Saturday, July 17, 2010

Increased Worker Productivity Has Destroyed Millions of Jobs, and We Should Be Grateful


Ron Bullock, chairman of Bison Gear & Engineering Corp, writing in the Washington Examiner:

"More effective foreign competition has led to increasing manufactured-goods trade deficits and the loss of 7 million U.S. manufacturing jobs since 1980."

Don Boudreaux responds:

"This account – repeated ad nauseam – would be more plausible if it were also the case that U.S. manufacturing output, during this same time, had declined. But this output rose. Manufacturing output today is nearly 100 percent higher than it was 30 years ago (see chart). Importantly, manufacturing output is up while manufacturing employment is down for a reason that is cause not for the pessimism that universally attends accounts such as Mr. Bullock‘s but rather for optimism. That reason is substantial growth in productivity, which is the only source of sustained and widespread prosperity."

MP: The graphs above tell the story. U.S. Manufacturing output has more than doubled since 1975 (data here) while manufacturing employment has decreased by about 8 million jobs (data here), resulting in more than a three-fold increase in worker productivity (output per worker) since the 1970s. Therefore, it's the dramatic increase in the productivity of American workers that helps explain the loss of millions of manufacturing jobs, and this a a cause for optimism, not pessimism, as Don points out.

Just like we should celebrate, not mourn, the loss of millions of farm jobs due to the ongoing and significant increases in worker productivity that reduced farming jobs as a share of total jobs from 90% in the 1700s to the current level of only about 2.6% (see chart below, data here), we should also celebrate the loss of millions of factory jobs due to dramatic increases in worker productivity. Any time we can get more output with fewer workers, whether it's farming or manufacturing, it's a sure sign of economic progress and a rising standard of living.


54 Comments:

At 7/17/2010 8:50 AM, Blogger Dr William J McKibbin said...

If US manufacturing is so productive, then why have exports not increased significantly as a percentage of GDP...? I am not disputing the increases in productivity, but I am trying to understand why the US is not seeing export gains as a result. Are we suffering from model risk in our assessment of productivity gains as a factor that has a positive effect on economic growth? You have me pondering the model risks of our econometric assumptions...

 
At 7/17/2010 9:47 AM, Blogger bix1951 said...

the question left open is what to do about the large number of unemployed people we have right now.
Should they all be on welfare? or in school? or on disability?
I assert that even with all the jobs lost our economy is producing almost as much as it did before this recession.
There is such a thing as a counterproductive employee.
We don't want counterproductive people attempting to be productive, so what can we do to help them become productive?

 
At 7/17/2010 10:00 AM, Blogger juandos said...

Is it only increased productivity that kills jobs in this country?

Consider the following: The True Cost of Hiring You - A Short Lesson in Labor Economics

 
At 7/17/2010 10:06 AM, Blogger juandos said...

"the unemployed should probably look closer at emigration"...

Why should the unemployed consider immigration when there's another solution that a law abiding government would facilitate?

Consider the following AP story: The number of illegal immigrants in the United States has grown to as many as 12 million, and they now account for about one in every 20 workers, a new estimate says...

Deport them all, deport them now...

 
At 7/17/2010 10:08 AM, Anonymous morganovich said...

this debate hits on a key trade off in economics:

productivity vs employment.

if you want to get a ditch dug quickly and cheaply, buy the men better shovels. if you want to create jobs, have them dig with spoons. it's really that simple.

the problem with the spoons idea is that it only works if you cannot import the good in question (like a ditch). if the good is easily tradeable, like a TV, then forcing your industry to use spoons will destroy the industry.

that said, even using spoons to did non importable ditches makes us all worse off. it keeps prices high. we live in real, not nominal terms. a great example is medicine. if we allow competition and force innovation, you get small cash clinics that can handle many routine tasks. this drops the cost of seeing a doctor from $200 to $60, a massive benefit to the society. in this way, we are all made better off in real terms without needing to be better off in nominal terms. the same money can buy more healthcare, or alternatively, but the same healthcare and have money left over.

attempts to increase employment by forcing workers to dig with spoons always wind up benefiting the few who get spoon jobs to the detriment of the many, who buy goods and services. there is always a large net loss from doing so.

bill-

regarding your point about exports:

our productivity alone is not the whole picture. its level relative to our trading partners matters, as do relative wages, our exchange rates, tariff structures, and savings rates.

in places with high wage costs (like germany) there has long been vast substitution of capital for labor, leading to high productivity. in places like china and india, labor is so cheap relative to ours that it still pays to use a less productive worker because of his relative payscale.

this trend has been further inflamed by US spending, which has exceeded our income substantially and a developing world with much higher savings rates. each of those trends affects our trade balance.

trade balance is a very complex system. trying to boil it down to one variable won't work.

 
At 7/17/2010 10:20 AM, Anonymous gettingrational said...

