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Los Angeles, California, United States
The blog 'Breaking Bread' is for a civil general discussion, like you might have at the dinner table with guests. The posts 'Economics Without the B.S.' are intended for a general audience that wouldn't have to know the difference between a Phillips Curve, a Laffer Curve, or a Cole Hamels Curve. Vic Volpe was formally educated at Penn State and the University of Scranton, with major studies in History, Economics and Finance, and Business; and, is self-educated since by way of books and on-line university courses. His practical education came from fifty years of work experience in the blue-collar trades as well as a white-collar professional career -- a white-collar professional career in production and R&D. In his professional career and as a long-haul trucker, he has traveled throughout the lower forty-eight. From his professional career alone he has visited many manufacturing plants in the United States, Europe and China. He has lived in major metropolitan areas and very small towns in various parts of the United States. He served three years with the U.S. Army as an enlisted man, much of that time in Germany.

Wednesday, January 2, 2013

Emphasizing manufacturing in our economy

Economics Without The B.S.**:

[**  Double entendre intended.]


Manufacturing: Part II - The case for emphasizing manufacturing in our economy
The Transformation Of The Economy
The economy we have did not fall from the heavens.  It is man-made.  We made it.  And we can change it.  Manufacturing used to comprise forty percent of our economy in the 1950’s and 1960’s.  Through the decades it has comprised less as our manufacturing capacity has been off-shored for one reason or another.  This was accelerated in the 1990’s as globalization and private equity for foreign investment had much greater impacts.  Even so, the United States with all its manufacturing problems is still the world’s leading manufacturing country in total dollar value of goods produced.  The ranking would change if the comparison were made by some other measure, like value of goods per capita (which I believe makes Japan Number One) or exports per Gross Domestic Product (GDP) (which I believe makes Germany Number One). 
I believe we are capable of increasing our manufacturing, where it is presently about nine percent of our GDP, to somewhere around twenty-five percent of our GDP – and not just increasing it in high tech sector goods requiring highly skilled workers but also increasing our output in what is perceived to be low skilled jobs.  We still have a lot of capacity for manufacturing in the U.S. regardless of high skilled labor or low skilled labor.  We have a very competitive workforce at all skill levels.  The idea that the long-term trend of U.S. manufacturing’s decline as a part of our modern, global economy is irreversible is sheer nonsense.  This economy we have was made by us; and, it can be changed and improved by us.
The restructuring of our economy to fit an “efficiency model” that resulted in the denigration of manufacturing only served to benefit a few in our society and not the greater community.  This model achieved its efficiency by hollowing out corporate structures that were hierarchal and flattening them, resulting in a corporate mentoring system that was vanished and passed on to educational institutions to train, and a corporate institutional knowledge base that got lost without its historical bearings.  These “efficiency models” only benefited investors and senior executives.  They did not benefit the broader workforce whose efforts also contribute to make enterprises productive and profitable.  Not to mention the harm that comes to communities when such restructuring occurs and affects families that reverberate on the small businesses that help to provide constancy.  This “efficiency model” promoted by investors enhances the flight of capital which is euphemistically called the “free flow of capital globally”.
There is another aspect to this problem of why the manufacturing sector of our economy has been in decline for several decades now.  And that is that manufacturing has been looked at as dirty, noisy, and a blight upon our communities and neighborhoods during an era when white-collar jobs were proliferating in comparison to blue-collar work, safety in the workplace was receiving more emphasis than before, environmental concerns were being addressed like never before, and suburbanization of our nation was displacing the industrial urbanization we had known with resulting homogenizing of living communities that were by-and-large displaced from where you actually worked and where housing developments more nearly reflected income status.  This negative outlook on manufacturing has a bit of a moral dimension to it because many of the products we use come from a manufacturing process which can be harmful to the health of workers or even the immediate community where the manufacturing plant is located.  With OSHA and EPA regulations in effect in this country, off-shoring manufacturing facilities and processes can circumvent the regulatory environment in more stringent nations by placing them in countries where requirements are either non-existent, more lax, or altogether not enforced.  And when this goes on out-of-sight, then it is out-of-mind.  It is like sending your dog over to your neighbor’s yard to defecate.
So trying to make the manufacturing sector the star of our economy when it has such a dim luster in our outlook is quite a challenge.  But we do have huge fiscal deficits to overcome, a social safety net that needs to be rectified, and income inequality in our society that has not been seen for over one-hundred years and needs to be put in balance to restore a middle-class political economy.  And the best way to do this is by an accelerated growth strategy for our economy.  And the best way to get this acceleration in growth is with emphasis on increasing the manufacturing sector of our economy.
Increasing our manufacturing sector as an overall part of our $16 trillion economy is important right now because of the concerns we have with our fiscal affairs and what effect federal budget considerations will have on our society, our national security, and our national standing and competitiveness in the world.  Right now we are a consumer economy based on service sectors, which have multipliers of half that and less than the manufacturing sector.  Real wages for working people have not kept up with the national productivity gains over the decades and many working people have high consumer debts.  Middle class and low income wage earners are tapped out on debt and the housing recovery will take several more years to benefit these consumers.  Cutting taxes will not have the stimulus effect needed to propel the economy forward because of the hallowing out of the middle class and an income tax burden that is mainly on upper income individuals.  President Bush 43 found that out with his tax cuts resulting only in a mild recovery – eight million jobs created compared to over twenty million during the 1990’s under President Clinton.  During the Clinton years, with his tax increase and holding the line on federal spending showing some discipline for handling the deficit, this helped private investment because we went from a high interest rate environment to lower interest rates.  We had an accommodating Fed, making money available, and private investment swelled.  During Bush 43 and Obama we were never in an interest rate environment where the change acted as a stimulus to investment on a large enough scale to propel the economy forward.  After the 2008 financial crisis, the $700 billion stimulus under President Bush, with another one under President Obama, had little effect other than to put a halt to the downward slide in GDP but a failure to propel growth like we had in the 1980’s under President Reagan or the 1990’s under President Clinton.  Increasing our exports and jiggering trade policy does not do much when only nine percent of the economy is manufacturing.  Providing tax incentives for investment will help, but will not propel our economy forward.  We need to get beyond status quo politics and policies.  We need transformation.
Go to the next link, Manufacturing Part III, for more on transforming the economy.

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