If I was President Obama, and the world I’m expected (rightly or wrongly) to keep from blowing up seems increasingly combustible, I’d try to change the subject, too. But the President’s decision yesterday to hype a phony renaissance in American domestic manufacturing only reveals a chief executive either genuinely or willfully clueless (take your pick) on this vital economic issue.
In addition to a Presidential trip to Pittsburgh to meet with industrial entrepreneurs refining and employing genuinely exciting new technologies like 3D printing, the White House released a report claiming that “U.S. manufacturing is once again on the upswing.” http://www.whitehouse.gov/sites/default/files/docs/manufacturing_innovation_report.pdf
As has become increasingly typical, this latest Obama administration manufacturing statement actually did an excellent job of making the case for treating the sector’s revitalization as a top policy priority. In particular, it presented key facts and figures about manufacturing’s centrality to national productivity and innovation performance, as well as living standards, that are still typically ignored by economists and think tank hacks in thrall to the longstanding macroeconomic wisdom that no particular type of economic activity has any special importance. In other words, they remain convinced by the standard textbook maxim that a unit of served cheeseburgers is just as valuable to building enduring American prosperity as a unit of manufactured semiconductors.
Unfortunately, as is also typical of the administration’s manufacturing statements, this Making in America report ignores the overwhelming evidence that, by key measures, domestic industry continues to fall behind not only the rest of the U.S. economy, but foreign competition.
Let’s focus on just two of the study’s shortcomings. The first is its claim that “Manufacturing output has increased 30% since the end of the recession.” I literally don’t know where this comes from. According to a footnote, the source is the Commerce Department’s Bureau of Economic Analysis – which is fine except I spent much of yesterday afternoon searching through that agency’s motherlode of data and found absolutely no confirmation.
Manufacturing production can be measured any number of ways – e.g., gross output before and after inflation, value-added before and after inflation. Making in America didn’t specify. And the BEA data so far only takes us up to the end of 2013. But even all of the non-inflation-adjusted figures (which matter much less than the “real” figures) only show an expansion of about 25 percent. Moreover, given manufacturing’s early-2014 slowdown, its more recent performance couldn’t possibly make up the difference.
Even more important, there’s no evidence that manufacturing is increasing its share of U.S. total output – which would be pretty conclusive evidence that it’s become a growth leader. In fact, the data point in the opposite direction. As I reported in my own June 11 post, this percentage has indeed gone up since full-year 2009 . (The current recovery began in the middle of that year, and quarterly BEA data isn’t available.) But as of the end of 2013, manufacturing’s share of inflation-adjusted gross domestic product was still below its level at the start of the recession – when no knowledgeable observer thinks domestic industry was enjoying an historic revival. Here’s a link to that post: https://alantonelson.wordpress.com/2014/06/11/whats-left-of-our-economy-stick-a-fork-in-those-manufacturing-renaissance-claims/
If the President doesn’t recognize the depth and breadth of U.S. manufacturing’s problems, how much meaningful help can he provide it?
The second major shortcoming in the study is its neglect of wages. They’re important not only because workers who earn wages vote, but because the numbers speak volumes about how domestic manufacturers as a whole seem to have chosen a route to recovery and even “competitiveness” that can only damage the entire economy in the long run.
Since competitiveness first became a prominent national concern in the mid-1980s, specialists have recognized two major strategies that could achieve this goal. Manufacturers could either take a high road, with measures that would improve quality and efficiency and boost innovation while keeping wages high and rising. Or they could take a low road that would focus tightly on reducing wages and/or regulatory burdens dramatically enough to compete with developing countries in particular on those fronts.
The low road is dangerous because workers who earn too little to buy the goods they produce (and many others) tend to punish the politicians they hold responsible unless those politicians decide to compensate them somehow in other ways – say, by making credit incredibly and artificially cheap and therefore widely available. If you recognize this as the approach that led America and the world directly into an historic financial crisis, you get a gold star.
Still skeptical? Think of it this way. America could attract every last dollar of global manufacturing investment by mandating a maximum hourly wage of three cents. And imagine how such wage-slashing would ripple throughout the entire workforce. Would that produce the kind of country any of us would want to live in?
And yet the best data we have show that since the recovery began in mid-2009, inflation-adjusted wages for all manufacturing workers have fallen faster than those for all private sector workers. Nor has the picture been brightening more recently for industrial employees. The latest (May) statistics show that their inflation-adjusted wages are down both month on month and year on year.
President Obama is often criticized as a better talker than a doer. His latest efforts on manufacturing make all too clear that, he suffers serious problems in the learnng category, too.