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Title: History lessons: Understanding the decline in manufacturing
Source:
soso
URL Source: https://www.minnpost.com/macro-micr ... standing-decline-manufacturing
Published: Feb 19, 2016
Author: Louis D. Johnston, MinnPost
Post Date: 2016-02-19 13:01:40 by SOSO
Keywords: None
Views: 2372
Comments: 28
History lessons: Understanding the decline in manufacturing Email logo Email Share logo Share Tweet logo Tweet Print logo Print By Louis D. Johnston | 02/22/12 . American factory REUTERS/Adam Fenster U.S. industrial decline is a long-run phenomenon and will not be reversed by short-term fixes. New ideas for reviving American manufacturing seem to appear every day. Many of these notions have merit, but most are built on a flawed premise: that the decline in U.S. factory jobs is a recent occurrence, one that can be reversed through tax cuts or trade policy. Unfortunately, U.S. industrial decline is a long-run phenomenon and will not be reversed by short-term fixes. Let’s take a look at the trends and their implications. The really long run Economists traditionally classify economic activity into three sectors: agriculture (including forestry and fishing), industry (including mining, construction, and manufacturing) and services (all activities not included in either agriculture or industry.) You probably have a story in mind about what these data will tell us. The United States was primarily an agricultural economy through the 19th century; then, industry swept the landscape in the late-19th and early 20th century — with America standing as the industrial powerhouse of the world by the 1950s. Things stayed this way until the late-1970s and 1980s, when we first lost our edge to the Japanese, then to the Chinese, and have now become a service economy that doesn’t produce stuff. This story isn’t quite right. Let’s start with where people worked. The graph below shows the distribution of the labor force in agriculture, industry and services from 1840 to the present. The part of the story about agriculture is clearly true: Beginning in 1840 at roughly 70 percent of the labor force, agricultural employment fell to about 40 percent in 1900, 10 percent in 1950, and remains at about 2 percent today. Next, let’s examine the service sector. Here’s where the surprises begin. In terms of employment, the second largest sector was services, not industry. In fact, service employment exceeded industrial employment throughout American history. Looking at industry, the closest that sector got to services was in 1880! A similar story emerges when we look at output produced in agriculture, industry and services. Again, the agricultural sector originally accounted for the largest share of output, but services caught up and exceeded agriculture by the 1880s. Industrial production kept pace until 1910, but after that services pulled ahead and never looked back. Since 1950, the share of output produced in industry has steadily declined, falling from about 40 percent of output to about 25 percent today. The story since World War II Let’s zero in on the period since World War II. To keep things focused, I’ll make three changes to our perspective. First, some might argue that the rise in service employment and output shown above is caused by the growth of government. I’ll focus on private-sector employment and output to see if increasing service employment and output is a product of expanded government or is the result of private-sector changes. Second, I’ll combine agriculture and industry into one goods-producing sector, and then compare that with services. Here’s what we get in terms of employment: Since World War II, the share of private employment in goods production (including manufacturing) has steadily declined from just short of 50 percent to just fewer than 20 percent. The output data look much like the employment data. Just like employment, the share of goods production (including manufacturing) in GDP has steadily declined while the share of services in GDP has steadily risen. A tale of two causes To understand the long-run decline in industry, we need to look at the periods before and after World War II separately. Before World War II, the service sector grew because we got richer. Think about it: From domestic servants to waiters, blacksmiths to cobblers, and barbers to bankers, Americans have always been engaged in a variety of service activities. And, as the American economy grew and average incomes increase, Americans increased their demand for meals, repairs, grooming and financial services. Thus, more and more workers were pulled into the service sector by this increasing demand. When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector. This meant that we needed fewer industrial workers and thus many workers were pushed out of industry. At the same time, we were still getting wealthier and demanding more services, and slow productivity growth in this sector meant that to provide these services it had to pull in the workers shed by industry. Both push and pull forces were present in both periods. But, pull factors (i.e., the increased demand for services) was the predominant cause of decreasing industrial output and employment before World War II while push factors (i.e., rapid productivity growth in industry and slow productivity growth in services) dominated after the war. Implications for policy The decline in manufacturing output and employment is a long-run phenomenon, not just a short-run problem. This means that policies designed to boost manufacturing need to be designed with this long-run trend in mind, and not just react to problems of the last 10 to 20 years. Neither tax cuts nor tougher trade policy address the demand for more and varied services, nor will they address the relatively slow productivity growth in the service sector. Poster Comment: A somewhat dated article but worth revisiting if no other reason to invite informed updated discourse.
