Thursday, April 21, 2011
Manufacturing employment provides a critically-important wealth-creation effect (also referred to as the value-added effect). Manufacturing employment enriches the economy.
In manufacturing, materials and components of relatively lower value are assembled into finished goods which are of higher value and which people are prepared to pay for and use.
Over the last 50 years, America has voluntarily transferred millions of manufacturing jobs to foreign countries. The result is that we have lost a large portion of the wealth-creation effect, and ALSO we have lost tax revenue, i.e., income tax paid by manufacturing workers.
The further result is that America, a large net exporter in 1960, is now a large net importer of manufactured goods, in the amount of half a trillion dollars annually.
So now the American economy is in bad shape. Everyone knows that. But it is not enough that America is suffering huge government deficits and huge unemployment. In addition, America is suffering from censorship which prevents mention or discussion of the real cause of our economic problems, namely the facts presented above.
People in the media, whether commentators, columnists, analysts, appear only too happy to cooperate with the censorship. They cooperate by inventing fantasy explanations as to how we got to the economic situation of today. These fantasies are a huge disservice because they distract from meaningful discussion that could lead to understanding and improvement of the situation.
Fantasy Explanation 1: The cause of our economic problems is people living too high and consuming too much of the nation's wealth. (See also previous post.)
Fantasy Explanation 2: Manufacturing employment is lower because American manufacturing has become so much more efficient.
(Other Fantasy Explanations are also circulating.)
The simple facts in answer to Fantasy Explanation 1: Rather than the Fantasy Explanation, isn't it much more likely that wealth has disappeared due to sending wealth-creating jobs to foreign countries? Isn't it much more likely that wealth has disappeared because we now have to send out half a trillion dollars every year to foreign countries to pay them for doing our manufacturing, while our workers stand in line at unemployment offices?
The simple fact in answer to Fantasy Explanation 2: Yes, agreed, our manufacturing sector is more efficient. But this is only one component of the situation. More generally, if our manufacturing sector is so efficient, why do we have to import on a net basis manufactured goods valued at half a trillion dollars annually? This net importation is a direct measure of the amount of manufacturing employment that has been transferred to foreign countries.
Our politicians in Washington are engaged in a huge effort to cut government deficits. They are looking only at domestic expenditures, thus missing the really important issues.
If the government wastes money by paying too much for highway construction, or pays for highways to nowhere, at least the money remains in the country, unless of course the contractor uses his profits to buy Chinese-made goods!
However, money sent out of the country to foreign companies and foreign countries is gone forever, never to be seen again.
Clearly, there is a huge difference between domestic expenditure and foreign expenditure. Foreign expenditure is much more damaging to the economy and the nation, in comparison with domestic expenditure.
Our shocking total of money going out of the country is one trillion dollars per year:
+ Negative balance of trade in manufactured goods of half a trillion dollars per year, as mentioned above
+ A further half trillion dollars per year made up of debt service on U.S. treasury securities purchased by foreign countries (using the money we have sent them!); local purchases of fuel and other supplies to support wars in Afghanistan, Iraq, and Libya, and to support military bases in over 100 other countries; local purchases of services and supplies, and hiring of local staff, for embassies and consulates; purchases of foreign oil; costs of operating our spy program; and undoubtedly other items.
If politicians want to cut, the place to start is our foreign expenditures. Keep our money at home, and keep it working in the domestic economy.
Our economy and our nation will continue to go down and down if we don't cut our foreign expenditures. A hemorrhage of one trillion dollars annually is more than our nation can stand.
To make the situation more comprehensible, we can truthfully say that the foreign hemorrhage is over $2500 per year for every man, woman, and child in America. This is not a theoretical quantity coming from economic analysis. This is real physical money, and real physical wealth, going out of our country, never to be seen again.
One further point as a general comment and also in further rebuttal to Fantasy Explanation 1. In Economics 101 the principle is presented that if Country A is in unfettered trade with Country C, and the standard of living in Country A is initially higher, then over time the standard of living in Country A will move down toward equalization with that of Country C. Obviously all of our presidents, senators, and House members over the last fifty years sat through Economics 101 without learning anything, If they had retained the information and applied it in their daily work in government, we would not be in a big economic mess now.