Manufacturing a Dream and a Recovery
Barack Obama knows the story of American manufacturing firsthand. He cut his political teeth as a community organizer on the South Side of Chicago in the shadow of shuttered steel mills, working to salvage hopes and dreams that had been crushed by the weight of layoffs and economic decline. As President, he can authoritatively recall America's industrial heritage and decline, but more importantly, President Obama can lead the nation to a renaissance in American manufacturing.
Manufacturing has boosted the American economy, jobs, and wages for generations dating back to World War II. Recently, it has fallen on very hard times. Nearly one in four manufacturing jobs has vanished since 2000, and 40,000 factories have closed since 1998. Last year, manufacturing accounted for nearly a third of all lost jobs in the U.S., while factory ordered plummeted to record lows.
The health of manufacturing is important even for those who do not hold factory jobs. That is because manufacturing jobs pay better wages than other forms of employment -- twenty percent above the U.S. average. Manufacturing jobs also have a stronger multiplier effect -- supporting as many as five other jobs -- thus contributing disproportionately to the economy. Manufacturers are large local taxpayers, supporting vital public services and schools in communities across the nation. American manufactured products tend to have a much smaller pollution footprint than Chinese products, and we are already deploying new technologies to compete in the clean energy economy of tomorrow. Finally, our national security depends on a strong defense industrial base to supply our troops and protect our interests.
If the creative destruction of capitalism and the arc of history were responsible for American manufacturing's steep decline, there would be a legitimate debate about whether or not it is worth saving. But public policies have contributed tremendously to the predicament we now face; smarter public policies can get us on the path to recovery.
Wall Street's woes and the collapse of the housing bubble are bear some responsibility for manufacturing's current condition. Credit markets and consumer demand have dried up, idling factories all over the nation. A substantial, strategic, and sustained economic stimulus package is needed for the overall health of the economy, as well as to boost manufacturing.
The stimulus should focus on investments in infrastructure such as mass transit, a smart energy grid, roads and bridges, which not only provide the greatest return on investment for American taxpayers by generating more jobs and economic growth than any type of tax cut, but will also make us more competitive in the long run. A sizable stimulus that includes a $148 billion annual new infrastructure investment can create up to 2.6 million jobs, including more than 252,000 in manufacturing. But manufacturing job gains are reduced by one-third unless all infrastructure materials are sourced domestically.
Dramatically reducing America's trade deficit -- which stood at a record $700 billion in 2007 -- will also boost manufacturing. American workers and companies often face global competition subsidized by governments, as well as violations of intellectual property, disregard of reasonable labor laws, and non-enforcement of environmental regulations. Governments such as China's artificially lower the value of their currencies to gain a trade advantage. Simply enforcing domestic and international trade laws designed to ensure a level playing field, while ending subsidies and currency misalignment will boost our exports, reduce our trade deficit, and create jobs.
If President Obama delivers on a manufacturing agenda, every American will benefit. He will also offer a new generation of Americans the same opportunity as their parents and grandparents had: to achieve the American Dream and join the ranks of the middle class.
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Remember all the Cranes that fell broken in half over the past few years. I would bet the bank they had cheap chinese made bolts and iron. It is in our best interest to mfg. at home. They poison there own people what do they ship to us. wake up America.
It's funny listening to those defending Capitalism as saying it's the only system that works, Leo Strauss would be very proud of you!!
"if we only we threw more gasoline on the fire brush...."
The hard truth is, we had a system that worked for most people 30 years ago (Keynes=jobs. growth) and, instead of publicly discussing the merits of neo-classic/Free Market economics (that failed miserably 4 times in 120 years), the powers-that-lie chose to sneak it in to policy. Milton Friedman was never debated, just idolized.
The only sustainable economies are built from the ground up, but don't let history and reason cloud your love for all things "Supply Side"
The vast majority of economists would strongly disagree that "we had a system that worked for most people 30 years ago". There was very high consumer price inflation back then because of the huge union bargained wage increases (mostly automatic cola adjustments) , plus there was high unemployment until after the early 80s double dip recession. The increases in govt spending for the most part just exasperated the inflation. Most economic growth in the entire history of the US has been due to supply side. People borrow money, invest, and then hire workers. Those workers in turn spend their wages on consumer goods. In the 19th century there were entire economic booms e based on people borrowing money (or selling bonds) and investing in railroads, which created jobs. Later they invested in utility companies which created jobs, or auto producing factories, or steel plants, etc.