chart of distribution of labor force by sector from 1840-2010 Source 
chart of distribution of output by sector from 1840-2010 
Chart of private sector employment as % of total employment 1948-2010 Source: Bureau of Economic Analysis, National Income and Product Accounts 
Chart of private sector output as % of GDP 1948-2010 Source: Bureau of Economic Analysis, National Income and Product Accounts
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#1. To: All (#0)
This story isn’t quite right. This is a good place to start for indeed that story isn't quite right. But what about this story? "A tale of two causes To understand the long-run decline in industry, we need to look at the periods before and after World War II separately. Before World War II, the service sector grew because we got richer. Think about it: From domestic servants to waiters, blacksmiths to cobblers, and barbers to bankers, Americans have always been engaged in a variety of service activities. And, as the American economy grew and average incomes increase, Americans increased their demand for meals, repairs, grooming and financial services. Thus, more and more workers were pulled into the service sector by this increasing demand. When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector. This meant that we needed fewer industrial workers and thus many workers were pushed out of industry. At the same time, we were still getting wealthier and demanding more services, and slow productivity growth in this sector meant that to provide these services it had to pull in the workers shed by industry. Both push and pull forces were present in both periods. But, pull factors (i.e., the increased demand for services) was the predominant cause of decreasing industrial output and employment before World War II while push factors (i.e., rapid productivity growth in industry and slow productivity growth in services) dominated after the war." A much better story. But is it still not quite right? потому что Бог хочет это тот путь
To help answer that question the following info is useful to look at the chart at this link http://www.russellsage.org/sites/all/files/chartbook/Income%20and% 20Earnings.pdf It tells us that from 1950-1965 individual median REAL income increased less than 20% from about $16,000 to 19,000 while family median REAL income increased about 60% from about $30k to $51K (about 2 1/2 times higher than individual income in 1965). By 1980 individual median REAL income was $20k while family median REAL income was about $62K (over 3 times higher than individual income) . What accounts for this? потому что Бог хочет это тот путь
Give this history is Trump right about trade?
потому что Бог хочет это тот путь
I would say he is right. When we reduced the manpower required to feed our nation, we still fed our nation. We did not outsource farming to the Pampas. We fed ourselves more efficiently. With manufacturing the opposite has occurred, in fact in just about all cases it takes more man hours to produce goods overseas than it takes here. The man hours that produce a ton of steel in China would produce 10 tons in America. Even in the extreme case that every manufacturing job was replaced by robots, we would be better off to make sure the robots were here. Increasing labor productivity in manufacturing is nothing new, folks like Henry Ford, Frederick Taylor and the Gilbreths busied themselves with that a century ago. Over the production run of the Model T the price of the car went down, the wages paid to the workers went up. Improving labor productivity is a good thing, and it is not the same thing as outsourcing abroad. With food there is only so much to be consumed, with manufacturing you can create new wants as the ability to produce improves. Non auro, sed ferro, recuperando est patria
The author is simply focusing on productivity. The percentage of workers in agriculture, for example, is at an all-time low but actual production is at an all-time high.
Between 1929 and 1939, this is not true.. And during the war, the service sector declined massively, as labor was diverted to manufacturing war goods. ? ----- This simply isn't true, in my experience. Demand for both products and services was huge after the war, and remained high until the late 60's when things started to slow down. The end of the war in Nam marked the end of the era. Our industrial base was abandoned by the idiotic idea that we could let the rest of the world do the 'dirty work' while a service economy employed all the 'lower classes' in the USA. The above bull was written by the same type who dreamt up the 'service economy' crap.
