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Ian Fletcher Headshot

Yes, American Manufacturing Really Is in Trouble

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I'd like to respond to those commentators (Don Boudreaux, Dan Griswold, and others) who deny that American manufacturing is in decline.

These critics ask how American manufacturing can possibly be in decline when US manufacturing output is at an all-time high.

This sounds like a reasonable objection to the claims of decline made by myself and others. But it's not.

Here's the problem: decline is always a relative term, so the question, if one asserts that American manufacturing is in decline, is what is the appropriate level of American manufacturing output?

Critics of the decline thesis tacitly assert that the appropriate level is "more than yesterday," so if our manufacturing output is going up, all seems to be well. Nothing simpler!

Unfortunately, the only rational standard for how much America should produce is how much Americans wish to consume. Because the only way to consume is either to produce what you wish to consume, or produce something else you can exchange for it.

And this is where American manufacturing is clearly falling short, because America is running a huge trade deficit in manufactured goods, and we don't produce enough of anything else (raw materials, services) to cover the gap. So instead we borrow and sell off existing assets to pay for imports.

If Americans were willing to consume less, our manufacturing output would be just fine. But I don't know a lot of people eagerly volunteering to accept a lower living standard.

At some point, it all comes out in the wash. Either America must start producing more, or consuming less. And the longer we remain in denial about the fact that manufacturing is a sick sector in this country, the more likely it will be the latter.

Another way to look at this problem is to observe that Don Boudreaux's impressive figures about how "measured in inflation-adjusted dollars, U.S. manufacturing output in 2009 was about ten percent higher than it was in 2000" come into proper focus when you remember that our overall economy was 32% bigger in 2009 than in 2000.

So in fact, manufacturing isn't booming, it's standing pat. And while there's no intrinsic reason manufacturing has to hold steady as a percentage of the economy, it sure as heck does have to stay big enough to match our consumption levels, which it isn't doing.