[Toro]

$1:

February 09, 2006
We Don't Make Anything Anymore

The worriers like to complain that we don't make anything anymore. America is being hollowed out. Soon we're going to be left doing one another's laundry. Boy, will we be poor then.

At the heart of this concern is the belief that manufacturing is the key to an economy's success. You have to make stuff. You can't just move it around or sell it. A nation of services is a poor nation.

In fact, there is no gold-medal industry that is the key to economic prosperity. In 1900, agriculture employed 40% of the American work force. America was pretty prosperous in 1900 relative to the rest of the world. You might have thought that farming is the road to material well-being for a nation. You would have been wrong, of course. Today, agriculture is 2% of the American work force and we are seven to thirty times richer as a nation compared to 1900.

But there is a second confusion in the worriers' worries, one that I deliberately made in the previous paragraph. You want to distinguish between employment and output. We grow a lot more food today in America than we did in 1900. You also want to distinguish between total employment in a sector and that sector's employment as a proportion of total employment.

Manufacturing employment as a proportion of total employment has been falling steadily since 1950. Even the level of manufacturing employment, the absolute number of workers in manufacturing has fallen dramatically from its peak in 1980:



Over the last five years, manufacturing employment has fallen even more dramatically, from about 17 million to under 15 million workers. But manufacturing output is rising:



This series from the BLS starts in 1987 and you have to realize right off that it's a guess at best. It's aggregating cars, refrigerators, bed frames and computer chips to get an overall index of total output. But it's the best we can do.

The index climbs about 50% since 1987. It dipped in 2001 with the recession, but total output has already outpaced the level of 2000.

The bottom line is that we aren't being hollowed out. We still make stuff. A lot of stuff. A lot more stuff than we did 20 years ago. We're just doing it with fewer people. How? Productivity. We've found ways to make workers more productive so even though fewer people are doing the manufacturing, they're producing more. Technology and innovation, spurred by the carrot of profits and the stick of losses has allowed that transformation. It makes us richer. It frees up a very scarce resource, people, to go do other things creating new products and services.

The unions don't like it. A smaller unionized work force makes their lives less pleasant. They have less power. So they desperately want us to be worried that the economy is being hollowed out and that we don't make anything anymore. But we aren't being hollowed out. We still make lots of stuff. Not that that's the key to our prosperity. But even if you think it is, the basic premise is false. We're making more stuff. We're just doing it with fewer people than before, which is good. It means we can have more of other stuff. Productivity along with trade is the road to wealth.

http://cafehayek.typepad.com/hayek/2006 ... ke_an.html

[bootlegga]

There isn't a single country without factories in it, because sometimes economies of scale don't make a bit of difference. Otherwise all car plants would be in China. And factories in Western countries can be far more efficient and productive than low wage factories in some Third world countries because of our better trained/educated workforce.

Personally, I support a diversifed economy with a good balance of many sectors, from resource extraction to manufacturing to services. Downturns hurt you far less if you are dependent on one sector for your prosperity. If, for example, oil and natural gas fell back to 1980s prices, Alberta would suffer, but due to diversification in Biotech and IT, we'd be far better off than we were after the NEP. Ideally, I'd love to have a couple of car factories (any factory that doesn't produce goods for the oil patch would do)here in Alberta, broadening our base even further.

I think another idea of building things at home means if shit happens you can convert your industry into making loads of tanks and planes and blow the other guy to kingdom come. If you don't have a bunch of car factories to convert, it's a lot harder to build tanks and planes...

[BartSimpson]

Any country that suffers from a diminished industrial capacity is up shit creek when a war breaks out.

For instance:

War breaks out between the US & China.

Canadian businesses that depend on Chinese imports are screwed as American subs send China's merchant fleet to keep company with the Imperial Japanese Navy.

Worse scenario:

War breaks out between the US & China and we're screwed because China is who we buy most of our steel from. No steel, means no tanks, guns, bombs, ships, or planes.

[Toro]

Avro Avro:

Hell froze over....

I agree with Bort 100%.

The thing is Toro, this is all well and good because you are not the one being laid off.

Explain your little theory to the 1100 poor buggers that just lost there jobs at a BF Goodridge plant here in Ontario.

My name is Brian not #02555957023347-a.

I've been laid off. Twice.

Protecting jobs makes you like France and Germany, stagnant growth and high unemployment.

[Toro]

Bootlegga, Bart.

Did you not see this graph?

I posted it right above you.



Industrial output is going up, not down.

[bootlegga]

Toro Toro:

Bootlegga, Bart.

Did you not see this graph?

I posted it right above you.



Industrial output is going up, not down.

I did see it. My point about factories in North America being more productive backs that up.

But the fact is what kind of 'industrial output' is increasing. It's not steel, cars, ships, or any other major goods. Major industrial goods have shrunk in the past three decades. Korea for example is one of the world's leading shipbuilders. Korea?? At one time, the USA was the world leader in steel production. Not any longer...

North America being able to make shitloads of IKEA furniture or T-shirts doesn't help in a wartime situation, whereas steel production is a major factor.