Both sentences are generally false in the big picture. The first takes a myopic view, a parochial view of productivity and cost efficiency in the finished, consumed cost of production. A fundamental tenet of macro- economic theory is that resources should flow to the most efficient places that produce a good or service. In the past in the U.S. that was a mix in the manufacturing sector, as with agriculture, that favored capital over labor. In China it is more the opposite. All things equal investment should flow to where the TOTAL cost of production (i.e. - capital, labor, transportation, marketing, regulatory, social, environmental) is the least. For the past few decades that has tipped the scale in favor of China et.al. Capital has left the U.S. because the cost of producing and consuming a pound of X has been less to produce it outside the U.S. than within the U.S. Now I agree that it can be appropriately argued, and should be, that social and environmental factors have not been and still are not being accurately "priced" into the cost of the finished products and its consumption but that is a separate argument. As for food, you have to be blind not to recognize that on a global basis we are nowhere near the amount of food that can be (need be, should be) consumed. The more people that have an adequate amount of food the more people you will have (e.g. - infant mortality rates will decline, life expectancies increased, people will have more babies, etc.) I remind you that there have been and still are many, many loud voices from the Nazi Greens and greedy leftist elites arguing for, if not demanding, world population control. But almost all economic theories breakdown at the boundaries or extremes. For example, if it were possible for the U.S. to produce all the food the world demands at the lowest delivered cost to the respective point of consumption anywhere around the globe by becoming a mostly agrarian economy again, should it? Would it? Would other countries allow that to happen within their respective society? I think that we would agree that the answer to all three is decidedly no. But what if China could supply the world demand for TVs at the lowest delivered and installed cost around the globe? Would we, the U.S., buy all of our TVs from China? Should we? Would the PTB in the U.S. allow that to happen? Then the answers become less certain as there will be others, perhaps many or even the majority of those, that may say yes. An embargo on being able to replace your TV is much less an issue than an embargo on all of the food you need to eat to sustain life. So as pretty much with all things in life, its balance, grasshopper, balance. потому что Бог хочет это тот путь
OK, I am open to learn. Please document the data from reputable sources that support you claim. "Our industrial base was abandoned by the idiotic idea that we could let the rest of the world do the 'dirty work' while a service economy employed all the 'lower classes' in the USA." That is your opinion. Opinion does not make something a fact. Clearly the growing cost of regulation in the U.S. helped chase capital away from the U.S. The following data should be helpful in this discussion. That couple with CPI data from the following link http://www.usinflationcalculator.com/inflation/consumer-price-index-and- annual- percent-changes-from-1913-to-2008/ will give a factual basis for making analyzes and informed judgments. потому что Бог хочет это тот путь
I should also have included similar data on U.S. Imports ans U.S. balance of payments. So here it is. Note that the Balance of Trade chart above is in real 2000 dollars. The data below shows that the U.S. except for 1973 and 1975 has been a net importer as measured in U.S. dollars since 1971 and the deficit first ballooned in 1983- 1984 and especially then again since 1998-1999. It is informative to look at the trade deficit since 2000 in the chart below, particularly the spike right around 2008 and subsequent decline. We are now at a larger deficit than we were in 2002-2003. Some of the fluctuation is due to the ups and downs of the U.S. dollar in world currency markets as shown below but not for about +/- 30% and more like +/-12% since 2008. Draw your own conclusions. потому что Бог хочет это тот путь
What you have to understand is decline in currency values follows the balance of trade, If you owe money your currency is worth less. The shame of is you have dragged the rest of us along with you. This decline isn't obvious because currencies are comparing themselves with each other and not against purchasing power or currencies outside the system but you have nothing to worry about as my own currency has seesawed to $1.10 against the US and is now at $0.70 and may decline to $0.60 where it was ten years ago. However inflation hasn't taken over even though you have managed to infect our economy with your decline. I think I would like to paraphase a sentence from Ben Hur "when america falls there will be a shout of freedom such as the world has never seen"
Between 1929 and 1939, this is not true.. And during the war, the service sector declined massively, as labor was diverted to manufacturing war goods. ? ----- This simply isn't true, in my experience. Demand for both products and services was huge after the war, and remained high until the late 60's when things started to slow down. The end of the war in Nam marked the end of the era. My opinion disputes the opinion made in the article. And again, imo, none of the graphics you posted disprove my statement. "Our industrial base was abandoned by the idiotic idea that we could let the rest of the world do the 'dirty work' while a service economy employed all the 'lower classes' in the USA." Of course it's my opinion. In turn, you opinion of my opinion does not make a fact. Yep, I have no doubt overregulation contributed to losing our industrial base.
Which is amazing to me.. Why haven't we all had inflation? -- Anybody got the answer? Imo, the USA is not solely to blame for the current economic decline. Rome indisputably ruled over the western world of its day. -- To claim that we rule over the world is idiotic.
What is your country's currency? потому что Бог хочет это тот путь
So reputable data has no place in the forming of your opinions? потому что Бог хочет это тот путь
Zero interest rates in the US everyoneelse is forced to participate in a race to the bottom. Interest rates are one of the components of inflation, but the world is swamped with cheap money. You might have noticed commodity prices have come off a long way, thereby stabilising or lowering input costs and with unemployment wages are lower, another input cost. A better question is why hasn't this environment promoted growth?
