Manufacturing in the United States
Jul 10, 2017
Robert Blain raises a point about manufacturing in the US:
"The zenith of American manufacturing might was the mid-60's. We've lost 40% of our manufacturing jobs since 1979 and now we are in one heck of a jam coming up with the bucks to fund Medicaid. When a country loses a big chunk of its manufacturing backbone, the ability of government, businesses, and families to support themselves is severely undermined.
China grew its industrial base (the primary recipient of the US industrial flight overseas) and is now the #2 economy in the world."
Thanks for the comment, Robert.
When discussing the manufacturing sector of our economy, it is important to differentiate between output and employment. This chart illustrates my point. Jobs are in red, output in blue.
When people worry about the decline of manufacturing in the US, they are usually talking about jobs, which have declined sharply. However, at the same time, manufacturing output has steadily increased to a new record level.
Even with the recession, you can see our manufacturing sector is not floundering, but it simply employs many fewer people. This is the productivity curse, and it is being vigorously debated by economists right now.
Certainly, automation and robots are a big factor, but also the US is moving toward higher end products - instead of steel rails, we're making smaller amounts of expensive alloys for specific uses. This calls for a smaller, but more highly skilled workforce.
China has been on a tear in manufacturing growth, but they are also the biggest engine of demand for those products: steel, cars, equipment. This chart is old, but the trend remains in place. Finally, manufacturing is not a unique factor when funding Medicaid.
Medicaid dollars - indeed all government revenue - are dependent on economic performance across all sectors. The profits and wages from the service sector pay the same taxes as the manufacturing sector. Our future does not hinge solely on factory jobs.
More importantly, as you can see here, service sector jobs on average now pay better than manufacturing jobs.
I'll talk more about our fixation on factory jobs next week.