts of the value chain. The fact that people in the past have succeeded by manufacturing things doesn’t mean that’s how they will succeed in the future. There is no more reason to fear a post-industrial economy than there was to fear a post-agricultural economy.
Value, for many decades, was added in the growing of things; turning raw land and labor into things you could eat and wear. When we got very good at agriculture, we drove all of the value out of it. Value was then added in the manufacture of things. Today, value is added in the design of things, in intellectual property and in marketing. The most valuable assets in the world today are not factories, they are brands like Intel, CocaCola and Google.
The reason why printed circuit boards and integrated circuits are not manufactured in this country is that 1) there is no money in that part of the process, and 2) manufacturing those items generates a lot of dangerous wastes that we don’t want in our neighborhoods. But where are those industrial products invented, designed, and marketed? In the United States.
The fact that Ford figured out how to run their business more profitably by manufacturing in Malaysia rather than Minnesota is not an indication that they, or we, are failing. Ford is not in business to provide a particular type of job to a particular type of person. Ford is in business to provide a profitable return to its shareholders (Americans).
Google is a perfect example of what the future of this country looks like. Google is one of the most successful companies in the world. They provide lots of high-paying jobs, yet they produce nothing (which also means that they don’t pollute our air or water or use up any of our valuable natural resources.)
So no, we do not have to worry about closing a bunch of filthy, toxic, dangerous manufacturing plants producing 20th century goods using 19th century technologies. But change is often uncomfortable for people. If all you know is how to sew the soles onto shoes, you are going to be displaced by the closing of a shoe factory. But there will be plenty of jobs for your kids designing shoes and blogging about them.
By the way, Dell is closing thier US factory and moving to China because the Chinese will be the next wave of computer buyers. The money from those sales will be coming back to Dell shareholders.
But while a post-industrial economy is completely sustainable, spending more than you make is not. But these are completely separate issues, joined only in this author’s essay. We are running a trade deficit and a massive government deficit. That’s a bad thing, but it isn’t related to our economic system; it’s related to our desire to live beyond our means. Japan has created a similar problem for itself, and they are very much a manufacturing economy.
The deficit is a hidden tax on future earnings, since our debt will eventually need to be repaid plus the interest owed on it. It’s a future tax that we are handing down to the next generation in the form of reduced government services, higher taxes and inflation.
But that’s a story for another time.
Rick Scherle is a marketing consultant, teacher, artist, hacker, and Yoga practitioner who lives in the San Francisco Bay Area.
Very good perspective Rick. Thanks for the information.
“The United States of America has not had a trade surplus since 1975. We have not had a trade surplus with Japan since April, 1976. Every year since 1983 we have been in deficit with Europe. The last time America had a trade surplus with both Russia and China was a very brief period during the Cold War. We have been running ever increasing trade deficits with South Korea since 1998. Our 1993 trade surplus with Mexico is now a 100 billion a year trade deficit. In the 1970’s, 80’s, and much of the 1990’s our trade deficit was never more than one half of 1% of GDP. We now find ourselves with a trade deficit of between 5% and 7% of GDP depending on how you count. From 2002 to 2007 the trade deficit exploded. The only reason unemployment stayed well under 6% is because of the credit bubble. 63% of all jobs created from 2000 to 2006 were housing or credit bubble related. We did not feel the destructive affects of the trade deficit because of this credit bubble. I have concluded from work I have been doing that America will never get unemployment even under 7% with a trade deficit of over 3% of GDP, without a major credit bubble. The U.S. Economy has actually stopped functioning like a real economy. We literally need a credit bubble to function. America must move from the ideology of free trade to the economic policy of balanced trade. Until this structural shift takes place you can bank on the American economy being the laughing stock of the world economy.”
-Ames F. Tiedeman
No wonder the US is in a mess because i hear and read that millions “think” like you.
Without strong manufacturing you have nothing. Soon we will fall behind in weaponry too.
Manufacturing is technology without technology a country is nothinh. The lawyers, the university crowd (except for those in certaing areas of industrial research and engineering) are luxuries only a technological society can sustain, same for doctors and hospitals and on and on.
Look, if tomorrow the Koreans and Japanese decided to the whole us mobile phone system will collapse because the US has sero mobile phone manufacturing ability. Apple does not have the key technologies to manufacture in the US the Iphone. When things get tough a phone will work with any crappy software but there is no way iphone software or android will run without a phone.
With the destruction of its manufacturing the US has committed suicide.
The problem deep down is that the liberals have destroyed America’s confidence in herself. To Liberals, America is flawed; unfair, racist, uptight, dumb and on and on. Through movie, books, media and all sort of laws they have discredited industry and the values that create it.
