Wednesday, September 9, 2009

More on U.S. Manufacturing

In response to my post on lost jobs in manufacturing, I was asked to provide manufacturing output as a percent of US GDP.

What we see is a manufacturing sector that has been on the decline, relative to the broader economy, going on 60+ years. This in itself this doesn't mean much. All it means is the manufacturing sector has not grown as fast as the broader economy. In theory (ignoring everything else for the time being), this is logical. At a certain point, we should not be consuming goods (durable and non-durable) at a level that grows as fast as the broader economy. 20 years from now, do we really need to consume twice as much as we currently do? (Unless it means those not fortunate enough finally have the necessities that most of us take for granted, then no... we don't. )

But, our past few generations HAVE consumed that much more than previous generations (in fact consumption has grown substantially faster than the broader economy reaching more than 70% of GDP). To put this in perspective, one recent study showed that the average number of cars owned in the United States is now 765 vehicles per 1000 people (including every man, woman, and child), or about 5x more than the global average. So... the consumption was there. The manufacturing just happened to be done outside of the United States.

The chart below shows just that. Net export of goods (ignores services) as a percent of GDP, went from a small positive figure until the 1970's (i.e. we manufactured for the world), to a large negative figure since (i.e. we consume for the world).

So the answer to the question of decreased jobs in the manufacturing sector was likely three-fold:

  • Productivity increased
  • The manufacturing sector grew slower than the broader economy
  • The U.S. outsourced a large portion of that sector to other counties

Here's some additional perspective. The manufacturing sector now adds less to our broader economy then... wait for it... the government itself.

And while I understand that outsourcing is not really an option with regards to the government, shouldn't we expect the same productivity gains and slower growth (than the broader economy) from the government sector as the manufacturing sector?

Source: BEA


  1. Jake,

    You ask a great question: "shouldn't we expect the same productivity gains and slower growth (than the broader economy) from the government sector as the manufacturing sector?" You and I do. But many Americans want and even expect the government to do more and more and more to save us or serve us. Often the attitude seems to be just do it, productivity be damned and slower growth be banned.

    Many Americans want the government to save us from hurricanes and earthquakes, provide health care and retirement and unlimited education, ensure inexpensive energy, eliminate poverty, go over there to fight the bad guys, protect some industries from the rigors of competition, attack other industries for engaging in rigorous competition, bail us out of our own financial stupidity, shield us from risk and consequences, rescue us from our own mistakes, and on and on and on. In short, many expect government to run society. (And do so with lower taxes on them and higher taxes on the other guy.)

    Productivity gains and slower growth (than the broader economy) from the government sector? Apparently for many Americans those would be disastrous!

  2. Agreed. I think one thing people will learn from this recession that a government with a nearly $12 trillion debt can't "do it all."

    People need to rely more on themselves and each other, not big government or especially big business.

    Look for a continued increase in bartering, micro-lending and "jess helpin' each other out."


  3. Consider the gains in government services, like education and public health. From 47 till today we have doubled the number of high school graduates and tripled the number of college graduates. I am not sure how to measure public health, but life expectancy has certainly increased.

  4. Jack Astro,

    While I hope the U.S. government has had at least some positive impact on your examples, government is certainly not the major reason for these improvements. Some of these gains are due to continuing gains in wealth and quality of life as similar statistics can also be found in other countries around the world.

    Some of the numbers of graduates are simply due to population increase. Another portion is due to the curricula in high schools and colleges all over the U.S. being noticeably dumbed down over the decades. (Maybe this is where government has had a significant impact.) Grade inflation is well known. A high school education is no longer an accomplishment but a rite of passage. It is fairly easy to get accepted into many colleges and many programs are not very rigorous.

    Correlation is not the same as causation. Government is not the source of everything good.