You can say that about any statistic. The purpose of statistics is to abstract away a large amount of raw data into a summary that people can understand at a glance. Of course it's going to throw away information - some of which might be important - in the process.
But those errors are as likely to be on the upside as on the downside. I never would've guessed as a kid that I'd be able to take a phone with me anywhere, with 4G of storage, and a built-in GPS, and the collected information of humanity at my command, for a day's worth of wages for the phone and an hour per month for the service. The cost of a college education has skyrocketed far more quickly than inflation, but it's also never been easier to learn things yourself through the Internet and then demonstrate to potential employers that you've learned them. Health care is far more expensive in constant dollars than it was a generation ago, but that's largely because for many of the most expensive treatments today, the alternative back then was "Die".
A lot of people don't understand this. I'm an English grad student, and one of my more, uh, politically-minded professors said in a seminar that the U.S. doesn't manufacture anything anymore. I sent him this e-mail:
When I mentioned the bit about the U.S. continuing to manufacture a lot of stuff, I wasn't just trying to be a pain, as it's actually true; see Dept. of Labor Data on the subject here: http://research.stlouisfed.org/fred2/data/MANEMP.txt or a post on the subject here: http://blog.american.com/?p=8593 ("Amazingly, if the U.S. manufacturing sector were a separate country, it would be tied with Germany as the world’s third-largest economy."). CNN even points out that "China's manufacturing sector is on the brink of passing that of the United States, according to a report released Monday," (http://money.cnn.com/2010/06/21/news/economy/china_us_manufa...) but that it hasn't yet.
What has happened is that the U.S. manufacturing sector represents a much smaller part of the overall U.S. economy—mostly because the rest of the economy has gotten so big.
When you stop believing in polemics and conventional wisdom and start trying to look at what really is, you'll find a lot of unusual stuff.
It's not necessarily good though. A multi-billion $ weapons system built in America for the US taxpayer, even if it is never deployed or even abandoned, counts as a $Bn manufacturing output.
As a famous economist said - from a GDP point of view the ideal person is someone undergoing cancer treatment during an expensive divorce
And many of those components going into these products come from elsewhere. A manufacturing company I worked with bought parts from all over the world and had few US parts. When I tried to increase the number of parts they were using from the US they said good luck and I failed because nothing was available and no one wanted to make what I wanted (for example I wanted 1,000 metal tubes bent, to make them into legs... there were plenty of places that I visited could do it but they didn't want to so it ended up being done in Mexico).
From a macro economic point of view it doesn't matter
If your stealth bomber uses $100 parts made in the USA or $10 parts from china with the difference going in the CEOs bonus - doesn't make any difference when the taxpayer is billed $1000
That was sort of my original point, much of the US high value engineering (defense/transport/infrastructure) is for the US government. Which means that the more the taxpayer spends on overpriced defense contracts and cost overruns the better US industrial output looks
I agree, paid for by the Fed buying U.S. Treasuries or by banks buying U.S. Treasuries. It is bound to fail sometime. What could save us is China failing first, property bubble, major projects, the 24/7 work, bad loans, floated by the Chinese as well but is backed by their Treasury bond holdings and the fact that no one knows how much money they print.
Making defense, at least how it's defined in this report, merely 2% of the total output. I'm not sure how much of that 2% is going to the U.S. government as these defense contractors also produce quite a bit for other countries.
That probably doesn't cover the total of it, but I just can't find any substantiation that the government is buying up a significant amount of the manufacturing output. Does someone have a source to help me better understand this?
That's not really correct tho. Here's a handy graph showing the United States manufacturing output as percentage of overall GDP versus percentage of workforce employed in manufacturing:
You'll notice that the output, as a percentage of the overall economy, has remained relatively flat. Jobs, on the other hand, have taken an absolute nose-dive.
What's really happened is that factories in the U.S. have become crazily efficient. Through both technology and significant process improvements.
So we have quite a problem. It's not enough to just make stuff, we need to make it way less efficiently if we're going to solve the blue-collar unemployment problem. I have no idea how we're going to do it.
While it is true that North America still manufactures great quantities of luxury and high tech stuff, that isn't what is pissing off the populists. They couldn't care less if our manufacturing doubled in terms of dollars of output. What they really want is a return to the highly paid, unionized, tradesperson.
To them robots making Chevy trucks matters just as much to their lives as nerds writing software. As productivity increases continue, demand for noncerebral labor declines as a ratio for demand of cerebral labor. Even if the average tradesperson is better of today than 40 years ago (they have cars with AC, for example) they want their relative standing to increase. They used to be paid, say, half of what the engineer made, now its a fifth. That really, really pisses them off, so they take it out on China.
Combine that with the fact that 40 years ago "mom" stayed home, converting (tax free) raw ingredients into delicious food, as well as watched the children and mended the clothes. Now they buy less healthy instant food and need to find a way to pay for daycare, as well as a second car to get to work, and if they are American, substantially inflated healthcare costs.
It depends on the economy, Australian tradespeople make the same if not more than good coders right now. We're growing so fast the demand for those skills is high and shows no signs of dropping off.
Yeah. My brother just finished his apprenticeship in cabinet making and is already on more than me, a programmer. Unions don't have anything to do with it, either - I don't think he's even in one - it's just that the demand for tradesmen is so high over here. Hence the rise in cashed up bogans.
Yep. Between the resurgence of the mining boom and the floods and cyclones in Queensland and the floods in Victoria, demand for tradies is going to be out of control.
The Reserve Bank have decided not to account for the disasters in their inflation settings, but I reckon they will change their mind to prevent a wages breakout.
Is it really the case that the demand is so high or that supply is kept artificially low by tradesmen apprenticeship programs? I thought that was the point of the trades...to reduce competition by decreasing the number of competitors. Though this might be a misconception entirely...
From my vantage point it looks like the demand is high. There is a mining boom, there have been serious disasters the past 2 years (bushfires, floods), and for some reason new residences are still being built at a fast clip.