Productivity improvements are great but manufacturing and farming are vastly different. A lot of U.S. manufacturing is the assembly of foreign inputs. Farming is not the assembly of foreign inputs. Farming productivity gains are real but U.S. manufacturing gains are largely aftificial because of the change to assembly rather then build.

Don Boudreaux takes a quote from the article to make a point that the author is whining. The author is really trying to make the point that U.S. tax policy is hurting U.S. businesses more then ever. Here is the line that follows Boudreaux's self serving and isolated use of a quote (changes the context completely):

" Our position as the world's leading manufacturing economy is about to be lost to China because of a lack of effective measures in tax and trade policies. With Japan lowering its corporate tax rate to 25 percent, the U.S. will have the highest and most uncompetitive corporate tax rate (at 35 percent, not including state taxes) in the industrialized world, 40 percent higher than the average of our foreign competitors."

Attacks on U.S. businesses, by means such as isolated quotes, diminish free market enterprises.

 
At 7/17/2010 10:20 AM, Anonymous Benny The Man said...

Imagine the gigantic system of subsidies to the Red Bloc of farm Senators--42 Senators in 21 farm states--vs. the tiny number of jobs on farms.

Never has so much been for so few by so many (you and me, the taxpayers).

The incredible dollar per worker output of US manufacturing employees is wonderful--we should try to build on our strengths: an urbanized, powerful, high-tech and non-subsidized manufacturing economy.

Every state should get back from DC roughly what they pay in. No more subsidizing of weakling, knock-kneed, enfeebled pink-o rural states. Taht's a legacy from Hubert Humphry and LBJ...and P.U.

 
At 7/17/2010 11:28 AM, Blogger Jason said...

Dr. Mckibbin, I think the flat export gain is explained by the transfer of so called low value work to low cost countries. Example, virtually every electronic assembly used today is made overseas, with components that are manufactured overseas.

The only types of manufacturing America seems to want to compete in are high value finished assemblies. Some other posters (gettingrational and morgonovich) have explained the reasons for this pretty well.

In the past productivity gains have lead to improved lives. (Without hunter gatherers domesticating animals and farming, we couldn't develop written languages, etc... ) However, in this instance, where so much wealth potential is shipped away ARE WE CERTAIN that this will lead to better lives for Americans?

The notion that the masses of unproductive workers will suddenly be reallocated to new products and technologies seems a far reach at this point. We are in the so called linear region of the technology curve waiting for the next breakthrough.

So, when the low-skill labor farm jobs were eliminated, low-skill workers went to work in factories. When the factories moved to China, Malasia and Mexico, the low cost labor went...to suck on the teet of the government? To work at Walmart? What are we going to do with these people? If I hear retraining one more time I may vomit. These are LOW SKILL workers for a reason and like it or not they are here. And frankly, I think most of them are too stupid to emigrate.

Our leaders, and us, had better get wise fast, or we could either have riots in the streets or the People's Socialist Republic of the United States of America...or both.

 
At 7/17/2010 11:39 AM, Anonymous Anonymous said...

"Every state should get back from DC roughly what they pay in."

Great argument for dissolving the union since obviously the Federal cost of collecting taxes and disbursing the loot is unproductive overhead.

 
At 7/17/2010 11:46 AM, Blogger rufus said...

Dr. McKibbin,

at first blush my answer would be that "The Other Team" gets a "Vote," also.

Germany, and Japan are, themselves, very productive, and China has such a ridiculously low cost of labor that competition is tough.

In addition, perhaps our "education" system isn't turning out enough people with the necessary skillsets for the types of jobs that, many times, are required for Modern Manufacturing.

 
At 7/17/2010 11:56 AM, Blogger rufus said...

And, of course, the fact that we've let China peg their currency to ours at such an extremely low rate isn't helping either.

 
At 7/17/2010 12:00 PM, Anonymous Lyle said...

Todays New York Times had an article point out the China is getting to expensive for some goods, the article discusses Bangladesh as an alternative. I have noticed clothes from Pakistan and Vietnam as well. The recent demands for more wages and the labor shortage in China, are consistent with this. If we built a good freeway to Kabul then you can establish sewing plants there as well. (Cheap Labor). So Just like in Japan where in the 1930s it was a place of cheap labor, and it priced itself out of the cheap business, China is doing the same.
The problem is we have created jobs that a lot of people just plain are unqualified for and may be flat unable to qualify for. Perhaps bread and video games is a solution.

 
At 7/17/2010 1:30 PM, Anonymous Anonymous said...

I am an engineer with a lot of experience looking at and interpreting data. As this economy has come unglued over the past decades I have began to look closely at economic data myself and rely less on the interpretation of economist. Each time I do so I become less trustful of both the data being put out and the economists using that data.

