Wednesday, January 06, 2010

U.S. Manufacturing's Exaggerated Death

In 1790, farmers were 90% of the U.S. labor force. By 1900, only about 41% of our labor force was employed in agriculture. By 2008, less than 3% of Americans are employed in agriculture.

What would you have Congress do in the face of this precipitous loss of agricultural jobs? One thing Congress could do is outlaw all of the technological advances and machinery that have made our farmers the world's most productive. Our farmers are so productive that if needed, they could feed the entire world.

Let's look at manufacturing. According to Mark Perry's employment data in "
Manufacturing's Death Greatly Exaggerated," U.S. manufacturing employment peaked in 1979 at 19.5 million jobs. Since 1979, the manufacturing work force has shrunk by 40%, and there's every indication that manufacturing employment will continue to shrink.

~Read more of Walter Williams in today's Investor's Business Daily

12 Comments:

At 1/06/2010 3:41 PM, Anonymous morganovich said...

this is a classic of economics -

if you want to maximize employment in the ditch digging industry, the trick is to ban shovels and hand out spoons.

looked at in this context, it's clearly ludicrous (to anyone but the afl/cio) but it's amazing how many places just this sort of thinking crops up.

many city and state governments are actually contractually forbidden from saving money on labor:

http://www.coyoteblog.com/coyote_blog/2010/01/in-case-you-were-not-depressed-enough.html


it's compounded by the fact that focused losses (one job) tend to be more attention grabbing than distributed gains (slightly cheaper products). we lament the poor auto worker who loses a job to foreign competition, but we still want the benefit of inexpensive cars that such competition (and productivity) brings.

 
At 1/06/2010 4:02 PM, Blogger sethstorm said...

From one of the comments:

I enjoy and respect Mr. Williams work, but I have the following concern. Yes, US manufacturing VALUE has gone up and up, just as the stock market and hence US wealth has gone up and up. But it certainly seems that what America produces is to such a large extent high-tech and advanced--examples would be computer software and biomedical--that the average "production worker" needs advanced degrees just to have dependable employment. Have we perhaps lost too much manufacturing for "average" workers?

To make it worse, it's not just manufacturing and agriculture that are feeling the pain. It has spread to more skilled professions as well.

While you might be able to teach the new generation, you still have the previous generations to re-train as well as the next generations that will displace both of them. Simply forgetting about the previous generation will not do. Retraining them in a way that helps to include them in the progress does help.

If you're going to destroy, it would be more than helpful to create via re-training.

Morganovich
Distributed gains don't pay the bills. Direct ones do.

 
At 1/06/2010 4:14 PM, Anonymous Benny The Man said...

"Our farmers are so productive that if needed, they could feed the entire world."---Williams.

Gee, I guess that means total federal domination of an industry, such as agriculture, works.

Let's see, we have a federal and 50 state Ag departments, who closely contol output of product, and provide free guidance (more than 7,000 ag. extension officers), ag schools, and direct subisidies (more than $60 billion annually), and who knows what tax breaks.
I remember once talking to a LA County Ag officer (we still have a few). Grapefruits smaller than a certain size could not be sold retail in Cal., and he was checking markets to make sure the law was followed.

It is always nuts when Republicans hold up agriculture as an example of our wonderful free enetrprise system. It is the opposite--it is an example of what total federal ocntrol of an industry accomplishes. More than 70 years after the Dust Bowl, Amnerican farmers are knock-kneed weakling, unable to survive in free markets.

They get more aid every year, year after year, than Detroit got once.

If you like what the feds have done to our ag and defense sectors, then you will love what they do to health care.

 
At 1/06/2010 4:17 PM, Anonymous Junkyard_hawg1985 said...

"When the United States was formed in 1776, it took 19 people on the farm to produce enough food for 20 people. So most of the people had to spend their time and efforts on growing food. Today, it's down to 1% or 2% to produce that food. Now just consider the vast amount of supposed unemployment that was produced by that. But there wasn't really any unemployment produced. What happened was that people who had formerly been tied up working in agriculture were freed by technological developments and improvements to do something else. That enabled us to have a better standard of living and a more extensive range of products." -- Milton Friedman

Like agriculture, having fewer people to produce the same number of manufactured goods frees up people for other services. Or, as Mark has shown previously, allows the retirement age to drop over time while life expectancy rises.