The Australian Dollar
The Australian Dollar And you believe that the variations in your currency are slowly due to the U.S.? потому что Бог хочет это тот путь
It could totally be revitalized by trade policy. Totally. No Doubt. 100 percent certain. A sure thing.
Not all but the worst are US influences. The $1.10 high is the effect of quanitative easing which lowered the value of US currency and gave the US a competitive advantage It would be necessary to chart the currency against significant events but I watch the currency bounce around in response to movement in the DOW and uncertainity in your economy. You would think there should be no impacts but what effects your currency can cause movement in ours. your relationship with China has impact also as does ours
This article, and the posts supporting it, is one of the most superficial and evasive pieces of tripe I've ever read.
It could totally be revitalized by trade policy. To what? потому что Бог хочет это тот путь
Quite the contrary, I understand quite well the nature of the highly interconnect global financial markets and Newton's Law of action and reaction. потому что Бог хочет это тот путь
Please enlighten us all as to the truth, as you see it. Tell us exactly why the U.S. transformed from an agrarian economy to a manufacturing economy to a service economy. But perhaps you believe that this evolution too are superficial and evasive pieces of tripe that never really happened? потому что Бог хочет это тот путь
? ----- This simply isn't true, in my experience. Demand for both products and services was huge after the war, and remained high until the late 60's when things started to slow down. The end of the war in Nam marked the end of the era. My opinion disputes the opinion made in the article. And again, imo, none of the graphics you posted disprove my statement. Silly answer. Seeing that IN MY OPINION, none of the REPUTABLE graphics you posted disprove my statement. Happy now?
Happy now? No. Your statement is "Our industrial base was abandoned by the idiotic idea that we could let the rest of the world do the 'dirty work' while a service economy employed all the 'lower classes' in the USA." Explain what you mean by dirty work. Tell me whose idea was this and how was it implemented. Do both with data, facts, evidence not pure opinion or conjecture as the latter are arguments built upon sand and worthy of immediate dismissal. You present yourself as a General Custer type of person who ignored every factual sign that there really are a formidable lot of Indians down there but not in his opinion. потому что Бог хочет это тот путь
Happy now? Producing raw materials and the heavy manufacturing industries, of course. Hell, we're now at the point where many light manufacturing industries are being 'outsourced' Imo, it was formulated primarily by financial types who still seem to believe that wealth is produced by manipulating money, instead of producing goods, and implemented by unscrupulous politicians. Sorry, but in my opinion, your wishes are not my commands. You present yourself as a general hoople type, who somehow thinks he has a mission in life to order others about. Get over yourself..
Producing raw materials and the heavy manufacturing industries, of course. Hell, we're now at the point where many light manufacturing industries are being 'outsourced' You still are not clear. Are you referring to the environment or to dirty hands? ". "Do both with data, facts, evidence not pure opinion or conjecture as the latter are arguments built upon sand and worthy of immediate dismissal. Sorry, but in my opinion, your wishes are not my commands." Sorry but you weaseling IS a sign of a commanding inability to support your opinions and a extremely significant sign that there is no factual support or evidence for them. "You present yourself as a general hoople type, who somehow thinks he has a mission in life to order others about. Get over yourself." Ahhhh....is da wittle baby's feelings hurt? What if I say "pretty please with sugar on top, Do both with data, facts, evidence not pure opinion or conjecture", would that make the boo boo better? потому что Бог хочет это тот путь
You present yourself as a general hoople type, who somehow thinks he has a mission in life to order others about. Get over yourself.. Your baby talk, while amusing, is too weird. Find someone else to pester.
You probably have a story in mind about what these data will tell us. The United States was primarily an agricultural economy through the 19th century; then, industry swept the landscape in the late-19th and early 20th century — with America standing as the industrial powerhouse of the world by the 1950s. Things stayed this way until the late-1970s and 1980s, when we first lost our edge to the Japanese, then to the Chinese, and have now become a service economy that doesn’t produce stuff.
#2. To: All (#1)
A much better story. But is it still not quite right?
#3. To: Stoner, nativist nationalist (#0)
#4. To: SOSO (#3)
Give this history is Trump right about trade?
#5. To: SOSO (#0)
#6. To: SOSO (#1)
-- what about this story? --- "A tale of two causes ----------- To understand the long-run decline in industry, we need to look at the periods before and after World War II separately. ------------------- Before World War II, the service sector grew because we got richer.