In this example productivity saves the day and explains why everything is just going fine. Excuse me for thinking for myself but things are not just fine. The fallacy this time is in the details of the productivity data. The way the government measures productivity it is no longer certain that increased productivity means more is accomplished with less labor. Suppose a company makes a product that requires 1000 man-hours of labor to produce and a component of that product takes 50 man-hours to produce. If that component is outsourced to China and they use 100 man-hours to make it but it is cheaper because labor is cheaper. The Labor Department scores that as a 50 man-hour reduction or a 5 percent productivity improvement.

That increases corporate profit at the expense of money leaving the country. The money leaving the country caries with it a negative Keynesian multiplier.

If we are not doing something profoundly and fundamentally wrong why are we in this mess?

 
At 7/17/2010 2:27 PM, Blogger PeakTrader said...

Many Americans have become too picky about jobs. Americans need to follow George W Bush's advice:

"The fact that they purchased the machine meant somebody had to make the machine. And when somebody makes a machine, it means there's jobs at the machine-making place."

Or if you're wealthy enough, create your own job.

 
At 7/17/2010 2:35 PM, Anonymous morganovich said...

jason-

you are leaving an important issue out of your "low skilled worker" equation.

that issue is the prices paid for goods and services. high productivity means lower prices and more supply. that benefits everyone.

the jobs whose departure you lament were gone no matter what. the rest of the world is catching up. they have access to all the same technology and cheaper labor. you cannot put that genie back in the bottle.

so, the unproductive lose out to imports and the highly productive survive and flourish. that's capitalism. we are the better for exposure to such selection pressures. it makes us more dynamic and wealthier.

don't get too fixated on the current employment numbers and their relationship to manufacturing jobs. all the same arguments were made about farming jobs, and that had no effect on US employment rates which reached record highs as recently as 2000. it was virtually impossible to hire then.

our current employment slump has little to do with lost manufacturing jobs. that was not the bulk of the jobs that were lost. the hardest hit sector was construction.

this downturn is not a function of our trade balance, but rather the price we must pay for living beyond our means for too long.

unemployment rates were at just over 4% as recently as 2007-8.

if loss of manufacturing jobs was destroying our job count, it certainly didn't look like it then. under 5% is a VERY tight job market. surely you don't believe that our manufacturing sector was gutted in 2 years?

i know it's tempting to blame our current travails on overseas actors, but the fact is that it was not of their doing but our own.

we have driven decades of above trend growth through loose money and the mistaking of debt accumulation for prosperity.

this is going to take a while to sort out, but misdiagnosing the disease will make recovery even more arduous.

 
At 7/17/2010 2:37 PM, Blogger Jason said...

Peak, don't know if your being serious or not. Regardless, Americans are too picky. And the fixed costs of employment are too high. And the corporate tax structure is too high.

All of these things have to come into balance so America can be more competitive for low cost manufacturing. Or we have to wait until the China, Bangladesh, India, Malasia, Honduras and every other low cost country reaches our standard of living. Oh, and then hope Africa continues on its 400 year history of being a monumental economic disaster, or we'll have to wait for Africa to catch up, too.

 
At 7/17/2010 2:44 PM, Blogger Walt G. said...

anonymous 1:30,

I have worked in manufacturing for a long time and have watched these productivity improvement first-hand. Where we used to have 5 stamping presses putting out 4-8 parts-per-minute with 20-30 employees, we now have 1 stamping press putting out 12-40 parts-per-minute with 5-10 employees. This means that 1,000 employees put as much or more tonnage out as 4,000 employees did in the past.

What do you do with the excess 3,000 employees? If you don't make the improvements, you cease to exist, and if you do make the improvments, you have people without jobs. It's probably not a good idea to put them in a Jobs Bank, so where do they go when we have five people for every one job opening?

As far as capital fleeing the country, globalization can't be stopped. I can push a button and have my investments moved to overseas companies if I can get a higher return over there. Should I be stopped from having that option?

Other than spending money we don't have, I don't think we are doing anything wrong. Those who can deal and adapt with normal economic shifts will be fine after we get over this normal downturn. And those who can't? Well, they are in for a more difficult life than those who grew up when low skills commanded high pay. We had a good 50 year run after World War II, but those days are over.

 
At 7/17/2010 3:02 PM, Blogger Jason said...

Morgan, I don't disagree with you for the reasons you're giving for the present situation. I agree the rest of the world is catching up and we've been living well beyond our means for quite a while and the bill is due. Also, muddying up things quite a bit is the impending retirement of the wealthiest group in the nation's history. As this group prepares to leave the job market, it's creating a dislocation in employment everywhere. I think this makes things look worse than they are, for now at least. I also agree that you cannot put the genie back in the bottle.

I won't argue about the unemployment numbers, but I will say that earning power for the unskilled labor pool has been dropping steadily for at least two decades.

So here we are, in a real pickle, since many Americans now depend on the low costs of basic staples that moving moving jobs overseas enabled. Despite the savings, many just bought more stuff or were riding the death spiral (I make less, I spend less, I make less...etc).

Regardless, despite any disagreements, can we at least agree that as a country, America should TRY to be more competitive? Can we try to create a factory job, just maybe?