I agree that North America does not need to produce everything, but there are some industries that are vital to our well being and letting someone else dominate that sector could harm our economies in the long run. would you import 100% of all of our food because someone somewhere can do it cheaper? Of course not, same goes for steel and cars.

[Toro]

Yes you did indeed, bootlegga.

Many countries have gotten wealthy where cars and steel were minor or nonexistent industries, i.e. Holland, Ireland, Finland, Norway, Hong Kong, etc.

Almost all countries do and will produce food. The only question is what and how. And as the article says, agriculture was once 40% of all employment. Today its a mere fraction of that amount yet we produce way more food.

Which is the point of the thread. A growing economy is not dependent on sustaining manufacturing employment, just like 100 years ago, a growing economy wasn't dependent on sustaining agricultural employment. That's a myth that must be dispelled.

[Toro]

Canadian economy





http://worthwhile.typepad.com/worthwhil ... .html#more

[Toro]

$1:

March 19, 2006
IP and GDP

The industrial production (IP) numbers came out on Friday showing industrial production increasing .7%. I hadn't looked at how IP and GDP are related for awhile, and I wondered if there is any noticeable change in the relationship in recent years due to, say, the shift to a more service based economy. Here are the logs of the two series since 1947 (GDP is rescaled and centered through a regression of IP on GDP):

From this graph, it's hard to detect any change in the long-run relationship, but I thought I'd post it in case anyone is interested in seeing how the two series are related. Most of the time, the movements in IP are exaggerated versions of the movements in GDP.

http://economistsview.typepad.com/econo ... d_gdp.html

[Toro]

$1:

Canada's manufacturing sector does not have Dutch disease

Thanks largely to increases in the value of oil exports, the Canadian dollar has appreciated by 40% against the USD since the beginning of 2002. So you'd think that our manufacturing sector would be getting hammered, right? After all, that's the classic Dutch disease scenario: the high demand for natural resource exports drives up the exchange rate, which makes the manufacturing sector uncompetitive in world markets. So how is Canada's manufacturing sector holding up these days?

Here's a graph of manufacturing output and employment since 2000 (both series have been normalised so that the average in 2000 is equal to 100):



For the first couple of years after the CAD started to appreciate, employment and output moved pretty much together. But in mid-2004, the two series disconnected. Since May 2004, manufacturing output has increased by 5%, but employment has fallen by 8%.

What's going on?

Firstly, there's one thing that should be remembered when we look at the effect of the exchange rate on the competitiveness of the manufacturing sector: many of the inputs used to produce manufactured goods are imported. As the exchange appreciates, those production costs fall. Similarly, foreign competitors will see the costs of their imported inputs rise as their currency depreciates. These effects can go a long way in offsetting the obvious effect of exchange rate appreciation on competitiveness.

One thing you would expect to see is factor substitution. In the case of the manufacturing sector, this would mean a shift from labour towards capital. Although labour inputs are paid in Canadian dollars, a significant fraction of the capital goods used here are imported from the US. In an earlier post, I noted that expenditures on investment in machinery and equipment have been growing rapidly, and it's been happening in the manufacturing sector as well; manufacturing M&E stock has increased by 6.9% since 2002. It turns out that this is just part of a trend that goes back at least 20 years. As the CAD appreciates against the USD, manufacturers increase their capital-labour ratios:



Of course, the obverse side of this coin is the reduction of employment in the manufacturing sector by 7% over the past two years. What about those 200,000 lost jobs?

Happily, this adjustment is occurring when the Canadian job creation happens to be quite strong. In the latest Labour Force Survey, the employment rate was 62.9% - an all-time high. So workers who've lost their jobs in the manufacturing sector seem to be able to find jobs elsewhere.

Of course, the next question is how well those jobs pay. A proper response to that would require the sort of micro data that I don't have at hand, but the macro evidence does not appear to be consistent with the hypothesis that the arrival of former manufacturing workers on the labour market note has depressed wages. As noted here, real income and wages are starting to make some gains. Over the past two years, real weekly earnings in the manufacturing sector have increased by about 0.5% a year - reflecting the increased productivity generated by the increased investment spending. But in the economy as a whole, real earnings have grown at the even faster rate of 0.9%.

So although there have been employment losses in the manufacturing sector, these losses have been more than offset by gains elsewhere, and this transition has not been accompanied by reductions in real wages or output. Although the Bank of Canada will no doubt be continuing to monitor the exchange rate, they must be relieved that the effects a 40% appreciation have been - so far! - relatively benign.

http://worthwhile.typepad.com/worthwhil ... .html#more

[Toro]

Avro Avro:

Being laid off twice as someone who is educated and being laid off as a 50 year old tire plant worker are two different things buddy and like I said go to these guys yourself and explain it to them....

.....have fun in the hospital.


Just say you don't care because it's not you.

#02555957023347-a out.

Holy Smokes, Avro. I hope you're strapped in tight there. That's a mighty high horse you could fall off of.

[Knoss]

$1:

War breaks out between the US & China and we're screwed because China is who we buy most of our steel from. No steel, means no tanks, guns, bombs, ships, or planes.

Currently IPSO based out of Regina, SK is the largest producer of plate steel and large diameter pipe so tanks, ships, and artillary guns aren't a problem.