Save Manufacturing Jobs

"Manufacturing jobs" has become a battle cry of those who oppose free trade and are sounding an alarm about American jobs being exported to lower-wage countries overseas. However, manufacturing jobs are much less of a problem than manufacturing confusion.

Much of what is being said confuses what is true of one sector of the economy with what is true of the economy as a whole. Every modern economy is constantly changing in technology and organization. This means that resources -- human resources as well as natural resources and other inputs -- are constantly being sent off in new directions as things are being produced in new ways.

This happens whether there is or is not free international trade. At the beginning of the 20th century, 10 million American farmers and farm laborers produced the food to feed a population of 76 million people. By the end of the century, fewer than 2 million people on the farms were feeding a population of more than 250 million. In other words, more than 8 million agricultural jobs were "lost."

Between 1990 and 1995, more than 17 million American workers lost their jobs. But there were never 17 million workers unemployed during this period, any more than the 8 million agricultural workers were unemployed before.

People moved on to other jobs. Unemployment rates in fact hit new lows in the 1990s. None of this is rocket science. But when the very same things happen in the international economy, it is much easier to spread alarm and manufacture confusion.

In Drucker's words, "Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S.," such as Japanese automobile plants making Toyotas and Hondas on American soil.

"Siemens alone has 60,000 employees in the United States," Drucker points out. "We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs."

None of this is much consolation if you are one of the people being displaced from a job that you thought would last indefinitely. But few jobs last indefinitely. You cannot advance the standard of living by continuing to do the same things in the same ways.

Progress means change, whether those changes originate domestically or internationally. Even when a given job carries the same title, often you cannot hold that job while continuing to do things the way they were done 20 years ago -- or, in the case of computers, 5 years ago.

The grand fallacy of those who oppose free trade is that low-wage countries take jobs away from high-wage countries. While that is true for some particular jobs in some particular cases, it is another half-truth that is more misleading than an outright lie.

While American companies can hire computer programmers in India to replace higher paid American programmers, that is because of India's outstanding education in computer engineering. By and large, however, the average productivity of Indian workers is about 15 percent of that of American workers.

In other words, if you hired Indian workers and paid them one-fifth of what you paid American workers, it would cost you more to get a given job done in India. That is the rule and computer programming is the exception.

Facts are blithely ignored by those who simply assume that low-wage countries have an advantage in international trade. But high-wage countries have been exporting to low-wage countries for centuries. The vast majority of foreign investments by American companies are in high-wage countries, despite great outcries about how multinational corporations are "exploiting" Third World workers.

Apparently facts do not matter to those who are manufacturing confusion about manufacturing jobs.

"Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S.,"

One major problem....Companies based in India that are opening up shop in the US are also bringing in their own ( Indians ) to fill the jobs !! To add salt to the wound, they don`t have to pay any taxes on their income !!

Left that little tidbit out, didn`t we?

However, consider this:

Manufacturing jobs mean that *products* are being produced in your country. Products are real, tangible assets that can be sold overseas at a profit, thereby importing wealth. Services can also be sold overseas, but many service jobs in the United States only serve the United States. Grossly inappropriate example: if everyone in the United States was a highly paid lawyer, but the only demand for American lawyers was in America, we would pass wealth around to pay for lawyers' fees, but then bleed wealth overseas to provide ourselves with creature comforts. Over a span of years, we'd all be poor lawyers.

So the question arises: do we create more wealth in the U.S. than we trade away in the form of the trade deficit? I'm guessing we don't, but I haven't looked at the figures.

When push comes to shove, I would rather have hot products to sell and import wealth than be a consumer economy that bleeds wealth. Our productivity is high, but are we only producing vapor - a la the 1990 internet boom?

The loss of manufacturing jobs scares me because it makes us externally dependent and it means that valuable manufacturing infrastructure disappears from our country.

There is no question that many computer programming jobs have moved from the United States to India. But this is just a half-truth, which can be worse than a lie. As management consultant Peter Drucker points out in the current issue of Fortune magazine, there are also foreign jobs moving to the United States.

I expect a little better from Capitalism Magazine than siting an article in another magazine. Where are some stats in Thomas' article other than some "Indians are only 15% as productive as Americans" that he pulls out of thin air.

I just checked out Capitalism Magazine and I came across this gem from Walter Williams:

Here's my question: If millions of high-paying jobs are leaving the country only to be replaced by millions of low-paying jobs, what prediction would you make about the trend in our standard of living?
...
The historical trend, including today, is a rising American standard of living. In fact, our per capita GDP in 1980 was $21,500 and, as of 2002, it was $36,000 -- a 59 percent increase. So how can it be that we're becoming a nation of low-pay hamburger flippers?

There's two falacies with his argument. The first is that GDP doesn't take into account if a product is made oversees or here in the country. Does a $30k car that's 15% made in the US contribute as much to the economy versus one that's 90% made here?

The second is that Walter seems to imply that the only way that per capita GDP can go up 59% is if everyone's value goes up. Its like saying that peole that live within 7 miles of Bill Gates have a net worth of $10M.

http://www.usatoday.com/money/economy/econ0025.htm

Gross Domestic Product components

The measure of the USA's output of goods and services is calculated by the Commerce Department using the following items:

Personal consumption
Government expenditures
Private investment
Inventory growth
Trade balance

The GDP is calculated using a "chain-weighted" method. The system is recognizes business has been globalized, deregulation is increasing business activity and relative prices for goods change quickly and dramatically. The "chain" system also recognizes that output for computers, telecommunications equipment and health services is growing much faster than other parts of the economy. The "chain" method forces the government to recalibrate the relative prices of these goods - and their relative importance to the economy - every year.

By USA TODAY

The use of GDP numbers as a measure of economic health is extremely deceptive. If the economy is totally stagnant, and the government borrows a trillion dollars to spend, then GDP deceptively rings in at a trillion dollars, since government really doesn't "produce" anything. On the other hand, government spending is counted as a factor on the theory that the expenditures provide economic production through the multiplier effect.

The major problem with our current state of affairs is that our government expenditures (and their multiplier effect)have been primarily for the benefit of foreign economies (and a small handful of the domestic elite).

The GDP is calculated using a "chain-weighted" method.

According to this post Kurt Richebächer says:

"Computer investment soared by $93.1 billion, of which $81.6 billion came from the hedonic spin. Each additional dollar spent on computers in the real GDP accounts during the year translated into eight additional 'chained' dollars, accounting, by the way, for 26% of real GDP in this time. The difference between the two measures of business computer investments is exploding."

So in other words, we'll just make up what this "chain" number is to make things look better.

The loss of manufacturing jobs scares me because it makes us externally dependent and it means that valuable manufacturing infrastructure disappears from our country.

We have closed more than 90% of all shoes factories in the U.S. and probably as many clothing manufacturers. I believe most, if not all, of our military boots and uniforms are now made overseas (China?). We could NOT EASILY retool the now empty factories if our overseas suppliers decided to cut off our supplies. They could cripple our military pretty easily if they ever choose to do so.

Also, we are importing more and more food while forcing our own farmers out of business. IMO, this is the height on stupidity.

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