Look, I just don't believe the workers who've lost those jobs will ever be nearly as productive again (housing bubble popped and won't reflate, for instance). AND we have many more people entering the workforce every day. A good number of these folks are ditch diggers...that's all they are. And they are barely qualified to perform that task with either shovels or spoons. Debate the reasons for this, but don't debate we have many people like this here. And here's a newsflash, there are more ditch diggers than there are people like you and I.

Either we compete for jobs for the ditch diggers or we become socialist and support them. We have to choose, or things will get nasty.

BTW, I hope we choose "compete for jobs" because socialism sucks.

 
At 7/17/2010 3:16 PM, Blogger PeakTrader said...

I don't know what data people are looking at. The reality is the U.S. leads the rest of the world combined advancing in the Agricultural-Industrial-Information-Biotech revolutions, and the U.S. will dominate the next major economic revolution, and lead the rest of the world combined in the one after that.

 
At 7/17/2010 3:31 PM, Anonymous Anonymous said...

We are still acting like the least developed village in which a technological development leaves the family wondering what to do with themselves, as now someone who had a responsibility no longer has that particular responsibility.

What about all the things people have wanted to do for one another and with one another in which before, there was never time? There are ways to do these things now, if anyone is willing to believe in fairness and equality, why not the belief that each person's time is equally valuable to do these things.

 
At 7/17/2010 3:35 PM, Blogger PeakTrader said...

Anon, you have 24 hours a day just like everyone else. What's your point?

 
At 7/17/2010 4:22 PM, Anonymous Anonymous said...

Yes, we should be grateful that we've destroyed of these jobs: we've placed millions into low-paying, no benefit peon jobs - forcing them to rely on public assistance and Medicaid - or we throw billions into assisting millions of unemployed because there's no jobs to fill the holes (and no, part-time work doesn't cut it); we're left with millions of miscreants whom we'd rather spend far more money throwing into jail.

Don't get me wrong: I'm all for efficiency gains achieved in manufacturing, and I'm NOT for preserving obsolete jobs - manufacturing or otherwise; but at the same time, we should find ways to offset the effects of millions who lose their jobs. Not only would we save tax payer money, but we would put money back into the sytem by having people gainfully employed.

Remember, when world economy was in the toilet, China assembled a stimulus package that was a QUARTER of it's GDP to prop up it's economy - look what happened. The reason ours didn't work was because (a) it was too small and (b), because it did little in the way of job creation. It instead induced people to buy goods made elsewhere; if anything, our stimulus package helped stimulate China's economy.

 
At 7/17/2010 4:35 PM, Anonymous Steve said...

"I don't know what data people are looking at. The reality is the U.S. leads the rest of the world combined advancing in the Agricultural-Industrial-Information-Biotech revolutions, and the U.S. will dominate the next major economic revolution, and lead the rest of the world combined in the one after that."

And who's going to do that - the reletively small number of Gen X and Yers who've entered into math, science and enginering majors over the past years? A lot of Baby Boomers will be retiring this decade, and we're going to see a lot of smart, talented people leave critical fields, taking with them the expertise and experience they have. This is in sharp contrast to countries like India and China, both of whom are churning out math- and science-related majors like a bee hive spits out bees.

America will likely persevere in science-related fields for the rest of this decade; however, the future is looking increasingly to the East. Do you think China will remain content as the world's cheap manufacturing center, or do you think it has other ambitions? No great power lasts forever.

 
At 7/17/2010 5:23 PM, Blogger Craig said...

Every state should get back from DC roughly what they pay in.

One tiny quibble with you there, benny. The federal government shouldn't be taking in tax dollars only to dole them back out pro rata to the several states. How about they just take what they need to perform their functions as defined in the Constitution?

Let the states pay for what they need to do out of their own revenue.

 
At 7/17/2010 5:50 PM, Anonymous The Dooood said...

"Let the states pay for what they need to do out of their own revenue."

That sounds fair. I'm just going to say that it will make it more difficult for poorer states to pay for needed infanstrucutre projects: Montana, for example, obtains a large chunk of money from the federal government for roads. Actually, all states do.

 
At 7/17/2010 7:12 PM, Anonymous Benny The Man said...

Craig-

Rural welfare, in the form of subsidies, and infrastructure spending, has become institutionalized, and now lionized by the Republican Party.

You have states like Kentucky that get back $1.50 for every dollar they send to DC, or about $4,000 net extra from the feds.

The rural states have dependent on federal dole--not for a few years, but for generations now.

That, and slavish support of all things military, is why the R-Party can never balance the federal budget. It is their life blood--their base would vanish without constant federal infusions of lard.

Several states, such as California and New York, would do well to leave the union. Other states, such as Alaska, Montana and Kentucky,. would go into deep depressions if they left the union.

Still, enough is enough--states have a right to long-term parity, I contend.

 
At 7/17/2010 7:27 PM, Blogger PeakTrader said...

