The State of the Union: On What Planet?

What planet was this guy talking about?

All this talk about manufacturing. Old-time rustbelt liberals have an infatuation with this word “manufacturing.” It’s so Twentieth Century; reflecting the notion that making things you can drop on your foot is the only kind of productiveness that’s “real,” that otherwise you have some sort of mirage economy.

It’s a fundamental mistake. What determines marketplace value is people’s willingness to pay – whether it’s for a tangible manufactured item or, equally, an intangible that “merely” makes them feel good (a song, for example). Production of either creates equivalent economic value.

 America still actually does quite well in manufacturing; our output continues to rise. But we’re doing it with ever less labor, because of technological and productivity advancements. That’s a good thing, the basic source of worldwide improved living standards. Once, it took almost the entirety of available human labor just to feed ourselves. Raising farm productivity enabled us to shift a lot of that manpower to making other things, thus expanding wealth. Now we can manufacture what we need with less labor too, empowering yet a further shift of human effort toward other endeavors, in services and intangibles, likewise growing our wealth. Thus (like farming before it) manufacturing’s importance in the world economy, and as a source of jobs, inexorably diminishes.

And anyway, manufacturing is not our “comparative advantage,” by which economists refer to what a nation does best. It’s the other stuff, where creativity reigns, that can keep America on top. Our future does not lie in manufacturing, and the President’s fixation on it is just wistfulness for a past that isn’t coming back.

He also continues to bleat about “sending jobs overseas.” It’s the same misguided mentality. America’s businesses can’t employ anybody if they can’t stay competitive by keeping costs as low as possible in a global economy. And America’s long term economic health is not served by attempting to keep people employed at high wages doing things that other nations can do more cheaply. That must fail. We have to be doing stuff that’s better or more valuable than what other nations can do, capitalizing on what is again our true competitive advantage in creativity.

Obama also keeps emphasizing economic inequality and unfairness. Well, life is unfair, but that’s not our real economic problem. That some people are doing very well is not the cause of other people struggling, nor is it that the former don’t pay enough taxes. Nobody pays enough taxes – not if we’re to continue spending as we do.

Actually, taxes high enough to sustain that spending level would cripple the economy, so that wouldn’t be sustainable either. I have confidence in the ability of America’s people and businesses to be economically productive and competitive, but that will be cut off at the knees if we can’t get a grip on out-of-control spending and ballooning debt. About this, the President was conspicuously silent.

All in all, Obama had much to say about things that aren’t our real problems, and nothing to say about the things that are.

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6 Responses to “The State of the Union: On What Planet?”

  1. Alfredo De La Fe Says:

    The problem with intangible “products” is that they can easily be moved. Manufacturing by its nature requires a great deal of effort and a high cost associated with a move.

    As you point out in your next blog post, our education system is lacking. My sister was learning algebra in elementary school in Colombia while it was not required in HIGH SCHOOL in New York City at the time.

    All of the services jobs that are shoring up our economy can be easily replaced by cheaper (and MUCH smarter) labor overseas. So I would agree that manufacturing jobs are a vital part of the US economy, especially as our nation loses it’s competitive edge as far as an educated pool of workers is concerned.

    [FSR comment: Your last sentence says it all. If our chief criterion for what to emphasize in our economy is what can’t physically go someplace else, because we don’t think we can compete, we will wind up a low-wage ghetto. That is exactly what’s so sad about Obama’s approach.
    Anyway, manufacturing is quintessentially something that CAN be done anywhere in the world. For services, not necessarily: you can’t outsource haircuts or plumbing or restaurant meals, etc!]

  2. Alfredo De La Fe Says:

    Frank, the services you site are services which support a local population and which require very little skill.

    Technical support, customer service, IT implementation and training and even architect design are all being outsourced. I foresee services such as radiology reports and dianostic services being outsourced in the not so distant future as our medical schools continue to fall behind medical schools in much of the world.

    You cant outsource a haircut, but you can outsource the merchant services he receives, customer service for his telephone, electric and other services as well as the collection of his rent. In some places, his taxes are in part managed by someone sitting in India or some other part of the world.

