Watch Out for Political Solutions to Non-Problems
Here's some editing of Jon Huntsman's recent comments:
"When I was born in 1960, manufacturing agriculture comprised 25 four percent of our GDP. Ten years earlier it was about seven percent. Today, it’s down to around 10 only one percent (see chart above). This does not reflect a decline in American ingenuity or work ethic; it reflects our government’s failure to adapt to the realities of the 21st Century economy. It’s time for Made "Grown in America" to mean something again."
MP: Even though the shares of GDP for both agriculture and manufacturing have fallen over time, the total production of agricultural and manufactured products have continued to increase to record levels in almost every year. It's a testament to the increased productivity of American farm and factory workers that we can produce more output over time with fewer workers. And it's those significant increases in productivity that have dramatically lowered the prices of food and durable goods over time, so that purchases of those goods represent a decreasing share of national and personal income. That's a good thing (see chart below).
If Huntsman is suggesting that increasing manufacturing's share of GDP back to 25% would make us better off economically, then wouldn't it also be the case that we would be better off if the farming/GDP share increased back to 7%? In both cases it would imply a significant reduction in worker productivity making the manufacturing and agricultural sectors much less efficient, leading to large increases in the prices of food and durable goods, and increasing the share of income spent on food and durable goods (see chart below for food). That would make us much worse off.
Bottom Line: It's a sign of remarkable progress, not regress, that the farming/GDP and manufacturing/GDP ratios have fallen over time, and means that our standard of living has risen, not fallen. Be very skeptical of Huntsman's political solution of increased government intervention to solve this "non-problem" because it would certainly make us worse off, not better off.
26 Comments:
“How many years of US corn production would the dollar reserves of China buy?” I mused, maybe 40. Wrong. It is only 12. And that is just corn. Not soybeans, wheat or rice or cattle, hogs or chickens. Think about that and stand back in awe at the productivity of the American farmer." -- John Mauldin
"Be very skeptical of Huntsmam's political solution of increased government intervention to solve this "non-problem" because it would certainly make us worse off, not better off"...
Does anyone really expect someone like Huntsman to be anymore clued in than his one time boss?
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We need, desperately, to Export more.
Ex: We have a Trade "Surplus" w/China, and the rest of the world in Solar Products. Maybe we can expand on that.
We're, also, the no 1 exporter of Ethanol. Maybe we plant those 30 Million Acres of Arable Land that we're paying our landowners Not To Plant, and incentivise Energy Grasses, and Cellulosic Ethanol Production. That would improve "Both" Agricultural And Manufacturing Productivity.
Why would some Americans want to give away goods to foreigners when they don't have to?
rufus has it right; its not a question of manufacturing per se; its a question of our balance of trade:
http://www.cepr.net/index.php/blogs/beat-the-press/does-america-need-manufacturing-what-does-mr-arirthmetic-tell-us
rufus-
we already have an overall trade surplus with china on a value added basis.
http://mjperry.blogspot.com/2011/08/using-value-added-estimates-we-have.html
"trade deficit" is a meaningless term and just an artifact of using overly simplistic figures.
nor is a "trade deficit" harmful.
does your life long trade deficit with gas stations destroy your well being? how can a voluntary transaction leave you worse off? you trade $1 for something you value more. if you did not value it at more than $1, why would you trade?
our current economic issue has little to do with export levels and everyhting to do with our domestic situation being a mess due to a burst debt bubble and massive governmental interference from a regulatory and tax standpoint compounded by crowding out of the private sector by federal spending and debt.
people speak of exports as though they are some sort of panacea.
they are not the issue. fiscal imbalances are the issue.
the US "trade deficit" tends to widen when time are good and contract when they are bad.
i think you are drawing the wrong conclusions from it.
The trade balance
1. China needs $100 of oil.
2. So, it sells $100 of manufactured goods to the U.S..
3. China buys $100 of oil from the Saudis.
4. The Saudis buy $100 of U.S. bonds at 2% interest.
5. The U.S. uses the $100, part of it to make a higher return than 2%.
6. Eventually, the Saudis will move to the U.S. and spend their dollars.
7. Or, they'll exchange their dollars, which are eroded at a compound rate (from low interest rates and inflation) and depreciated (from exchange rates and at an accelerated rate when exchanged), for their currency.
"rufus has it right; its not a question of manufacturing per se; its a question of our balance of trade" -- rjs
Dufus never has it right.
As a direct consequence of our current account deficits, the U.S. economy has been the beneficiary of more than $8 trillion worth of capital inflows from foreigners since 1980. Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis. -- Carpe Diem
We hear a lot about the U.S. "trade deficit" or the "current account deficit," but we don't hear as much about the offsetting "capital account surplus" or "capital inflow" that has to exist when there's a trade deficit ... There are no BOP deficits once we account for all international transactions, both for: a) goods and services, and b) financial transactions. For all of the one-sided coverage in the press about the "trade deficit," you would almost never even know that there is an offsetting "capital surplus" or "capital inflow." -- Carpe Diem
Milton Friedman explains - Here. And Here.
I don't think many farmers have packed up tractors, plows, irrigation equipment as well as top soil and moved to China. I am glad to see some manufacturing returning to the U.S. I further hope that U.S. based manufacturing will not continue to be shut out of export oriented countries.
Mr. Huntsman needs to acknowledge tremendous productivity gains. Read the article cited and I am sure that many will agree with Mr. Huntsman on most issues. Mr. Huntsman states that the U.S. needs to be part of many more than 17 Free Trade agreements (out of 300 worldwide), for the U.S. to be competitive and prosperous in the future.