I'm sitting here in Austraia, trying to summon up the will to fire up XCode and instead being dragged away to surf trips with my brother-in-law and all his tradie friends. They all have houses that I once dreamed about owning after I sold my startup to Google. That never happened, so I spent some time researching the trades here.
Many of the trades have apprenticeship programs but are essentially unlicensed. For instance, for some reason you can make loads of money laying tile at the moment. There might be "tiling apprenticeships" but for the most part you can just show up and make $20/hr lifting boxes and cleaning up, and $50/hr putting the tiles down.
Plumbers and electricians are in high demand, especially in the mines. In addition to demand, they have to be licensed, and thus they make more money. There is an apprenticeship period, various certs for residential, commercial, data, hospital, high-energy, marine, etc.
The apprenticeship period may be pushing up the wages of sparkies a bit but there does seem to be a lot of work. I don't think these apprenticeships are artificially limited like the way med school seats in the USA are limited. Plus, you get paid $19-$20/hr as an electrical apprentice, which is $40K a year.
One interesting thing I learned is that sparkies and plumbers can sign up for on-call insurance jobs and charge even more money. During this weekend's floods in Geelong my electrician friend's phone was constantly ringing. I think he got about 8 jobs that he passed over to his partner.
All that said, I get a bit of a bubble feeling over here. Especially for residential building. Who are all these new subdivision houses supposed to be for? The tradesmen building them? I can't imagine a lot of office drones communting from the Bellarine Peninsula to Melbourne. Or even being able to afford the homes in the first place. In other parts of the country, once the mines are all tapped I wonder where the money is going to come from.
Australia owes way more money than the USA, per capita. That's where the money is coming from. It's just that our government didn't owe a lot at the start of the GFC, and they were able to keep the private sector afloat for a while.
Depends on the trade, of course. But tradesmen work on different projects, travel to different areas, work with a range of skills.
I guess what I'm trying to say is that tradesmen != manufacturing plant worker.
I have a relative with a manufacturing plant. Their strategy is to try and out-niche the chinese. Their chinese competitors can dump finishing product onto the market cheaper than they can buy the raw materials. Thats' before the value-add of labour is included, with all the attendant taxes and benefits of the labour is paid for as well. The only way they can compete is to develop close relationships and fast turnarounds with their clients and hope like hell that's enough for them to ignore the price discrepancy. It generally depends on the final item being manufactured - anything competing in a fierce marketplace is going to go overseas at some point.
It's the unionised manufacturing sector worker that is getting smashed by low-cost foreign labour. And that is happening across all high-cost labour countries, Australia included.
It's not just about low-cost foreign labor. Chinese staionary energy is dirt cheap (burning dirty subsidized coal doesn't cost a lot) which might be 20% of the cost. And the land might have been free, if the investor had good connections. Oh, and they might have cheap loans. The costs are raw materials, energy, capital, and labor. Labor isn't the only factor. But people accept the $1/hour = 20X cheaper myth, and buy stuff that's 1/10th the quality.
Well, it's actually closer to 20x cheaper for 1/2 the quality - hence why so much is made there. Being I manufacturing, we see both the move back to the US due to rising wages, shipping and materials costs, but many things (toy painting) are very much still an outsourcing game.
Well, most of the USA will be using coal powered energy as well, as most USA energy is coal powered. Same goes for Australia, which is even higher percentage coal power.
As for free land - many large plants have been setup in the USA with essentially free land, and essentially free capital. Not all, mind you, and not all in China would be the same. But then business in China has high costs in other areas, such as bribery and corruption.
In the end, it mostly comes down to labour costs (and availability) when you're doing a labour intensive manufacturing process. The other thing that is being lost is even the ability to compete based on knowledge. Running factories takes time, expertise and experience. New factories aren't opening, people aren't learning how to run them. It's the trend that worries me, over the raw numbers.
And yet I regularly hear of people on-shoring manufacturing again, after many years of having to do very intensive spot-checking of the manufactured goods to ensure they were being built to the agreed spec and not having cheaper components used instead, or having too many supply chain issues leading to unreliable, late delivery.
It still appears (to a non-expert, anyway) that there is a root issue with the Renminbi being pegged below its natural exchange rate to artificially depress their export prices, which seems to be coming close to creating a situation much like that which triggered the Opium Wars when China was known as the 'silver grave' of the world. But then, most have their inbuilt distortions. China - the pegged currency. Europe - the Common Agricultural Policy. USA - Prison labour.
I spent most of highschool being told that if I didn't study sooper dooper hard, then I would not go to university. I would be doomed to be ... (horror film scream) ... a tradie!!
Well gosh, I worked hard and got into a good uni. I became depressed (for reasons unrelated to my studies) and gave it away for a few years, but now that I have the degree and job I earn about as much as a 4th-year apprentice can down at the mines.
Are you a plumber? You can charge hundreds per hour. Are you a diesel fitter, boilermaker, even a plain welder? Get thee to the Pilbara region, where wages north of $150k await thee.
I wouldn't enjoy being a tradie and I like programming, but the whole argument that I needed to go to university or wind up an impoverished loser tradie turned out to be utter horseshit.
edit: fixed a hilarious negation of my preferences in the final paragraph.
UK too. After 3 years at University and 10 years building a career in IT, I have friends who make more laying carpets and other flooring for office blocks. A kid I know went straight into retail banking at 16 (so 2 years earlier than I left school) and, 2 years later, I'm fairly sure is making more than I made with another 5 years of education on him and with no sign of that growth curve slowing.
Indeed - many of my friends, through coincedence and fate, turned out to be tradespeople. Without exception, every single one is what I would consider well positioned money wise given their education level.