Steve, a high quality education is expensive. That's why there are only a few top schools in China and India that can compete with America's extensive university system. The U.S. could lower its standards and graduate more engineers too.

There are over 300 million Americans. A large proportion of them are highly skilled. Not all will retire soon. Given U.S. debt levels are high, the Baby-Boomers will likely work longer (and live longer) to pay-down debt and build-up saving. When firms, e.g. Microsoft, Apple, Google, etc. were created, there were even fewer Americans. Also, unlike the U.S., China and India are light on creativity and heavy on obedience.

Of course, smaller economies can expand at faster rates, similar to the U.S. a hundred years ago, and China and India are catching-up, only because they're so far behind to begin with. However, two billion dirt poor people will impede their economic progress. Anyway, to answer your question, I'd like to see China improve its economic policies (including taking social costs into account).

 
At 7/17/2010 7:41 PM, Anonymous Anonymous said...

I always use tires as a productivity and quality illustration. Since 1960, automation has greatly reduced the man-minutes of labor needed to make a single tire. By a factor of at least ten. So, 90% fewer workers to make the same number of tires. Ther are now many more cars on the road then in 1960. So, the job loss shouldn't be that bad. Except- in 1960 a car owner felt good if his tires lasted 10,000 miles without being replaced due to a flat or wearing out. If I don't get 50,000 miles out of a set, I feel something went wrong. Fewer people make tires, a high paid assembly type job, and we're all better off.

 
At 7/17/2010 7:45 PM, Blogger PeakTrader said...

Anon, the NeoKeynesians believe building something like (worthless) pyramids is needed to promote economic growth and employment in recessions. Basically, that's what the Chinese are doing on a large scale.

However, the recession benefited China, because when the U.S. was at full employment that caused China to overproduce by a large margin (creating a labor shortage and lower quality goods). China's economy is expanding at a more sustainable rate now, since the U.S. and its trading partners are underproducing.

 
At 7/17/2010 8:54 PM, Blogger sethstorm said...

The problem isn't so much that there is destruction. The problem exists with dislocation.


Why should the unemployed consider immigration when there's another solution that a law abiding government would facilitate?

Such as giving businesses less ways to say no? Either be part of the solution or stop being part of the problem. Start causing pain for the bureaucrat, not causing pain for their constituents. You only make constituents like myself point towards you and not the person who may have wronged yourself.

Some of the stuff you're quoting seems very skeptical of hiring people even in good times. They view the employee as if they were always the "out to get you" person vs. a secure, long-term partner in prosperity. With that attitude and already advantageous position, it smacks of a political vengeance that is being sought. Not recovery.

Businesses are not entitled to shake down the government for favors such as tax dollars as much as you think that I am not entitled to a job.

The one thing I can agree with is to deport the illegals and keep them away from the border(on their side). It would only be showing the illegals the same humanity that the coyotes show - no more humanity than fulfilling a debt. If there is to be any water or food, it is only on the trip over to a border crossing(provided that they didn't cross the border) for evaluation.


if you want to get a ditch dug quickly and cheaply, buy the men better shovels. if you want to create jobs, have them dig with spoons. it's really that simple.

Except that at the spoon level, you're taking both ends of the table out of what is considered productivity or employment. I see it as a case of a recovery that wants to be in the right political moment.


In addition, perhaps our "education" system isn't turning out enough people with the necessary skillsets for the types of jobs that, many times, are required for Modern Manufacturing.

Then by all means train them on-the-job. Make the investment in your own people and they will (by and large) return the favor with higher quality work.


Many Americans have become too picky about jobs.

Except that quote also applies to business. They are getting too picky about people and conditions. We're not obligated to clear heaven, earth, and the waters to their political favor. Second, not everyone is cut from the cloth of "creating your own job" but is very productive within the context of a secure job.


As far as capital fleeing the country, globalization can't be stopped. I can push a button and have my investments moved to overseas companies if I can get a higher return over there

Not an easy answer. These days, it is quite easy to pursue people across the world. Should you locate yourself in a corrupt nation like those you mentioned, that can be turned against you. It's a case where there really are no places to hide things.

Press that button, someone's going to know the other end. The idea is that you don't do something that causes them to act on you for it. Would you rather someone be employed doing what they are good at in the private sector, or applying it to uncovering/recovering hidden assets on the behalf of the government? At this point, I would have no problem working for such ends if offered something the private sector continually refuses to offer (and continually wishes to be my enemy).


This is in sharp contrast to countries like India and China, both of whom are churning out math- and science-related majors like a bee hive spits out bees.

Except that their intelligence is without any originality. Copying things that already exist is part and parcel with them. Corruption is as well. The US and other nations have both originality and intelligence.

 
At 7/17/2010 10:07 PM, Blogger juandos said...

"Such as giving businesses less ways to say no?"...

Well now we're sure that sethstorm is as much of a commie as the clown defiling the Oval Office is...