Of course, the problem is the U.S. government spends and squanders every dollar and more.
It is interesting--the most subsidized, mollycoddled, regulated, supported sector of the US economy is also lauded for its productivity. Even "Che is Dead" salutes socialized tax-supported agriculture.
I know of no other sector where they get direct annual subsidies, and agree to limit production by government diktat. How about the 8,000 free business advisers (ag. extension agents). And who else gets to sell excess production to taxpayers (except defense contractors).
Uncle Sam has even, from time to time, helped bring in cheap foreign labor to farmers through various "bracero' programs.
Then we have taxpayer-financed ag. research at dozens of universities, and, of course, subsidized water, power, roads, postal service, flood control, airports, rail stops, and phone service.
All hail socialized agriculture!!!!!
Morgan, my life was better when my deficit with the local gas station was $600.00/yr than it is with the present $2,000.00/yr. :)
PT, you left out a step.
Uncle Sam takes the proceeds from the $100.00 Bond Sale, and gives it out in unemployment benefits to the workers whose jobs have moved to China, and other "exporting" nations.
Rufus, those $100 of manufactured goods China sells to the U.S. are heavy or low profitable goods (e.g. oil intensive goods) with declining prices that were offshored by U.S. multinationals and imported to the U.S. at lower prices and at higher profits.
The U.S. shifts the freed-up limited resources, from offshoring, to produce more higher-quality goods, including with market power, to create more higher-paying jobs, either in "core" goods of older industries or in emerging industries.
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"Even "Che is Dead" salutes socialized tax-supported agriculture." -- "Benji"
You really are beyond all hope. I've never supported agricultural subsidies of any kind, I've simply pointed out, time and time again, that the vast majority of farm subsidies are paid not to farmers, but to urban dwelling parasites. That is one thing, among many, that you seem completely incapable of learning.
Is Manufacturing still vital to the U.S. economy?
Let's reference America's best economics and finance blog for some insight. August 26, 2011:
"American Manufacturing Drives the Recovery"
As long as we're sending approx. A Billion Dollars/Day out of the country for Oil, and oil products, we're going to have to "bring in" some money, somewhere.
"As long as we're sending approx. A Billion Dollars/Day out of the country for Oil, and oil products, we're going to have to "bring in" some money, somewhere." - Rufus
The trade deficit data is worthless. Despite the fact that we have run an $8 trillion dollar trade deficit over the past 40 years, something funny takes place. Every single year, America's income receipts from the rest of the world exceed income payments to the rest of the world. Last quarter , we received $791 Billion in income from foreign sources (annualized) while only paying $534 Billion. If America is netting $250 billion per year, the one thing I know is we haven't really had an $8 trillion dollar trade deficit.
Rufus,
Perhaps an allegory would help demonstrate the point. There is a small island with a village on it. The island produces no food. There is no manufacturing on the island. All of the food and goods they need are imported. They run a very large trade deficit (all imports, no exports). In all, the trade deficit run 100,000 ounces of gold per year.
On this island lives a very wealthy family. This family owns businesses and investments on other island and other countries. These investments earn the family about 200,000 ounces of gold/yr. The family reinvests 100,000 ounces of gold/yr in their businesses and brings 100,000 ounces of gold back to the island. With this 100,000 ounces of gold, they pay their help on the island (cooks, cleaners, maintenence people, etc) and pay for goods from local shops on the island (who had to import them).
For this example, is there a problem running a trade deficit?
J-hawg states:
"If America is netting $250 billion per year, the one thing I know is we haven't really had an $8 trillion dollar trade deficit."
Yes, America is netting $250 billion dollars a year but this is foreign compensation to U.S. citizens,foreign interest and dividends and re-invested earnings on U.S. Direct Investment Abroad. Thus, this is not necessarily a return of capital to the U.S. or a net of capital (surolus) for the U.S.
in 2010, so many politicians were talking about seeing "made in america" stamped on our products, and it came straight from DNC headquarters and was repeated around the country, after being focus group and poll tested. It didnt reflect any actual legislative goals - just sound bites to get votes. Now Huntsman is repeating this line, which is not unexpected from him. when all else fails, make a cynical appeal to patriotism.
I sell products. Take a look - they all say "Made in USA" when made in this country. America isn't the proper name for the country when it comes to import/export and anything to do with customs or product origin, "USA" is the name of the country. The consultants probably decided "America" sounded better or was easier to say, and the politicians say whatever the consultants tell them to say. Until I hear another explanation, I'm sticking with that, but it's even more condescending if they consciously decided to be inaccurate with the name.
Comparing agricultural output to manufacturing output is comparing apples to oranges. In the 1920's, agriculture produced corn, wheat and soybeans and still does in the 2000's. Manufacturing has lost millions of textile, garment, shoe and other low value product job's. The US has replaced those millions of jobs with a few airplane, auto, and truck jobs. There has been a minor increase in productivity, but the major result is the hollowing out of a productive economy.
Since 1948, we've lost MORE farm jobs than manufacturing jobs, so couldn't you say that American agriculture has become hollowed out, too?
Gains in manufacturing productivity have been ENORMOUS, that's why we need fewer workers to produce MORE output. Just like farming.
Wouldn't the graphs also show the concentration of wealth into the hands of a very few? Not only in the hands of large "efficient" farms but also in the hands of consumers with big bucks to spend but who eat about the same as anyone else? I would add to this that efficient food is some of the less nutrient dense food in the world.
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