The reasons I prefer IT is that I like working inside, and I prefer not having to use obscenities to get my job done. But I cannot say that I am better off in the salary stakes (or the ability to build a business) than those I knew who went into building trades. Some I know are now running multi-million dollar turnover businesses they have bootstrapped themselves. Compared to those who studied a less applied degree (such as 'business' or 'arts') are way behind those who did an apprenticeship and worked hard.
Tradespeople do fine in areas where the economy is good. They are still highly paid and unionized. My friend welds staircases in the Bay Area and gets paid more than most programmers. Is there really a case where an electrician or pipe fitter today makes a lower wage than they did in 1970? If anyone's salaries in the USA have remained stagnant or dropped, it's the average engineer.
It's the line workers in factories and people in service jobs that have gotten screwed. It used to be that you could make a steady middle-class income as a factory worker, airline stewardess, or retail clerk. Not so much now. Tradespeople and professionals have done okay because they have marketable skills that accrue to their person, but people whose only assets are owned by their employers haven't done so well.
Is health insurance which only pays for 1970's era medical care really that expensive today? Or did you mean to say that a financial product which pays for an MRI/viagra/chemotherapy today is more expensive than a financial product which paid for X-Rays/dying of cancer at home in the past?
Incidentally, I can only find data going back to 1987, but it suggests little change the number of uninsured since then.
The problem is that health insurance isn't continuously divisible. You typically can't buy a policy that will cover only 1970s-era medical treatments. Even if you could, it brings up a host of ethical issues that many doctors wouldn't be comfortable with. Say a kid gets strep throat. Okay, give him penicillin, it's cheap and he gets better quickly. Now say that the doctors don't realize it's strep throat, or do but forget to give him penicillin, or he's got a drug resistant strain. It gets into his kidneys. Suddenly, this is expensive, requiring hospitals and diuretics and possibly dialysis. But it's 100% fixable. Should the doctors let him die because his insurance doesn't pay for modern medical treatments?
This is the problem with basically all academic economics models. They make certain simplifying assumptions to make the math tractable, so that they can draw conclusions about the economy as a whole. And I have no doubt that the economy as a whole is bigger, stronger, and better than it was in the 1970s.
But that glosses over all the individuals that make up the economy, some of whom are decidedly not better off than they were in the 1970s. When someone is involuntarily laid off, they're strictly worse-off than they were beforehand (otherwise, they would've voluntarily quit). The economist would say "They'll get a job in some other sector of the economy, one that's growing where their talents can be more productively employed, and be better off in the long run." And that's absolutely true, but it doesn't make things any better for that person right now when they need to put food on the table.
Some 1970s-era medical treatments simply aren't purchasable, either, either due to practical/economies-of-scale reasons or due to changes in the world.
Anything that requires technology/manufacturing has a sort of cliff, where you can use the current technology (or perhaps one generation back), or you can use very primitive treatments, but not much in between. You could dig through the history of technological advances for some particular device, and make the rational decision that Generation 3 of the device is the optimal one for you on the price/benefit curve. But if we're on Generation 9 currently, you simply can't use Generation 3 machines, sorry, because nobody makes them and no hospital/doctor still uses them, and the FDA might not even allow their use anymore; you use a recent one, or none at all.
Some drugs have a not-really-available effect as well. I might actually be happy with penicillin as my antibiotic of choice... if it had 1970s levels of efficacy. Unfortunately, resistance to penicillin has greatly increased, so "1970s penicillin that works like it was the 1970s" just isn't a product you can buy anymore.
Somewhat of interest to me, because if it were possible to buy 1970s-era health insurance that worked like it was the 1970s, I might actually do it, with a few a-la-carte exceptions. I've read some of the literature that tries to quantify the effect of new medical technology on health outcomes, and the single biggest one for adults appears to be better vaccinations, so I'd definitely still get a modern vaccination schedule. A second worthwhile one is improved surgery techniques, especially arthroscopic surgeries that reduce the need for traditional open-wound surgeries, and thus also reduce many infection/etc. complications.
But a lot of the increase in expense is stuff I would be willing to opt out of if it were an option: 1) huge increase in heroic last-6-months care; and 2) chronic-condition drugs like Viagra, SSRIs, Ritalin, statins, beta blockers, etc. Not that those have no arguable benefits, but if I had the choice to purchase a health-insurance plan that excluded those categories, that would fit my cost/benefit analysis.
It is true - the specific composition of illiquid financial derivatives varies wildly from year to year.
But lets address the question from a different angle. I can't find data going back to 1970, but since 1987, the number of people without insurance has been flat at about 15%.
I don't know if I buy that. Is there data that shows retail clerk wages declining over time? I happen to have a factory worker, airline stewardess, and retail clerk in my extended family and their wages have all increased over the past 20 years. I mean, not by amazing amounts, but definitely I wouldn't say they are doing worse than they were before.
From 1964-2010, weekly manufacturing wages rose from $102.59 to $765.08/week. "Private service-providing" jobs (which includes retail) went from $98.10 to $606.14. Over that same time period, the CPI rose from an index of 30.9 to to 216.687, an increase of 7x. In real terms, retail wages have fallen by about 12%, manufacturing wages have just barely kept pace with inflation.
It's really funny to have you arguing in one subthread that inflation is overestimated by the official numbers, and then have some other guy arguing in another subthread that inflation is underestimated by the official numbers:
My position is basically that the CPI, like all statistics, is fundamentally inaccurate, but it's as likely to be biased high as it is to be biased low. I think you're both proving my point on this. :-)
Anyway, the table I linked to was published last month, so presumably they've already taken the Boskin Commission findings into account and retroactively fixed the earlier numbers.
I was more arguing that CPI is meaningless. My position on the economy is that if you bought your house 20 years ago, you can sit in it and buy all the junk you'll ever need, on even a shit salary. If you didn't buy a house 20 years ago, you never will, but you can rent someone else's house and buy all the junk you'll ever need.