Think about it: From domestic servants to waiters, blacksmiths to cobblers, and barbers to bankers, Americans have always been engaged in a variety of service activities. And, as the American economy grew and average incomes increase, Americans increased their demand for meals, repairs, grooming and financial services. Thus, more and more workers were pulled into the service sector by this increasing demand.---- When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector.
This meant that we needed fewer industrial workers and thus many workers were pushed out of industry.
At the same time, we were still getting wealthier and demanding more services, and slow productivity growth in this sector meant that to provide these services it had to pull in the workers shed by industry. --- Both push and pull forces were present in both periods. But, pull factors (i.e., the increased demand for services) was the predominant cause of decreasing industrial output and employment before World War II while push factors (i.e., rapid productivity growth in industry and slow productivity growth in services) dominated after the war.
#7. To: nativist nationalist (#4)
Improving labor productivity is a good thing, and it is not the same thing as outsourcing abroad. With food there is only so much to be consumed, with manufacturing you can create new wants as the ability to produce improves.
#8. To: tpaine (#6)
This simply isn't true, in my experience. Demand for both products and services was huge after the war, and remained high until the late 60's when things started to slow down.
#9. To: tpaine, Willie Green, A Pole, paraclete, All (#8)
#10. To: SOSO (#9)
Draw your own conclusions.
#11. To: SOSO (#8)
article -- Before World War II, the service sector grew because we got richer.
art. --- When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector.
OK, I am open to learn. Please document the data from reputable sources that support you claim.
That is your opinion. Opinion does not make something a fact.
Clearly the growing cost of regulation in the U.S. helped chase capital away from the U.S.
#12. To: paraclete, Y'ALL (#10)
my own currency has seesawed to $1.10 against the US and is now at $0.70 and may decline to $0.60 where it was ten years ago. However inflation hasn't taken over.
--- even though you have managed to infect our economy with your decline.
I think I would like to paraphase a sentence from Ben Hur "when america falls there will be a shout of freedom such as the world has never seen"
#13. To: paraclete (#10)
my own currency has seesawed to $1.10 against the US and is now at $0.70 and may decline to $0.60 where it was ten years ago.
#14. To: tpaine (#11)
And again, imo, none of the graphics you posted disprove my statement.
#15. To: tpaine (#12)
Which is amazing to me.. Why haven't we all had inflation? -- Anybody got the answer?
#16. To: SOSO (#13)
What is your country's currency?
#17. To: paraclete (#16)
What is your country's currency?
#18. To: SOSO (#0)
that the decline in U.S. factory jobs is a recent occurrence, one that can be reversed through tax cuts or trade policy.
#19. To: SOSO (#17)
you believe that the variations in your currency are due to the U.S.?
#20. To: SOSO (#0)
#21. To: A K A Stone (#18)
that the decline in U.S. factory jobs is a recent occurrence, one that can be reversed through tax cuts or trade policy.
#22. To: paraclete (#19)
You would think there should be no impacts but what effects your currency can cause movement in ours.
#23. To: rlk (#20)
This article, and the posts supporting it, is one of the most superficial and evasive pieces of tripe I've ever read.
#24. To: SOSO (#14)
art. --- When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector.
OK , I am open to learn. Please document the data from reputable sources that support you claim.
So reputable data has no place in the forming of your opinions?
#25. To: tpaine (#24)
Seeing that IN MY OPINION, none of the REPUTABLE graphics you posted disprove my statement.
#26. To: SOSO (#25)
No. Your statement is "Our industrial base was abandoned by the idiotic idea that we could let the rest of the world do the 'dirty work' while a service economy employed all the 'lower classes' in the USA." ----- Explain what you mean by dirty work.
Tell me whose idea was this and how was it implemented.
Do both with data, facts, evidence not pure opinion or conjecture as the latter are arguments built upon sand and worthy of immediate dismissal.
You present yourself as a General Custer type of person who ignored every factual sign that there really are a formidable lot of Indians down there but not in his opinion.
#27. To: tpaine (#26)
Explain what you mean by dirty work.
#28. To: SOSO (#27)
You present yourself as a General Custer type of person who ignored every factual sign that there really are a formidable lot of Indians down there but not in his opinion.
Ahhhh....is da wittle baby's feelings hurt? What if I say "pretty please with sugar on top, Do both with data, facts, evidence not pure opinion or conjecture", would that make the boo boo better?
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