Inflation of the late mid and late 70's was due to supply shock, not workers wages. COLA increases just gave manufacturers and retailers pricing power. prices were less sticky.
Supply-side? Please. The greatest impetus to investment is low interest rates and an expected ROI. That doesnt happen without wages and savings. and with supply-side, how do you have capital formation without savings? The US has had no savings for years.
The problem with supply-side theory is that ideologues cling to it in all stages of the business cycle. In a state of over-capacity as we are now you cant create incentives to invest in more. Or supply side tax cuts when when everyone is posting losses from operations.
Capitalism is by far the most effective way to run a country, no doubt about that. Corruption is the great threat to that system as displayed by the the so-called bail-outs. Allocating resources where they make sense and profit, paying those who make a good job a good salary but also let the others go bust is what capitalism really is about. Nothing is more rewarding than good education for all people, energy-effective transportation systems and good health care, especially preventive medicine. Many words about the evident but on the other hand it goes for any country on Earth.
Infrastructure spending has been at very high levels for the last several years already and even accelerated rapidly in the second half of last year. This apparently didn't help the US economy much. Overall construction spending has been about $1.1 trillion a year for 2006, 2007, and 2008, and an additional $148 billion a year would likely not even compensate for the drop in spending that occurs in a regular economic cyclical slowdown. So the result of the "infrastructure stimulus" would not be anything remotely close to creating an additional 2.6 million jobs. It's likely that the additional spending wouldn't create any new jobs at all, but would rather just keep employment from falling further. I'm personally completely in favor of additional infrastructure spending but people need to be realistic as to how much it will boost the economy.
The big corporations and the govt have sold us a bill of goods that we can have a vibrant economy based on providing services to one another. Last year we bought a refrigerator, washer and dryer (everything in our house is 20 yrs old). We didn't want to buy these things, but you can't live without a refrigerator and since I don't drive, going to a washateria on a regular basis was out of the question.
We couldn't build these items on our own, so we bought them. However, we can cook, so we seldom go out to eat. We can wash clothes, so we almost never go to the dry cleaners. I do get my haircut and colored, but if my vision was better, I'd be doing it myself. Services? Who cannot provide most of their own services, in an economic pinch? But manufactured goods, such as refrigerators, washers, and cars - now those are things we should have refused to allow to be sold in this country unless they were made in this country.
Before President Reagan's tax cuts high-earning individuals got to keep only 10% of the last dollar earned: A graduated tax meant that over a certain income a high earner paid most of his earnings to the federal government.
Now the high earner gets to keep about 50% of the last dollar earned.
Think about it: if you only got to keep 10% of the last dollar, wouldn't you be less inclined to exploit your workers, send jobs overseas to make bigger profits, and perform unethical and immoral maneuvers to maximize your earnings?
I say bring back graduated tax so very high earners have no incentive to screw the rest of us because they'll have to give up 90% of their unethical gains to taxes !!!!
When you look back at the Reagan era you can make th argument that he wasnt a free trader at all. There were more restrictions in place than there are now. I suppose that era got the ball rolling and I do believe in trade. Trade based on comparative advantage. Output per labor hour of course and not dollar per hour. Mt experience in China was pretty eye opening. They are not more productive at all. Conservatives should really understand Ricardo before they start quoting him. the country would be be better off.
Currency manipilation is a problem. the recycling of the dollar/yuan drives market rates down and contributed to the housing bubble. But with all the stimulus and debt we will be taking on we could probably use a cheap source of capital.
Hopefully when all this is over and we start out of this recession/depression we will realize that we need savings. 10% would be nice. you cant lend what you dont save. and reliance on foreign investment is foolish.
How about we start with repealing NAFTA?
NAFTA is a red herring. As much as I am a Clinton admirer, it was the grant of preferred trading partner status to China that caused the problem. Cheap imports from Mexico are a drop in the Asiain sweatshop impoprt ocean.