That's interesting. I will admit I am a CPI skeptic. I do not understand how it is being calculated. Half the stuff people buy today did not exist 20 years ago. There is such an abundance of the other stuff, it is always heavily discounted. Essential things that have obviously increased in price, like homes and food, are not included in the CPI. Is there a "CPI for Dummies" anywhere out there?
Does the CPI take into account that cars have improved in fuel economy, that TVS are now in color and with a remote control, not to mention a lot bigger?
Does the CPI take into account that a wristwatch today has more power than all IBMs computers in the mid sixties?
Does the CPI take into account that $X that either didn't exist then, or has been so improved that it wouldn't be recognized?
Try to compare it with the M3 money supply, shifted about 18 months ahead and that should give a much better idea of the real means of inflation.
Not to derail, but the thing about wristwatches/pocket calculators being more powerful than the best sixties computer is a frequently-quoted and entirely wrong bit of BS. That is all.
Both my wristwatch and my pocket calculator are my Nexus One, which has 4G of storage space (500x the top of the line System/360) and a 1 GHz processor (200x the top of the line System/360). It was free for me, but retailed for about $550 (1/2000th a top of the line System/360).
The CPI indeed abstracts over the fact that the basket of goods available today isn't identical to the basket of goods identical 30 years ago. They're not all improvements, though. For example, the CPI doesn't take into account that the same car/gas combination drives you more slowly in Chicago than it used to, due to increased traffic; or that penicillin's efficacy has declined; or that a college diploma now largely serves the role that a high-school diploma served in 1975.
Actually that was only true in a very short span of time in the fifties and sixties because there was a bubble in manufacturing since Europe and Japan needed to be rebuild, in some cases almost from scratch.
Compare today with a hundred years ago, and those people had it far worse.
I think it's not the tradeperson; it's assembly line worker. Skilled tradesmen like carpenters, welders, plumbers, electricians, etc are doing great. Those who worked on an assembly line are being phased out - those who welded, assembled, pushed the button, snapped together, etc are being replaced by improved technology.
You are right. The reason I worded it as I did is that my friends that are in the trades are mostly millwrights, welders, and other manufacturing related trades.
I believe there is no 'solution' to their plight. The timeline until singularity is too short for a complete retooling of the economy. However the pace of development at the higher end is fast enough and explosive enough that we can afford to keep on subsidizing the lower classes with bread and circuses until we reach sentient AI, at which point we will be able to provide everyone with robot servants and who knows what else.
Just think about the current web 2.0 economy. If a nineteen year old is able to write a piece of software and execute on a plan that makes him a billionaire in a few years, that's... really quite amazing. Yes yes I know, some people are going to call bubble. Whether or not it's true, I think it's evident that the pace of innovation has sped up more than most people realize. Things like this will continue happening and happen quickly. We're at the beginning of a fantastic time when the pace of wealth creation will increase exponentially, with the internet as the great enabler.
Look, I admire your optimism but General AI has been a pipedream for almost 60 years now and though we build at an insane rate, the singularity is so far away that it doesn't matter.
This post may be a little over the top, but if you dont think manufacturing is going the way of agriculture (standard processes & very thin margins), you're not near progressive manufacturing... 3D printing (for direct manufacturing) already approaches the cost of materials, and will be far cheaper when materials patents expire and margins get razor thin on production.
In many cases overseas manual labor is cheaper than automation in the US. When people outsource intermediate parts this looks like an increase in productivity because fewer people in the US used to make the same product for less money. However, if you look at the total man hours to produce a given product it may have significantly increased.
Gee I remember when it seemed the US's manufacturing output was orders of magnitude beyond China (and Japan seemed like it was where China is today). Good for China for bootstrapping their economy so effectively, but no one would claim that the US trade deficit was irrelevant to the process either.
Even if you believe that China's output is now approaching parity with the US (46 percent is nearly equal on the long term graph), is it not reasonable to ask at what point they're going to start buying some of our stuff in return?
Or if they're not going to spend their dollars with us, the least they could do is let their own currency valuation happen in open markets.
Let's hope the US changes it's ways before the Chinese "start buying some of our stuff". When that happens it will mean China has finally developed its own consumer class. At that point, China wont be so dependent on US consumers to buy their goods and there wont be much incentive to hold on to our continuously growing debt.
Even if you believe that China's output is now approaching parity with the US ... is it not reasonable to ask at what point they're going to start buying some of our stuff in return?
They have bought 20% of the US Debt...
Edit: 20% of the US debt owned by foreign countries
That's incorrect. They hold 20% of US Debt held by foreign countries. In the total scheme of things I think it amounts to somewhere between 6-9% of the total US debt.
The Fed may have surpassed China as the largest buyer of debt, but it may not be the largest holder. Where do you think all the money in the Social Security trust fund went, eh?
Hint: It's somewhere in the blue part of the pie ;-)
I was reading about how the US now considers McDonalds hamburgers to be part of US manufacturing output, whereas in the past that was credited as service since it was a restaurant.
So we must ask. Does the claim made by boston.com include hamburgers?
It also misses a lot of chinese industry. It's somewhat harder to track the business operations of a Chinese army owned construction company than a US NYSE listed engineering firm.
In $ terms there is also a big gap. The Boston big dig costs $22Bn, while a similar project undertaken by chinese army conscripts is likely to cost 1/100 of that, it doesn't mean that the US industry is 100x bigger or better - just 100x as expensive
No where in those articles does it state that making hamburgers has been treated as manufacturing.
In fact the cbs article says "The report does not recommend that burger-flippers be counted alongside factory workers."
There was a report that discussed definitions and how they affected things like tax breaks. The news articles had fun speculating how it would help labor statistics if they did start counting these as manufacturing jobs. But it was just speculation. Wild speculation.
"According to a White House report, new manufacturing jobs might be as close as your nearest drive-thru." is somewhat telling, as is the message in the report that if you agree you are a manufacturer, you get tax breaks.
It's had an effect in what has been since classified as manufacturing. Here's a slide show regarding McDonalds' operations in India.
