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Home Publications Blogs Beat the Press Robert Samuelson Spreads Confusion on Manufacturing

Robert Samuelson Spreads Confusion on Manufacturing

Monday, 08 April 2013 03:52

The Washington Post seems to have a quota for pieces that spread misinformation on manufacturing. Today's piece by Robert Samuelson fills the quota for the day.

The gist of the piece is that manufacturing employment has been declining in importance in the U.S. for decades and also everywhere else around the world. Therefore we should not expect any substantial boost to manufacturing employment.

This is the sort of three-card Monte story that people expect from the Post when discussing economic issues that are relevant to working people. Yes, manufacturing has declined in importance everywhere and yes, it has long been declining in the United States. However the issue is the rate of decline.

According to the Bureau of Labor Statistics, from 1973 to 1989 manufacturing employment declined at an annual rate of 0.3 percent. By contrast, it declined at a rate of 1.7 percent annually between the years of 1989 to 2012. If we had simply maintained the earlier rate of decline we would have another 4.7 million manufacturing jobs. 

These years are business cycle peaks, however we get an ever sharper picture if we put the break in 1997 when Robert Rubin was able to put muscle behind his high dollar policy through his control of the IMF's bailout of the East Asian countries from their financial crisis. The annual rate of decline from 1973 remains the same at 0.3 percent, however the decline since 1997 has been 2.5 percent. If we had maintained the 1973 to 1997 rate of decline through 2012 we would have 4.9 million more manufacturing jobs today. That would be more than a 40 percent increase in manufacturing employment.

In the same vein, we have the comparison with other countries. As Samuelson's colleague Dylan Matthews showed us last month, the manufacturing share of employment in Germany fell by roughly a third between 1973 and 2010. By contrast, it fell by 60 percent in the United States. If the U.S. had seen the same pace of decline as Germany we would have another 8 million manufacturing jobs.


Alternatively, we can look at our trade deficit. At $500 billion it is around 3.2 percent of GDP. In economics textbooks, rich countries like the United States are supposed to be exporting capital to poorer developing countries, which would mean that we would have a trade surplus. But let's just say that we balance our trade and this was done through increased net exports of manufactured goods. (Manufactured goods account for the overwhelming majority of trade.)

This would be a 27 percent increase in manufacturing output. If we had a corresponding increase in employment it would translate into an additional 3.2 million manufacturing jobs.

In short, we can accept the basic points that Samuelson makes in his piece -- manufacturing employment is diminishing in its importance in the United States and around the world -- and still conclude that we should have many more jobs in manufacturing. 

The main culprit is the over-valued dollar, which makes our goods less competitive in the world economy. And, for that tiny minority of economists and policy types who believe in accounting identities, the only way to get something close to a balanced budget without bubble driven levels of consumption, is by getting the trade deficit close to balance. This is not a personal opinion, it is basic logic and accounting.

But hey, Samuelson and the Post don't want us to think about manufacturing and those dumb workers who might get jobs in this sector.


Comments (3)Add Comment
written by JSeydl, April 08, 2013 6:39
Manufactured goods account for the overwhelming majority of trade.

Hate to be nitpicky, but I believe this should say, "overwhelming majority of trade in goods." According to the latest trade report (http://www.bea.gov/newsrelease...ad0213.pdf), goods exports account for 71% of total exports. Within goods exports, manufactured goods account for 74% of exports (Exhibit 15 of the report). So manufactured goods make up only about 53% of total exports.
The over-valued dollar isn't the only driver, there's plenty of anti-trust help along the way:
written by Perplexed, April 08, 2013 12:36
In his book "Cornered: The New Monopoly Capitalism and the Economics of Destruction," Barry Lynn makes some compelling arguments that our manufactures have been seriously weakened vis-a-vis large financial and trading monopolies(like Wall Mart)when Congress ultimately overturned "centuries" of laws aimed at preventing price discrimination:

"What is important here is merely to note that during the neoprogressive revival, Congress in 1975 undid the entire structure of pricing policy that had been erected in the previous centuries when it passed a law called the Consumer Good' Pricing Act, which at last legalized price discrimination.

The goal of those who promoted the act was laudable. They believed that big manufacturers like Procter & Gamble had become too fat and lazy. Yet rather than take on the giant conglomerates directly, such as by using antitrust law to make them smaller, the neoprogressives apparently decided that it would be easier to empower retailers to serve as "countervailing" powers able to exert more pressure on the producers.

Though all but forgotten today, the Consumer Goods Pricing Act must be credited with setting into motion the fantastic concentration of power in the hands of the giant retailers and trading companies that we have witnessed in the last generation. The decision six years later, in 1981, to all but suspend enforcement of our classic antitrust laws only accelerated the process. Perhaps the biggest proof of the lack of wisdom of the act is that the consolidation of power among the retailers eventually provided an excuse for round after round of consolidation among the very producers that the authors had originally set out to weaken, like Procter & Gamble."

Maybe the timing is just a coincidence right? Have you explored this option Dean? Any comments?
written by urban legend, April 08, 2013 2:41
There were 300,000 more manufacturing jobs in January 2001 than there were in January 1993. It's wrong to lump the Clinton years as if they were the same as the whole 1989-2012 period.

It's a simple fact: in job numbers, manufacturing grew after immediate post-war de-mobilization under Truman, dropped some under Eisenhower, grew a lot under Kennedy-Johnson, dropped during Nixon-Ford, grew under Carter, dropped under Reagan-Bush I, grew under Clinton, dropped immensely under GW Bush. They haven't yet passed the January 2009 start of the Obama administration, but they probably will with growth rates since the recession trough by January 2017.

When Democrats are in office, manufacturing grows (even if the do start things like Rubin did). When Republicans are in office, manufacturing jobs decline. Let the debate on causation vs correlation begin, but that's a lot of coincidences.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.