In an earlier post, I tried to raise some doubt about the assumption that US manufacturing was in decline. The crux of the issue was that the total real volume of US manufacturing had been steadily increasing since at least 1970, and so it would be unjustifiable to hold a negative view.
Meanwhile the unemployment trend was rising from 1950 to 1980 and then started falling at the same time as a major trade deficit with China had opened. Let's repeat that: US trade with China increased and unemployment decreased. This is the opposite of what most people assume.
So now we should ask, if the total amount of US manufacturing is not falling, then what is causing the trade deficit?
The US Congressional Budget Office studied this issue and reported on it in March 2000.
Here is a quote:
"In the early 1980s, the percentage of GDP accounted for by gross saving fell rapidly and was reflected in a widening gap between the supply of saving and the
demand for domestic investment.2 The declining share of saving had broad
consequences: the economy accumulated less capital and therefore grew more slowly
and paid workers lower average wages than it would have if the share had remained
higher. Inflows of capital from abroad partially filled the gap and permitted domestic
investment to exceed saving. Those inflows also created a trade deficit.
In effect, the Budget Office concludes that a severe decline in saving is the root cause of the trade deficit.
Get the original CBO report here http://www.cbo.gov/publication/12139
America’s trade deficit can be placed squarely at the doorstep of a business psychology absent of a long-term perspective in favor of immediate profits.
ReplyDeleteAmerican companies became slaves to price-earnings ratios and beholden to capital markets, by necessity, and our manufacturing base began to erode. Many companies turned east to hungry emerging markets in the Asia-Pacific. These highly motivated and energized countries with their cheap labor have become manufacturing powerhouses, sophisticated and savvy, capable of producing every imaginable product we need or dream of.
The solution is simple. American importers, supported by labor and government, must turn inward to the most talented, innovative and competitive manufacturing facilities in the world: “Made in America”. Brief Briefs