Procurement of raw materials:
•Vegetables from Ludhiana (Punjab)
•Chicken from Mumbai (Maharashtra)
•French fries from USA
•Valla Mine fish from New Zealand
PROCESS
The food manufacturing process at McDonalds
is completely transparent and the whole
process is visible to the customers.
I am skeptical of this article because I just looked up this data a month or so ago -- opened the UN's Excel document and everything -- and found that China had recently surpassed the US in manufacturing output.
Unfortunately I am limited to the iPhone right now, so can't re-investigate the data myself until later. I have no interest in diminishing the American economy nor in over-valuing the manufacturing sector, but facts are facts and I'm legitimately confused now.
If you open that up, scroll down to the United States, go to the Manufacturing row, and scroll all the way over to the right (2009) you will find $1.78T dollars. If you search for China and do the same, you will find $2.05T. You may also note that China, with its high rate of growth, only first surpassed the US in 2008.
The next highest country after China and the US is Japan with $1.05T.
Edit: Interestingly, the corresponding spreadsheet for "2005 dollars" shows the US at $1.68T and China at $1.48T in 2009. Now I'm even more confused. Shouldn't the difference between 2005 and "current" dollars scale proportionately?
You could compare them in many ways, and $$$ is possibly the best single measure. But the OP article is uncritically self-congratulatory, which is not altogether appropriate given that same products of equal quality do cost a lot less if made in China.
yes, back in the old days they used to measure an economy by tons shipped. It doesn't apply anymore due to higher value things being lighter, and tracking air-shipments would be a problem.
However, it does underlie a point - tracking the value of shipments by a currency value can easily obscure important facts.
Interesting enough - but what's the trend? Is growth in US manufacturing growing at the same pace as China? Or is it continuing to decline, and will cross at some point.
Some would disagree
"The US remained the world’s biggest manufacturing nation by output last year, but is poised to relinquish this slot in 2011 to China – thus ending a 110-year run as the number one country in factory production."
http://www.ft.com/cms/s/0/af2219cc-7c86-11df-8b74-00144feabd...
A commenter in the original article said it better than anyone: "We don't get to qualify as a manufacturing giant just because the defense department gets suckered into paying billions of dollars for a fancy piece of equipment that is built by a small number of folks in a few isolated pockets of the country."
Then again, the numbers (that seem to be incorrect, go check the commments in the original) are however about the money it is made from the manufacturing. Then this is even more worrisome for USA, because that would mean that China has been growing steadily at 9-10 per cent each year, while USA makes MORE money from manufacturing but all it does is barely grow, and produce the biggest debt the world has ever seen.
I forwarded this on to my father who did some excellent source fact checking. I just had to share with HN.
An interesting editorial and comments. I think the Boston Globe is a legit publication, but I was not familiar with Jeff Jacoby. Although he writes well, I became wary at his first reference to the American Enterprise Institute, so I did a little research.
I must admit that my suspicions were confirmed. The sole purpose of the AEI, and similar type organizations on both sides of the political spectrum, is to espouse and promote an ideology. The introduction (Message from the Chairman and President) to their 2010 annual report state, “AFI is showing that liberty, opportunity, and entrepreneurship are not only good economic principles, but moral imperatives.” I have learned to beware whenever anyone claims to know the Truth and talks about “moral imperatives” Such rhetoric has been used to justify the worst atrocities and most hateful acts of terrorism in human history.
I was also unfamiliar with Mark Perry, one of the moral authorities cited by Jacoby. In addition to being a “visiting scholar” at the AEI, Perry is a member of the Board of Directors of the Mackinac Center for Public Policy, an orthodoxy right-wing “think tank” based in Michigan.
According to the Michigan Education Association, "The role of the Mackinac Center is to change public opinion and move public policy toward the political right. The Mackinac Center does not conduct neutral or objective scholarship. Rather, it provides the media and government officials with publications designed to promote and advance its conservative agenda." If any doubt remains about Jacoby’s objectivity or the reliability of his sources, a visit to the AEI website reveals their Board of Directors includes none other than The Honorable Richard B. Cheney.
Based on what little I was able learn, Jacoby, a rightwing taking head who was recruited by the Globe to add balance (or the appearance of balance) to their otherwise liberal editorial page, would feel at home in the company of the former VP. In fairness to Jacoby, he is neither a journalist nor a social scientist. His writes editorials that express a point of view. His job does on included conducting scientific research with the intent of objectively depicting reality.
In other words, consider the source. There's nothing more that the captains of industry would like to peddle more than American manufacturing is great. The real story is the jobs have been sent over seas and the executive pay has been increased at the top for efficiency.
99 comments
[ 4.7 ms ] story [ 149 ms ] threadWhat's a 'constant dollar'? Is that nominal or inflation-adjusted? Over that timespan the two could mean very different things.
See: http://www.shadowstats.com/article/primers_intro
But those errors are as likely to be on the upside as on the downside. I never would've guessed as a kid that I'd be able to take a phone with me anywhere, with 4G of storage, and a built-in GPS, and the collected information of humanity at my command, for a day's worth of wages for the phone and an hour per month for the service. The cost of a college education has skyrocketed far more quickly than inflation, but it's also never been easier to learn things yourself through the Internet and then demonstrate to potential employers that you've learned them. Health care is far more expensive in constant dollars than it was a generation ago, but that's largely because for many of the most expensive treatments today, the alternative back then was "Die".
http://www.econlib.org/library/Enc/Productivity.html
When I mentioned the bit about the U.S. continuing to manufacture a lot of stuff, I wasn't just trying to be a pain, as it's actually true; see Dept. of Labor Data on the subject here: http://research.stlouisfed.org/fred2/data/MANEMP.txt or a post on the subject here: http://blog.american.com/?p=8593 ("Amazingly, if the U.S. manufacturing sector were a separate country, it would be tied with Germany as the world’s third-largest economy."). CNN even points out that "China's manufacturing sector is on the brink of passing that of the United States, according to a report released Monday," (http://money.cnn.com/2010/06/21/news/economy/china_us_manufa...) but that it hasn't yet.