Unless America shakes off the yoke of the liberals America is finished. Of course, the get rich quick economic and financial tricksters spewed out by Harvard and others like it that now run all industry and finance, also help in digging the US grave.
Finally the free trade fundamentalists have finished the job. It is nuts not to tell China: “you sell us a dollar worth of manufactured goods you buy another dollar of manufactured goods.
What amazes me is that the millions of unemployed and under employed, and thir families still sit at home, feeling sorry for themselves while their rules do nothing about their jobs migrating to China and millions of illegal inmigrants take what is left. Of course, for the time being (but is stsrting) this does not affect the senior reporters and showmen, the Hollywood producers and actors, the medical doctors,, the civil servants, the university professors or the military brass or the top execs with golden retirement parachutes.
But sooner or later the masses will wake up, like it happen in Germany in the 30s and yes it can become a good mess. The sooner people stand up the smaller will be the mess
Lower taxes? Higher taxes? Does anyone actually think being plus or minus 5% on taxes will make a lick of difference for the U.S. economy at this stage in the game? The economy will never again work the way we all want it to work with the current account deficit at 6 or 7 percent of GDP. You cannot get unemployment even under 6% without a credit bubble, with a current account deficit as large as ours. We have not had a trade surplus since 1974. We have been in decline for 40 years and this decline has only accelerated in recent years. We closed 55,000 plants in the United States since 1980. Your politicians won’t tell you this because some of them fed you the false promise of free trade. Others don’t want to admit NAFTA has been a complete failure for America. Great for Mexico as that giant “sucking sound” Ross Perot predicted has materialized. Clinton and Gore promised the American people ever bigger trade surpluses with Mexico and ten’s of thousands of new high paying jobs. Just pass NAFTA they exclaimed! Quite laughable, really. We have gone from a trade surplus of a few billion a year to a trade deficit nearing 100 billion per annum with Mexico. What is equally as laughable or insulting is the trade deal Obama has just signed with Columbia. Do we make anything they can afford? Of course not. Columbia will simply become a new launch pad to make textiles and sell them into America. How about the trade deal Obama signed with South Korea? This is an interesting one. Within the bill on the U.S. side is a provision to provide worker training for displaced Americans. So we are now so stupid that we are signing trade deals that we know will diminish the U.S. labor force. The insanity is just that! Does anyone think the South Koreans would agree to a trade deal if they were not sure to win? Does Obama understand that the South Koreans are fierce nationalists who will never let America win a trade contest? Did my ancestors lead pre-Revolutionary War skirmishes against the British at Lexington and Concord in 1775 and early 1776 only to have America end up how it is today? My blood has been on this land since 1635. How many of my ancestors ever dreamed that America would be so deep in debt and short on ideas? Would any of them ever have thought that such mediocre men would one day be leading this nation? America has done a terrific job of creating a low employment and low wage society, for millions. Quite sad indeed. No civilization has succeeded by consuming more than it produces. We must massively restructure. Until America decides to produce what it consumes you can forget about any long term economic recovery. The financial games all failed. The credit bubble is gone and now the U.S. economy is exposed as the biggest joke of all time. Credit bubbles have a way of masking the real issues. How do we fix the American economy? Start by making every American who has received a Nobel Prize in economics return the award. Why? because they were either 100% wrong or their work proved to be of no benefit to the American economy. Next, round up every economist who advised Nixon that if America left the gold standard and moved the world to a floating currency regime; that America would never, ever, run a current account deficit. And I am very sorry to inform everyone that this would include the late and great Milton Friedman. Sorry Milton, you were dead wrong too! Next, leave the WTO, end NAFTA, and go about setting up country-by-country trade deals that are realistic based on where America stands today. It is not 1955 anymore. The world has either matched us or surpassed us in industry after industry. We have literally become an emerging economy is some industries as we have faltered so badly. Next, move to a flat tax, and end all farm subsidies. Cancel most government social programs like food stamps and deport 100% of the people living in America illegally. Make it a high crime to employ anyone not here legally. Finally, for major industries such as steel and automobiles, move to a must-be-made-in-America policy. No longer allow imports of products in specific industries. They must all be made in America. We must employ our people. We can no longer employ the world via our consumption as so many Americans remain unemployed. We must use our 50 state union to our advantage. We must promote massive trade between the states. We must socialize CAPITALISM to avoid becoming a socialist state! We must reinvigorate the American people. We must manufacture. And who running for office can lead America on this grand and pious endeavor? Who running for office today has the passion of a General MacArthur or the skill of a Chester Nimitz? Who has the energy of a Teddy Roosevelt? The men who command the attention of the electorate in this age of mediocre ambition are all too small to make a difference…