 
At 7/17/2010 10:50 PM, Anonymous Norman said...

All well and good about actual production but the job losses shouldn't have happened.

The Chinese decided that when they sold us cheap goods they were not going to buy our goods. Rather they wanted our debt. What this does is increase money available for the capital markets and thus elevating prices of equities and lowering long term interest rates. It does not matter what the Chinese actually bought just that the money went out of economic circulation and into capital markets circulation. Free trade has been a one way street.

However, if we've lost jobs because of it the Chinese have lost capital because on average because of their massively undervalued currency they've been buying these capital assets at the same massive premium. Economists have not idea how to account for this Enron-like action which is robbing your balance sheet, sending the money into your economy and calling it growth.

Sorry, we can't paper over the loss in manufacturing jobs with macro-economics.

 
At 7/17/2010 10:51 PM, Blogger Jet Beagle said...

Dr. William McKibbin: "If US manufacturing is so productive, then why have exports not increased significantly as a percentage of GDP...? "

Very simply, because GDP growth in services has far outstripped the growth in manufacturing.

Real U.S. manufacturing output was at an all time high in 2007, and real U.S. exports were at all time high in 2008, before the start of this global recession. (links below) Even so, these gains were far outpaced by gains in services.

Dr.McKibbin"I am trying to understand why the US is not seeing export gains as a result."

The U.S. has seen export gains, right up until this global recession. But even more important, the strong U.S. economy has consumed the overwhelmingly majority of what it has produced, plus a lion's share of what the rest of the world has produced as well.

GDP by Industry, from the Bureau of Economic Analysis

REal, inflation-adjustment U.S. exports, 1994-2009

 
At 7/17/2010 10:58 PM, Anonymous Anonymous said...

Looking at the farm jobs % vs. total jobs, that is an amazing statistic.

The unskilled work such as walking beans and picking rocks are long gone - they now have machines pick the rocks and hand weeding has been replaced by spraying. Some of the fancier spray rigs can sense whether the plant it "sees" is beans or something else like volunteer corn or weeds, and sprays only when the non-beans.

Milking parlors are pretty much automated. Combines navigate via GPS, fields are mapped by GPS coordinates with soil condition/type and fertilizer/herbicides are adjusted accordingly for the coordinates.

Most of the 2% remaining is relatively skilled work.

One thing around here that is still largely done by hand by high school kids is detasseling and bagging for seed corn breeeding and production.

 
At 7/17/2010 11:04 PM, Blogger Jet Beagle said...

Steve: "Do you think China will remain content as the world's cheap manufacturing center, or do you think it has other ambitions?"

First, China is not today just "the world's cheap manufacturing center". It is a strong and vibrant player in the global economy.

Second, the U.S. should welcome the economic progress being made in China and other previously poor nations. All humanity benefits when a larger portion of the global population gains knowledge and progresses economically. China and India represent about 1/3 of the global population. Humanity needs the engineers, scientists, physicians, and other talent of India and China to be solving mankind's problems. When a Chinese engineer develops a more efficient means of producing an important good, all the world will benefit. When a Chinese medical researcher collaborates with American and Japanese researchers to develop a cure for disease, all humanity benefits.

Your comment implies that economic progress is a zero-sum game, where some nations must lose for others to win. The truth is exactly the opposite.

 
At 7/17/2010 11:27 PM, Blogger PeakTrader said...

There are many misperceptions about China's economy.

China sells its goods to the U.S. too cheaply and lends its dollars to the U.S. too cheaply. Why? To maintain a politically acceptable level of employment, by inducing U.S. demand through a virtuous U.S. cycle of consumption-investment.

The Chinese communist elites and American capitalists gain at the expense of the Chinese masses, who are exploited. The elites become stronger, while the masses become weaker. The elites spend on public (or state) goods, while there's little for private goods. So, of course, China imports few U.S. consumer goods.

The U.S. gets cheap goods and cheap capital, while China gets cheap jobs and stronger communist control. The U.S. needs to scale back on regulations and taxes to increase employment. However, we're heading in the opposite direction, and in a big way.

 
At 7/18/2010 12:34 AM, Anonymous Lyle said...

RE Anon at 7:41 thanks for that information. Your point about the lifetime of tires is well taken as a quality improvement, as indeed autos are better in general than the old ones without fuel injection. The fact that it takes 1/10 the hours is a very big thing, just like comments about ag not being a low tech field anymore (in grain farming and dairy at least)
This does of course pose the problem what to do about people who are incapable of doing the new jobs because they can't learn the needed skills, do we have them pick up litter?

 
At 7/18/2010 12:59 AM, Anonymous Dave said...

Great point, Dr. Perry. We should be grateful we don't have as high a percentage of our workforce employed in manufacturing as, say, Germany does. Otherwise, our economy would be limping along as bad as theirs. Oh, wait...

 
At 7/18/2010 4:46 AM, Blogger sethstorm said...