What has happened is that the U.S. manufacturing sector represents a much smaller part of the overall U.S. economy—mostly because the rest of the economy has gotten so big.
When you stop believing in polemics and conventional wisdom and start trying to look at what really is, you'll find a lot of unusual stuff.
As a famous economist said - from a GDP point of view the ideal person is someone undergoing cancer treatment during an expensive divorce
If your stealth bomber uses $100 parts made in the USA or $10 parts from china with the difference going in the CEOs bonus - doesn't make any difference when the taxpayer is billed $1000
http://www.census.gov/manufacturing/m3/prel/pdf/table1p.pdf
Total output: 436,031 Excluding defense: 424,680
Making defense, at least how it's defined in this report, merely 2% of the total output. I'm not sure how much of that 2% is going to the U.S. government as these defense contractors also produce quite a bit for other countries.
That probably doesn't cover the total of it, but I just can't find any substantiation that the government is buying up a significant amount of the manufacturing output. Does someone have a source to help me better understand this?
That's good advice regardless of the subject.
http://yelnick.typepad.com/.a/6a00d8341c563953ef01310fc3f3ee...
You'll notice that the output, as a percentage of the overall economy, has remained relatively flat. Jobs, on the other hand, have taken an absolute nose-dive.
What's really happened is that factories in the U.S. have become crazily efficient. Through both technology and significant process improvements.
So we have quite a problem. It's not enough to just make stuff, we need to make it way less efficiently if we're going to solve the blue-collar unemployment problem. I have no idea how we're going to do it.
Producing less for the sack of jobs = Socialism
To them robots making Chevy trucks matters just as much to their lives as nerds writing software. As productivity increases continue, demand for noncerebral labor declines as a ratio for demand of cerebral labor. Even if the average tradesperson is better of today than 40 years ago (they have cars with AC, for example) they want their relative standing to increase. They used to be paid, say, half of what the engineer made, now its a fifth. That really, really pisses them off, so they take it out on China.
Combine that with the fact that 40 years ago "mom" stayed home, converting (tax free) raw ingredients into delicious food, as well as watched the children and mended the clothes. Now they buy less healthy instant food and need to find a way to pay for daycare, as well as a second car to get to work, and if they are American, substantially inflated healthcare costs.
I'm not envious of their position.
The Reserve Bank have decided not to account for the disasters in their inflation settings, but I reckon they will change their mind to prevent a wages breakout.
I'm sitting here in Austraia, trying to summon up the will to fire up XCode and instead being dragged away to surf trips with my brother-in-law and all his tradie friends. They all have houses that I once dreamed about owning after I sold my startup to Google. That never happened, so I spent some time researching the trades here.
Many of the trades have apprenticeship programs but are essentially unlicensed. For instance, for some reason you can make loads of money laying tile at the moment. There might be "tiling apprenticeships" but for the most part you can just show up and make $20/hr lifting boxes and cleaning up, and $50/hr putting the tiles down.
Plumbers and electricians are in high demand, especially in the mines. In addition to demand, they have to be licensed, and thus they make more money. There is an apprenticeship period, various certs for residential, commercial, data, hospital, high-energy, marine, etc.
The apprenticeship period may be pushing up the wages of sparkies a bit but there does seem to be a lot of work. I don't think these apprenticeships are artificially limited like the way med school seats in the USA are limited. Plus, you get paid $19-$20/hr as an electrical apprentice, which is $40K a year.
One interesting thing I learned is that sparkies and plumbers can sign up for on-call insurance jobs and charge even more money. During this weekend's floods in Geelong my electrician friend's phone was constantly ringing. I think he got about 8 jobs that he passed over to his partner.
All that said, I get a bit of a bubble feeling over here. Especially for residential building. Who are all these new subdivision houses supposed to be for? The tradesmen building them? I can't imagine a lot of office drones communting from the Bellarine Peninsula to Melbourne. Or even being able to afford the homes in the first place. In other parts of the country, once the mines are all tapped I wonder where the money is going to come from.
I guess what I'm trying to say is that tradesmen != manufacturing plant worker.
I have a relative with a manufacturing plant. Their strategy is to try and out-niche the chinese. Their chinese competitors can dump finishing product onto the market cheaper than they can buy the raw materials. Thats' before the value-add of labour is included, with all the attendant taxes and benefits of the labour is paid for as well. The only way they can compete is to develop close relationships and fast turnarounds with their clients and hope like hell that's enough for them to ignore the price discrepancy. It generally depends on the final item being manufactured - anything competing in a fierce marketplace is going to go overseas at some point.
It's the unionised manufacturing sector worker that is getting smashed by low-cost foreign labour. And that is happening across all high-cost labour countries, Australia included.
As for free land - many large plants have been setup in the USA with essentially free land, and essentially free capital. Not all, mind you, and not all in China would be the same. But then business in China has high costs in other areas, such as bribery and corruption.
In the end, it mostly comes down to labour costs (and availability) when you're doing a labour intensive manufacturing process. The other thing that is being lost is even the ability to compete based on knowledge. Running factories takes time, expertise and experience. New factories aren't opening, people aren't learning how to run them. It's the trend that worries me, over the raw numbers.
It still appears (to a non-expert, anyway) that there is a root issue with the Renminbi being pegged below its natural exchange rate to artificially depress their export prices, which seems to be coming close to creating a situation much like that which triggered the Opium Wars when China was known as the 'silver grave' of the world. But then, most have their inbuilt distortions. China - the pegged currency. Europe - the Common Agricultural Policy. USA - Prison labour.
Well gosh, I worked hard and got into a good uni. I became depressed (for reasons unrelated to my studies) and gave it away for a few years, but now that I have the degree and job I earn about as much as a 4th-year apprentice can down at the mines.