 
At 1/06/2010 4:40 PM, Anonymous morganovich said...

seth-

overpaid, unneeded workers don't keep prices (and therefore bills) low, efficiency and competition do.

people aren't hired because they are people, they are hired because they can do things. (except by the government) no skills, no money. thus has it ever been and thus shall it ever be.

you are arguing that we should all pay higher prices to protect a few jobs and be net/net worse off as a whole as a result. extending your logic, we revile henry ford, ban assembly lines, and build everything by hand at 50 times the cost. then we could all have jobs, but wouldn't be able to afford any stuff.

that argument about "Have we perhaps lost too much manufacturing for "average" workers?" could have been made at any time post industrialization. moving from mills to auto plants took training too. the argument assumes there is some correct or reasonable level of skill.

the great irony is that the same arguments were made about too many unskilled jobs when they wiped out the skilled trade industries and their powerful guilds. lots of new jobs at the shoe factory were bad, bad news for the cobblers...

skill needs change. 30 years ago, almost nobody could type. they had no need. now, it's a very common skill. in 30 years, it'll probably be utterly antiquated. that's life. just as in nature: adapt or die.

 
At 1/06/2010 6:48 PM, Anonymous Anonymous said...

Fifty years ago America had US Steel, Detroit's Big Three, a growing nuclear power industry, a light plane industry, Bell Labs and so forth.

All gone.

JFK broke US Steel in 1962
Nader's Raider's and the UAW broke Detroit.
60 Minutes and some trial lawyers broke nuclear power.
Some lawyers broke light planes.
More lawyers broke Bell Labs.

How is this exaggerated? I'm really asking.

Where are the replacement industries? Again, really asking.

Bruce

 
At 1/06/2010 8:51 PM, Blogger juandos said...

Oh I don't know if US manufacturing death is exaggerated but maybe it's call was a bit premature...

Have no fear, Cap & Trade could be here...

 
At 1/06/2010 9:10 PM, Anonymous gettingrational said...

I was attracted by the ad for my new ultra light vacumn cleaner because it said Made in USA. I bought it ($400.00) and looked at the packaging afterwards which was stamped:

Manufactured in USA with globally sourced components.

Oh well, maybe I helped a part-time assembler keep their job.

 
At 1/06/2010 9:17 PM, Anonymous morganovich said...

bruce-

bell labs became lucent.

new firms like motorola, micron, intel, cisco, hp. apple etc came to be.

if you watch US industry, you'll see a very interesting thing: we keep the high profit industries and the low profit ones get "exported". consider a $1000 PC. US companies likely account for about $400 of that retail price predominantly intel and microsoft. these 2 companies that are 40% of the revenue make over 90% of the profit on a PC. who else is making any money? drives? memory? PCB? case manufacturers? nope. they all barely break even.

if we sell china windows 7 for $200 and make $180 in gross profit and they sell us drives and circuit boards for $300 but only make $30 on it, how worried should we be about the trade balance? sure money flows, but all the profit stays here.

the key to this is staying ahead of the technology curves. if, like intel, you innovate and make things that are difficult to produce, you get outsized profits. fail to do so, like GM and chrysler, and you fail.

it's much harder (though hardly impossible) to innovate in a commodity business (like steel) so price pressures there are harsher. we will keep shipping such industries overseas where someone else can make the big capital investments for crummy ROI. take a look at flat panel production if you want to see a horrible, commoditized business where hobbesian dilemmas keep producers over investing in fabs that never pay for themselves.

we'll keep sending our unprofitable businesses overseas and that will be a good thing. it allows us to use our workers in more productive ways, and then, as ricardo tells us, we are all better off.

 
At 1/07/2010 12:27 AM, Anonymous Lyle said...

The issue is how to handle those who can not do the new jobs for one reason or another. There is of course the roman empires solution in the city of rome, bread and circuses which would be bread and video games today as suggested by Clarke and Asimov in various novels. When 10% of the population can make all the goods people need, and you begin to automate the services (which will come from Japan because the have to do it due to demographic problems), what do you do with the surplus population?

 
At 1/07/2010 7:57 AM, Blogger sethstorm said...


it's much harder (though hardly impossible) to innovate in a commodity business (like steel) so price pressures there are harsher. we will keep shipping such industries overseas where someone else can make the big capital investments for crummy ROI. take a look at flat panel production if you want to see a horrible, commoditized business where hobbesian dilemmas keep producers over investing in fabs that never pay for themselves.

That, and the quality of them has declined.



we'll keep sending our unprofitable businesses overseas and that will be a good thing. it allows us to use our workers in more productive ways, and then, as ricardo tells us, we are all better off.

...for very selective and narrow values of a "good thing". Ricardo forgot to take into account the time/cost to retrain.

Try again.

 
At 1/07/2010 7:59 AM, Blogger sethstorm said...


the key to this is staying ahead of the technology curves. if, like intel, you innovate and make things that are difficult to produce, you get outsized profits. fail to do so, like GM and chrysler, and you fail.

...or you make sure that when it goes overseas, the displaced are already retrained into another profession(and not a second before). Otherwise, keep it within this regulatory domain, and not in some Third World one.

 

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