Well now we're sure that sethstorm is as much of a...

Perhaps if they didnt shake down governments for (overly) favorable conditions, there would be no problem. That's what businesses regularly do - shake down government.

Why are they entitled to that any more than any other non-governmental entity?

 
At 7/18/2010 7:05 AM, Blogger rufus said...

The Buick Regal that comes out this fall has a 2.0L Direct Injected, Turbocharged Engine that gets Superior HP on E85 (85% Ethanol - 15% gasoline,) and within 5% the same mileage on E85 as on gasoline. The next iteration is supposed to get the Same mileage on E85 as on gasoline.

The cost of producing Cellulosic Ethanol (ethanol made from switchgrss, corn cobs, waste paper, etc) is, now, around $2.00/gal - Without Subsidies.

So, let's review the bidding.

We spend, approx, $360 Billion/Yr Importing Oil, and "Protecting" the foreign oil fields/sea lanes.

An area of about 3 mi. radius per county would supply all the cellulosic feedstock necessary to virtually eliminate our Oil Imports.

We have almost 10% unemployment - mostly among the less skilled, and in construction.

The build-out of our cellulosic refining capacity could employ as many as a million construction/manufacturing workers.

The money would be circulated Locally, boosting Local economies.

Upon completion of the refineries our balance of trade would improve dramatically, and we could shed the cost of protecting Saudi/Iraqi/Kuwaiti oil fields.

Rather than spend the money on importing, and "Consuming" a Declining resource, we would be Investing in infrastructure for utilizing a "Sustainable,"/Renewable resource.

What am I missing?

 
At 7/18/2010 7:17 AM, Blogger bob wright said...

Walt,

I think your point is the pertinent point.

I read a Detroit News article several years ago that mentioned a UAW official that said more manufacturing jobs have been lost to automation than to Mexico and China combined.

Does your experience confirm this?

 
At 7/18/2010 8:35 AM, Blogger Jet Beagle said...

Peak Trader: "The Chinese communist elites and American capitalists gain at the expense of the Chinese masses, who are exploited. The elites become stronger, while the masses become weaker."

I agree with most of what you write, PeakTrader. I do not believe these statements, though, accurately portray what has been happening in China over the past 20 years. Your statements exactly contradict what I have heard directly from someone I worked with who was a citizen of China.

Can you perhaps provide some evidence or arguments that your statements are true and those of my friend Huang were not?

Based on what I have read, I agree that Communists in CHina are trying to appease the masses and retain control through their protection of Chinese manufacturing. But I see no evidence that the masses are growing weaker as the overall stabdard of living in China has sharply increased.

 
At 7/18/2010 8:41 AM, Blogger Richard said...

Mark,

Could you include a link to the data of the farm jobs?

 
At 7/18/2010 9:20 AM, Blogger PeakTrader said...

JB, Chinese wages and working conditions are well documented, along spending on state goods, profits of U.S. multinationals, private consumption, etc.

It's uncertain if living standards of the Chinese masses are rising or falling, because social costs aren't taken into account. However, it's certain the communist elites have become more powerful.

Here's part of a conversation I had with someone in China, who wasn't one of the 1 billion dirt poor people (and wasn't taught Western orthodox economics):

T Yang: We need generations hard working, but situation is gradually changing which can contribute to china's nice economic polices such as 8 employees theory; cat theory, stone theory, SEZ theory, tier development theory, three reprenstive theory... let's sample "8 theory" as it clarifies that it is socilism not capitalism if you are employeeing 8 staffs or below, the policies was implemented in Year 1988, economy was then booming contributed to the theory, hahaa!!

PeakTrader: T Yang, I've shown you lots of evidence that support my statements. Obviously, you're in denial. China is adding more to foreign living standards than to its own (see prior Mattel and other foreign firm contracts with the communist elites, along with real losses in the foreign currency and bond markets). Over the past several years, it's possible, China's living standards fell, because of higher social costs, which are unsustainable (see examples of lower production standards). China may be working for free, if all costs are taken into account. There's a concept called "moral hazard." When Chinese firms don't take into account negative externalities, to maintain high profits, then more negative externalities will be created. Anyway, it's obvious, China's economic policies (including "growth at any cost") are suboptimal to large extents.

 
At 7/18/2010 10:03 AM, Blogger Tyrone said...

Well, we're gonna need that increased productivity once the US dollar loses is standing as the world reserve currency.

Cheers!

 
At 7/18/2010 12:54 PM, Blogger Walt G. said...

bob wright,

The job loss in the last 20 years or so that I can speak about at GM is from both automation and engineering. We used to decide how many people it would take to run a process after the job came in the door and was ready to run (RTR). Now the RTR number is designed into the equipment and the cost analysis. If we can't build a part cheaper than purchasing it, the work goes outside GM.