Are you a plumber? You can charge hundreds per hour. Are you a diesel fitter, boilermaker, even a plain welder? Get thee to the Pilbara region, where wages north of $150k await thee.
I wouldn't enjoy being a tradie and I like programming, but the whole argument that I needed to go to university or wind up an impoverished loser tradie turned out to be utter horseshit.
edit: fixed a hilarious negation of my preferences in the final paragraph.
The reasons I prefer IT is that I like working inside, and I prefer not having to use obscenities to get my job done. But I cannot say that I am better off in the salary stakes (or the ability to build a business) than those I knew who went into building trades. Some I know are now running multi-million dollar turnover businesses they have bootstrapped themselves. Compared to those who studied a less applied degree (such as 'business' or 'arts') are way behind those who did an apprenticeship and worked hard.
It's the line workers in factories and people in service jobs that have gotten screwed. It used to be that you could make a steady middle-class income as a factory worker, airline stewardess, or retail clerk. Not so much now. Tradespeople and professionals have done okay because they have marketable skills that accrue to their person, but people whose only assets are owned by their employers haven't done so well.
If you truly believe this, can you tell me what good or service the factory worker/retail clerk had back then, but lacks today?
Incidentally, I can only find data going back to 1987, but it suggests little change the number of uninsured since then.
http://www.census.gov/prod/2007pubs/p60-233.pdf
http://news.ycombinator.com/item?id=2187130
The problem is that health insurance isn't continuously divisible. You typically can't buy a policy that will cover only 1970s-era medical treatments. Even if you could, it brings up a host of ethical issues that many doctors wouldn't be comfortable with. Say a kid gets strep throat. Okay, give him penicillin, it's cheap and he gets better quickly. Now say that the doctors don't realize it's strep throat, or do but forget to give him penicillin, or he's got a drug resistant strain. It gets into his kidneys. Suddenly, this is expensive, requiring hospitals and diuretics and possibly dialysis. But it's 100% fixable. Should the doctors let him die because his insurance doesn't pay for modern medical treatments?
This is the problem with basically all academic economics models. They make certain simplifying assumptions to make the math tractable, so that they can draw conclusions about the economy as a whole. And I have no doubt that the economy as a whole is bigger, stronger, and better than it was in the 1970s.
But that glosses over all the individuals that make up the economy, some of whom are decidedly not better off than they were in the 1970s. When someone is involuntarily laid off, they're strictly worse-off than they were beforehand (otherwise, they would've voluntarily quit). The economist would say "They'll get a job in some other sector of the economy, one that's growing where their talents can be more productively employed, and be better off in the long run." And that's absolutely true, but it doesn't make things any better for that person right now when they need to put food on the table.
Anything that requires technology/manufacturing has a sort of cliff, where you can use the current technology (or perhaps one generation back), or you can use very primitive treatments, but not much in between. You could dig through the history of technological advances for some particular device, and make the rational decision that Generation 3 of the device is the optimal one for you on the price/benefit curve. But if we're on Generation 9 currently, you simply can't use Generation 3 machines, sorry, because nobody makes them and no hospital/doctor still uses them, and the FDA might not even allow their use anymore; you use a recent one, or none at all.
Some drugs have a not-really-available effect as well. I might actually be happy with penicillin as my antibiotic of choice... if it had 1970s levels of efficacy. Unfortunately, resistance to penicillin has greatly increased, so "1970s penicillin that works like it was the 1970s" just isn't a product you can buy anymore.
Somewhat of interest to me, because if it were possible to buy 1970s-era health insurance that worked like it was the 1970s, I might actually do it, with a few a-la-carte exceptions. I've read some of the literature that tries to quantify the effect of new medical technology on health outcomes, and the single biggest one for adults appears to be better vaccinations, so I'd definitely still get a modern vaccination schedule. A second worthwhile one is improved surgery techniques, especially arthroscopic surgeries that reduce the need for traditional open-wound surgeries, and thus also reduce many infection/etc. complications.
But a lot of the increase in expense is stuff I would be willing to opt out of if it were an option: 1) huge increase in heroic last-6-months care; and 2) chronic-condition drugs like Viagra, SSRIs, Ritalin, statins, beta blockers, etc. Not that those have no arguable benefits, but if I had the choice to purchase a health-insurance plan that excluded those categories, that would fit my cost/benefit analysis.
But lets address the question from a different angle. I can't find data going back to 1970, but since 1987, the number of people without insurance has been flat at about 15%.
http://www.census.gov/prod/2009pubs/p60-236.pdf
Since the same number of people can afford insurance, but quality has clearly gone up, doesn't that mean insurance is now more affordable?
Though I suppose the composition of that 15% might have changed. Maybe it's more retail clerks, but fewer janitors?
ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb2.txt
Historical CPI:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
From 1964-2010, weekly manufacturing wages rose from $102.59 to $765.08/week. "Private service-providing" jobs (which includes retail) went from $98.10 to $606.14. Over that same time period, the CPI rose from an index of 30.9 to to 216.687, an increase of 7x. In real terms, retail wages have fallen by about 12%, manufacturing wages have just barely kept pace with inflation.
http://en.wikipedia.org/wiki/Boskin_Commission
Correcting for this error, retail wages have risen 33% and manufacturing wages have increased about 50%.
http://news.ycombinator.com/item?id=2187047
My position is basically that the CPI, like all statistics, is fundamentally inaccurate, but it's as likely to be biased high as it is to be biased low. I think you're both proving my point on this. :-)
Anyway, the table I linked to was published last month, so presumably they've already taken the Boskin Commission findings into account and retroactively fixed the earlier numbers.
http://www.bls.gov/cpi/cpifaq.htm
Does the CPI take into account that a wristwatch today has more power than all IBMs computers in the mid sixties?
Does the CPI take into account that $X that either didn't exist then, or has been so improved that it wouldn't be recognized?
