THE BLOG
02/01/2011 08:46 am ET Updated May 25, 2011

Manufacturing in Decline; Establishment in Denial

The National Association of Manufacturers is trying to pull another fast one.

Consider this presentation in favor of the proposed Korea-U.S. Free Trade Agreement.

Let's take it apart, shall we?

They point out that most of America's job losses are not to nations we have free-trade agreements with. True, but this is just a way of saying we're losing jobs to China, as we don't have an FTA with them. Most of our dozen-or-so FTAs are with tiny countries like Jordan, which has an economy the size of metro Minneapolis.

They point out that the U.S. is still the world's largest manufacturing nation. But this is simply irrelevant and I'm surprised they even put that in. This statistic proves nothing about improvement or decline, about manufacturing employment levels, manufacturing wages, or whether our being biggest is simply the result of being the developed nation with the largest population. What's much more shocking, looking at their chart on p. 5, is that with more than double the population of Japan, we're only about a third bigger than they are in manufacturing, according to that chart.

This presentation is utterly disingenuous on page 12, when it asserts that "these are the trade problems that need to be addressed" and refers to our non-FTA deficit in manufactures (which is mostly China) and our deficit in oil. Why? Because NAM has consistently opposed all the measures that would do anything to solve either. They're just trying to distract people here.

The statistics on page 13 about the number of small and medium-sized companies exporting are totally irrelevant, and again I'm surprised they put them in. The raw number of companies exporting tells us nothing about whether a) these companies have gained more in exports than they've lost to imports in the domestic market, or b) whether half these companies have been driven out of business by imports.

The claim on page 14 that the U.S. suffers a "shortage of skilled workers" is absurd. How many unemployed are there now with degrees in engineering, computers, etc? Plus the word "shortage" is simply not a valid analytical term for a market economy. Any company can always find as many workers as they're willing to pay for, period. Is there a "shortage" of diamonds because I can't buy one for $9.99? "Shortage" is a euphemism for "I want to pay less than what the market price is." These guys just want cheaper labor, that's it.

Now let's delve into a bit of technical detail to expose the sophistry of their chart on page 4:

1) That chart of U.S. manufacturing production is not a chart of manufacturing jobs. So they're basically saying that any decline in manufacturing jobs is due to an increase in manufacturing productivity, which causes fewer workers to be needed per unit of output. But if you look at a chart of manufacturing jobs, there's some damage 1979-2000, but things just fall off a cliff after 2000. There is no way this can be attributed to a sudden surge of productivity, as there simply aren't any manufacturing innovations that suddenly came online in 2000 that weren't available before. We've had productivity growth in manufacturing for 200 years without seeing a sudden drop like that. But we did have China join the WTO and obtain MFN status in 2001 -- which made things much more secure for corporations seeking to move production there.

2) Everything they say is undone by the fine print at the bottom of the slide, anyway. It reads, "In current dollar terms (not adjusted for inflation), manufacturing's share has fallen from 16% in 1990 to 12% -- because inflation is much higher In the services economy than in manufacturing." They're being very slippery here with the term "inflation," because they're not adjusting for inflation in the usual sense of adjusting prices of past years for economy-wide inflation. They're adjusting for the inflation differential between manufacturing and services. And this is, quite arguably, a differential that ought not to be adjusted away at all, because it reflects the fact that there are more real productivity gains over time in manufacturing laptops than there are in providing haircuts, for obvious reasons.

The use of bad arguments to defend a position is a fairly strong telltale that the position cannot be defended with good arguments. This seems to be the case with the Korea FTA. NAM must think the public is fairly dumb to fall for this stuff.