I work or a major manufacturing company. I was down in Mexico doing a plant inventory about 7 years ago and I asked the Controller at the plant who was a US citizen ‘How bad is the quality?’ he told me ‘Not as bad as you would like to hear.’
He went on to explain that at that time average compensation for a factory shop floor worker, this includes wages, vacation, insurance, bonuses ect., in a US plant was about $12 an hour, in Mexico it was $4 an hour and in China it was $0.25 and hour. Things have gone up a bit in China but not that much. This is how they can afford to have 4 or 5 weeks of finished goods inventory in transit.
We also have a lot of Indian IT contractors. I know they work quite a bit cheaper off shore but when they are hear they are not a whole lot cheaper and especially what they are paying the placement agency but there are no benefits and no long term promises. But there is a language barrier; Indian English and American English are different languages. And when they first come over hear they really do not understand American Business. Both improve somewhat over time. And if the company saves $1 an hour that works out to big money(for the big dogs).
NAFTA barely put a debt in overall US manufacturing employment. Most manufacturing jobs were lost in the 2001-2003 manufacturing recession, well after NAFTA was signed, and most jobs were lost to Asia , particularly China in the case of manufacturing. There was a resurgence in manufacturing in the export sector in 2006, 2007, and 2008 but that activity dropped like a stone beginning in September as the financial crisis set in. Industrial capacity in the US has actually continued to increase even in the last three months of the year - I'm guessing in the export sector - so that is a positive sign for the future of manufacturing activity.
Do you mean to say that during the nineties, very few US firms shifted production to Mexico?
Force companies that have a consumer base here to actually make and employ people here. By suppressing wages in the US where their consumer base is, they do nothing but weaken themselves. Foreign consumerism is not like it is here in the US. That means manufacturing, call centers and IT as well!
On another topic:
Nationalize BofA. Why?
1) Force the other banks to get with the program and let the CEOs know that it is NOT business as usual anymore and if they want to survive, they better forget about 'entitlement'.
2) We as taxpayers need some way to get our money back - why not take over this bank?
3) The name is fitting with a national bank already, we'll save millions by not having to change the name.
why not just start get rid of the constitution and start Marshall Law.....force everyone to do whatever the govt. pleases...that should work out great.
On a side note: Scott Paul, did you watch Saturday Night Live's bit on Two First Names? Very funny!!
Anyway, I am with ya on the need to bring back manufacturing. It would reduce our trade deficit. Dr. Peter Morici, of the Univ. of Maryland, says by half if we do what he suggests, such as the bringing back of skilled manufacturing jobs. This would increase domestic income taxes reducing the national debt and budget deficit, by reducing government support for laid off workers. The rich have learned that without a viable and healthy middle class working and able to save money, there is no economy. Workers need to have an income that allows them to buy what they produce.
The 30 year Ponzi Scheme created by our government encouraged the outsourcing of jobs and manufacturing, which brought down the economy, stole personal wealth from the middle class and transferred that wealth and more to the ultra-rich class.
http://eye-on-washington.blogspot.com
Over half the trade deficit is oil. Of the rest, autos make up a good part of it and that's because American's want to buy them, not because corporations are outsourcing. As for the middle class, I guess you consider manufacturing workers to be the American "middle class"..? It looks to be like the modern day middle class is made up of white collar workers and they have been doing quit well over the last three decades. Much of the drop in manufacturing employment was made up by increases in employment in construction, financial services, and health care; and those workers are as much middle class as manufacturing workers.
Also need to do something about tax and trade policies that make it profitable for Wall Street to gut American manufacturing and send those jobs off shore.
So called "free trade" isn't free for American taxpayers who lose their jobs to third world sweatshops.
Good Post ! If we dont have manufacturing, how are we going to make a living in the future ? the US will have an unstable economy of speculation and consumer spending. We need to move towards a more solid and real economy like that of Germany, the leading exporter in the world.
We should have a Secretary of Industrial Policy that coodinates all these efforts - I´m surprised that this position does not exist by now - should be one of the priorities of the Obama team.
This is very true. We need to rebuild our manufacturing base. And as for an infrastructure stimulus, it makes obvious sense to source as much as possible from doemstic U.S. producers. I hope Congress will see the wisdom in doing so.
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