Some of the work that was cheaper to purchase in the past stayed at GM to keep workers out of the Jobs Bank (but that adds cost). Also, GM made a lot of cars with little or no profit at the expense of highly profitable SUVs when they were selling like hotcakes to satisfy the CAFE laws. The combination of poor fixed-labor costs, market-altering governmental policies, short-term financial decisions made on quarterly reports, other poor decisions from people unwilling to change to 21st century global realities, and the economic crisis led to the GM bankruptcy. You can’t cheat basic economics forever.

 
At 7/18/2010 2:03 PM, Blogger juandos said...

"Perhaps if they didnt shake down governments for (overly) favorable conditions, there would be no problem. That's what businesses regularly do - shake down government"...

O.K. so now we have sethstorm defending government's apparent inability to stand up for itself...

So what are you saying here sethstorm. that 'EVIL' big business is forcing the federal government to pander to them?

Oh please!

 
At 7/18/2010 7:22 PM, Blogger sethstorm said...


juandos said...

No. You just want government to favor business, and only business.

 
At 7/18/2010 8:21 PM, Blogger juandos said...

"No. You just want government to favor business, and only business"...

Why did you just tell me and everyone else an blatant falsehood sethstorm?

Just asking is all...

 
At 7/18/2010 9:48 PM, Blogger sethstorm said...

juandos said...
Your actions suggest otherwise.

You are suggesting that it is fine to cater to business, but it is not ok to cater to individuals from government.

The government hands them favorable terms, but it all has to be in near-perfect (or perfect) favor of business before they will allow a recovery.

 
At 7/19/2010 8:25 AM, Blogger m_stephen_lucas said...

Many people in this thread, as well as in general forget there are other factors of production other than just labor; or maybe it is more accurate to state there are other sources of cash flow than just from one's labor.

Stocks, Forex trading, owning your own business, real estate, etc - just to name a few ways. I do not plan to work for my remaining productive years at a "job". The solution is to live below your means and save - create capital. Don't get into debt that becomes to burdensome and that is un-productive.

As companies improve their productivity, I plan on increasing mine. I suggest we re-think the way we view unemployment. Soon we will have more people in "retirement" age than at any other time. Most will not be part of the work force. I even think that most people under 45 are not counting on government SS. There are other means of creating cash-flow and we should measure and track each of these as a piece of our economic inputs.

 
At 7/19/2010 8:55 AM, Blogger juandos said...

"You are suggesting that it is fine to cater to business, but it is not ok to cater to individuals from government"...

Is this you admitting you've forgotten what you've read in the recent past?

 
At 7/19/2010 3:13 PM, Blogger Jet Beagle said...

M_Stephen_Lucas: "I do not plan to work for my remaining productive years at a "job"."

I did not either, and that led to my pursuit of the entrepreneurial route. It turns out I was more successful working at a "job" than I was as an entrepreneur. I also discovered - after the fact - that a "job" can also be rewarding in non-financial ways.

Not sure if you meant to do so, but by putting the word in quotes you seemed to denigrate those who are happy to toil away at a job for their entire careers. Am I mistaken about your feelings toward career job holders?

M_Stephen_Lucas: "I even think that most people under 45 are not counting on government SS."

I can appreciate how they feel. In 1981, when I was a mere thirty, most of my friends told me they were also not counting on SS. But now, after paying into the system for three more decades, they feel entitled to some of the benefits they were promised.

The problem with not counting on SS when one is young, as I see it, is that such an attitude of defeat allows this bankrupt system to continue rolling on toward disaster. If my generation had stood our ground 30 years ago - and demanded that SS be changed from a pay-as-you-go to a true savings program - we might have solved the problem. I hope your generation has more courage than mine did.

 
At 9/30/2010 3:38 PM, Blogger Lawrence J. Kramer said...

"Any time we can get more output with fewer workers, whether it's farming or manufacturing, it's a sure sign of economic progress and a rising standard of living."

Or not.

Manufacturing output has been growing at about half the rate of GDP over the past thirty years. It's nothing to write home about.

If productivity arises from technological improvement, it is to be celebrated. But if it arises because only capital intensive industries can compete in the world, it's not a sure sign of anything.

Imagine two factories that make different, non-competing products. One gets $1000 of output per man hour, the other gets $100, but both are prospering. Total productivity, $550 per hour.

Now comes a Chinese manufacturer of the second product, with $200 of output per man hour, and factory 2 closes. Boom. Total productivity nearly DOUBLES. When does the party start?

You can make the Bastiat argument if you want about how the workers at factory 2 can go to work making what they make in factory 1 - that's the law of comparative advantage, right? - but they can't do that, because factory 1 is so darn productive. Even with tripled demand for its outputs, neither it nor an equally productive competitor) can employ the people who worked at factory 2.

But not to worry. The people at factory 1 are making so much money that they can afford to buy more stuff, and the guys who used to work at factory 2 can get jobs making those things. Oops. The Chinese already make those things, too. M. Bastiat didn't see that one coming! How ironic.

 

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