Try to compare it with the M3 money supply, shifted about 18 months ahead and that should give a much better idea of the real means of inflation.
Compare today with a hundred years ago, and those people had it far worse.
I believe there is no 'solution' to their plight. The timeline until singularity is too short for a complete retooling of the economy. However the pace of development at the higher end is fast enough and explosive enough that we can afford to keep on subsidizing the lower classes with bread and circuses until we reach sentient AI, at which point we will be able to provide everyone with robot servants and who knows what else.
Just think about the current web 2.0 economy. If a nineteen year old is able to write a piece of software and execute on a plan that makes him a billionaire in a few years, that's... really quite amazing. Yes yes I know, some people are going to call bubble. Whether or not it's true, I think it's evident that the pace of innovation has sped up more than most people realize. Things like this will continue happening and happen quickly. We're at the beginning of a fantastic time when the pace of wealth creation will increase exponentially, with the internet as the great enabler.
As Ken MacLeod put it "the Rapture for nerds".
http://www.evolvingexcellence.com/blog/2006/12/american_manu...
Even if you believe that China's output is now approaching parity with the US (46 percent is nearly equal on the long term graph), is it not reasonable to ask at what point they're going to start buying some of our stuff in return?
Or if they're not going to spend their dollars with us, the least they could do is let their own currency valuation happen in open markets.
They have bought 20% of the US Debt...
Edit: 20% of the US debt owned by foreign countries
Well, there's your problem.
Hint: It's somewhere in the blue part of the pie ;-)
http://en.wikipedia.org/wiki/United_States_public_debt#Estim...
So we must ask. Does the claim made by boston.com include hamburgers?
In $ terms there is also a big gap. The Boston big dig costs $22Bn, while a similar project undertaken by chinese army conscripts is likely to cost 1/100 of that, it doesn't mean that the US industry is 100x bigger or better - just 100x as expensive
http://www.cbsnews.com/stories/2004/02/20/politics/main60133... http://www.nytimes.com/2004/02/20/business/in-the-new-econom...
I await your apology.
In fact the cbs article says "The report does not recommend that burger-flippers be counted alongside factory workers."
There was a report that discussed definitions and how they affected things like tax breaks. The news articles had fun speculating how it would help labor statistics if they did start counting these as manufacturing jobs. But it was just speculation. Wild speculation.
It's had an effect in what has been since classified as manufacturing. Here's a slide show regarding McDonalds' operations in India.
http://www.scribd.com/doc/27447277/MC-DONALDS
Procurement of raw materials: •Vegetables from Ludhiana (Punjab) •Chicken from Mumbai (Maharashtra) •French fries from USA •Valla Mine fish from New Zealand
PROCESS The food manufacturing process at McDonalds is completely transparent and the whole process is visible to the customers.
Unfortunately I am limited to the iPhone right now, so can't re-investigate the data myself until later. I have no interest in diminishing the American economy nor in over-valuing the manufacturing sector, but facts are facts and I'm legitimately confused now.
If you open that up, scroll down to the United States, go to the Manufacturing row, and scroll all the way over to the right (2009) you will find $1.78T dollars. If you search for China and do the same, you will find $2.05T. You may also note that China, with its high rate of growth, only first surpassed the US in 2008.
The next highest country after China and the US is Japan with $1.05T.
Edit: Interestingly, the corresponding spreadsheet for "2005 dollars" shows the US at $1.68T and China at $1.48T in 2009. Now I'm even more confused. Shouldn't the difference between 2005 and "current" dollars scale proportionately?
However, it does underlie a point - tracking the value of shipments by a currency value can easily obscure important facts.
Then again, the numbers (that seem to be incorrect, go check the commments in the original) are however about the money it is made from the manufacturing. Then this is even more worrisome for USA, because that would mean that China has been growing steadily at 9-10 per cent each year, while USA makes MORE money from manufacturing but all it does is barely grow, and produce the biggest debt the world has ever seen.
An interesting editorial and comments. I think the Boston Globe is a legit publication, but I was not familiar with Jeff Jacoby. Although he writes well, I became wary at his first reference to the American Enterprise Institute, so I did a little research.
I must admit that my suspicions were confirmed. The sole purpose of the AEI, and similar type organizations on both sides of the political spectrum, is to espouse and promote an ideology. The introduction (Message from the Chairman and President) to their 2010 annual report state, “AFI is showing that liberty, opportunity, and entrepreneurship are not only good economic principles, but moral imperatives.” I have learned to beware whenever anyone claims to know the Truth and talks about “moral imperatives” Such rhetoric has been used to justify the worst atrocities and most hateful acts of terrorism in human history.
I was also unfamiliar with Mark Perry, one of the moral authorities cited by Jacoby. In addition to being a “visiting scholar” at the AEI, Perry is a member of the Board of Directors of the Mackinac Center for Public Policy, an orthodoxy right-wing “think tank” based in Michigan.
According to the Michigan Education Association, "The role of the Mackinac Center is to change public opinion and move public policy toward the political right. The Mackinac Center does not conduct neutral or objective scholarship. Rather, it provides the media and government officials with publications designed to promote and advance its conservative agenda." If any doubt remains about Jacoby’s objectivity or the reliability of his sources, a visit to the AEI website reveals their Board of Directors includes none other than The Honorable Richard B. Cheney.
Based on what little I was able learn, Jacoby, a rightwing taking head who was recruited by the Globe to add balance (or the appearance of balance) to their otherwise liberal editorial page, would feel at home in the company of the former VP. In fairness to Jacoby, he is neither a journalist nor a social scientist. His writes editorials that express a point of view. His job does on included conducting scientific research with the intent of objectively depicting reality.
In other words, consider the source. There's nothing more that the captains of industry would like to peddle more than American manufacturing is great. The real story is the jobs have been sent over seas and the executive pay has been increased at the top for efficiency.