Greg Mankiw has a post up where he points his readers to an article at the Boston Globe where the author argues that claims about the decline of American manufacturing are widely exaggerated and bordering on hysterical. Greg likes this article presumably because it goes against the conventional narrative and lefties that would use it as a foundation to argue for a real industrial policy, a currency re-evaluation on the part of the Chinese, or whatever other sundry ideas they might have.
The problem is that while Greg has gone to bed solid in the truth that absolute manufacturing output in the US has increased (I will show why this is a half-truth below) they are also sleeping on an absolute false truth in the belief that American manufacturing is more concentrated in medium and high tech production.
Anyway it is a confused article and I do not know why Mankiw calls it a “A nice piece by Jeff Jacoby.”
…..“Near the root of the unease for many of those polled is the worry that the United States no longer makes enough stuff.’’ When asked why US manufacturing jobs have declined, 58 percent cite off-shoring by American companies to take advantage of lower labor costs.
There’s just one problem with all the gloom and doom about American manufacturing. It’s wrong.
Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.
Ok, so there is a confused set of claims here. On the one hand, Jeff cites Americans’ belief that manufacturing jobs are being off-shored as evidence of an irrational anxiety but then says that this is an irrational anxiety because American manufacturing is growing every year. It is like Jeff has never heard of the magic of productivity. That is Americans could be right that they are loosing jobs in manufacturing but wrong in the assumption (if they make that assumption because the evidence cited in the article does not indicate they do) that absolute American manufacturing has decreased (which it has not). Productivity makes both claims possible, thus neither irrational. But rather than wave my hands in the air about who or who is not irrational let me just throw up some…you know data.
This graph shows US manufacturing value added as a percent of economy wide value added and employment.
Clearly relative to the total economy American manufacturing has been in decline and employment even more so. I am going to go out on limb here and suppose that the declines in employment are significant enough to be absolute. But whatever the case the relative decline of manufacturing both in terms of value added and employment has been significant enough that the sector is in value added terms is only 13% of the US economy. In this sense Donald Trump’s observation sounds about right.
“We do health care; we do lots of different services. But . . . everything is made in China, for the most part.’’
Part of the reason is that fewer Americans work in factories. Millions of industrial jobs have vanished in recent decades, and there is no denying the hardship and stress that has meant for many families. But factory employment has declined because factory productivity has so dramatically skyrocketed: Revolutions in technology enable an American worker today to produce far more than his counterpart did a generation ago. Consequently, even as America’s manufacturing sector out-produces every other country on earth, millions of young Americans can aspire to become not factory hands or assembly workers, but doctors and lawyers, architects and engineers.
But then he goes way-off track:
A vast amount of “stuff’’ is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list? Maybe not. But that doesn’t change economic reality. They may have “clos[ed] down the textile mill across the railroad tracks.’’ But America’s manufacturing glory is far from a thing of the past.
What Jeff is claiming here is that not only has American manufacturing become more productive, which it has, but that it has shifted into exotic high value-added product lines like sexy fighter jets and whatever version of Viagra American executives are gulping down.
Problem is, that it is simply not true. In fact, the very best spin that can be put on the data is that medium and high tech manufacturing as a percent of total manufacturing has been stagnate since 1984 and the Reagan revolution. In economy wide terms medium and high tech manufacturing (bottom plot) has stagnated with the rest of the US manufacturing sector.
Funny that Greg Mankiw should have such a relative definition of “nice” when it comes to a consideration of the facts and such an absolute definition when placing himself as the arbiter of sober second thought.