Making Stuff

If’ you pay any attention to the things you are buying this holiday season, you’ve probably noticed that very little of it is made in the USofA.  That’s been true for an extremely long time – for many of us, our entire lives.  We simply don’t make much stuff in this country anymore.

We don’t have to speculate as to what that means over the long term because we have been living the long term.  We have run a net deficit against the rest of the world almost continuously for 30 years. Some have speculated that this is a good thing, as the rest of the world can make products cheaper than we can – why not run through their resources rather than our own?  The Depression that we are in, this Managed Depression, explains just how wrong that is.

But if you want some data to show the problem there is plenty.

I’ll start with this chart from the St Louis Federal Reserve – a treasure chest full of graphs for any economics geek.  It shows total manufacturing employment over the last 70 years:

There are several dramatic things here. First of all, there is indeed a real inflection point around year 2000, from which point we lost about 6 million manufacturing jobs (about 1/3 of the total).  Second, we have not had this few jobs in manufacturing since we were starting to gear up to fight WWII – when our population was much less than half what it is now.  But what is very chilling in this graph is that you can see that half the recent job loss occurred outside of the shaded “recession” times – it was a quiet loss of jobs, one that left manufacturing states like Michigan and Ohio behind long before the official “recession” started.

This is part of the reason why I believe that when we look back on this period economic historians will say that the Managed Depression started in 2001.

But why should we care?  While manufacturing jobs are decent paying, they aren’t the only ones out there where you can make a good living.  Does it matter that total manufacturing employment has hit the skids so badly?

Yes, it does matter, because of a simple formula:  GDP = C + I + G + E .

This is the ultimate balance of a nation over the long haul.  Gross Domestic Product, or the sum total of all the good and services produced, is equal to Consumption plus Investment plus Government Spending plus Exports.  That last term, which has been negative for a full generation, is what is pulling us down.  It is much more difficult for us to grow GDP as fast as we need to in order to create jobs – about 3.3% per year or more – if we are a net importer of products.

How can we increase manufacturing in the USofA?  The most obvious method is to reduce the net value of the US Dollar abroad.  That is what we are in essence doing through the quiet Currency War that has been brewing, with salvos of “Quantitative Easing” marking the skirmishes on the front lines.  But if we do this, the oil we import will only become more expensive, setting off a terrible inflation that will ease concerns about Deflation but wreck the rest of the economy.

A problem that has been allowed to fester this long – between 10 and 30 years – is not going to be fixed overnight.  But be assured that not making stuff in the USofA is a serious problem that demands attention.