    [FSR comment: Why do you consider acceptable that we fall behind in competitiveness? The answer is not to concentrate on work that cannot be done elsewhere; it’s to do work that meets international standards for competitiveness. We can’t keep high employment in America otherwise; there just ain’t enough blue collar manufacturing that will accomplish that for us, and we don’t want our whole nation on blue collar incomes either. We can do better.]

  3. Alfredo De La Fe Says:

    Frank, the problem is that our entire system and way of life is not wiring people to be competitive! We have developed the “union mentality”. It’s OK to get paid a LOT for doing little or for doing something that I should be paid a fraction of what I get paid to do. The “entitlement” attitude that is drilled into us at every stage of life is a slow acting poison.

    Besides, no matter how competitive our skill set becomes, it can be matched elsewhere at a TINY fraction of the cost. For example- I could hire a entry-level programmer here in the US at 60K per year, plus benefits, double FICA, etc.- which translates to a minimum of 80K a year OR I could hire a top notch programmer out of India for 12K a year, which includes someone managing them for me locally in India. Which of the two should I have gone for?

    The guy making 12K a year lives quite comfortably. He has a house, a car, takes vacations, has more paid “federal holidays” than we do and appreciates his job. He regularly volunteers to stay late just to get things done and would not hear of getting paid extra to do what he feels is his responsibility anyway. I had to FORCE him to take off two days when he wasa injured and I was unsuccessful at getting him to take a full day off when his father-in-law passed away. He came in to work in the afternoon ANYWAY, because he was raised to believe that you take care of your job.

    The guy making 60K complains all of the time, barely puts in a days work because he feels he is under paid, takes many sick days, does a half assed job because he wants to build in job security and has a sense of entitlement- demands additional benefits because he USED to have full dental (before the dot com bubble burst).

    I have had BOTH. Let me tell you, I will NEVER hire the 60K “guy” again.

    [FSR comment: Great. So what’s the answer? Tout US manufacturing, as Obama and the Dems imagine? I don’t think so. Thomas Friedman’s latest column makes the point that in today’s global economy “in” and “out” sourcing are becoming meaningless words — stuff is done where it’s done best. America’s comparative advantage in the world economy, if it has one, lies in creativity, and that’s where the greatest rewards are. So I repeat: a prosperous future for Americans does not reside in metal-bashing or assembly lines. That’s a path to national decline.]

  4. Alfredo De La Fe Says:

    Frank, “where it’s done best” is nothing more than a propaganda statement. I have seen what happens when manufacturing goes overseas.

    A US Manufacturer with very high quality control standards that manufactured telecom equipment closed their US factories and outsourced it to a place “where it’s done best”. I went from having ZERO “out of box” failures (something new is broken right out of the box) to over 50%. To this day, almost a decade later, I still find that more than 25% of the products purchased new fail within the first two years. (On the other hand, the US made products are still running flawlessly and previously manufactured items have been in continuous operation for more than 20 years)

    That statement should read “where it’s done cheapest”. In reality, the problem is much deeper. One of the problems is that the focus has changed from the long term interests of a company to the short term gains of investors; among other flawed changes in philosophy.

    The theory that “Greed” and capitalism go hand in hand is flawed. In this case there is plenty of greed to go around- companies wanting to increase their quarterly profit statements at the expense of everything and anything and unions pushing for more when workers are already being compensated far above what they should be or what the market can bare.

    [FSR comment: Price and quality are trade-offs. Some businesses specialize in low prices; others in high quality; there is success to be found in either route. A very rare business will offer both high quality and low price. A good example is my coin business.]

  5. Alfredo De La Fe Says:

    The problem is that companies that were built on quality continue to tout high quality but have outsourced their manufacturing, quality has suffered greatly and prices have stayed the same (high.)

    [FSR: Then they will fail. It’s called “creative destruction.” Ultimately the businesses that succeed are those that serve the needs of their customers. That’s the beauty of free market capitalism.]

  6. Alfredo De La Fe Says:

    Frank- The problem is that they have ALL gone the same route. Because of this, customer expectation has changed. In speaking to my distributors I am assured that they have similar issues with ALL of the major manufacturers.

    This can be said for just about every other product which has been offshored.

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