U.S. manufacturing continues to impress

Paul Krugman’s column today in the Times is full of the usual “everything bad is the fault of Republicans” drivel.  He is trying to claim that recent good news on manufacturing is the result of the Administration keeping the value of the dollar low in the face of GOP opposition.  So, a weak dollar leads to more exports.  Hardly newsworthy.

But consider this statement:  “In the 1990s, U.S. manufacturing _________ was more or less steady. After 2000, however, it entered a steep decline. The 2001 recession hit industry hard, while the bubble-fueled expansion of the decade’s middle years — an expansion marked by a huge rise in the trade deficit — left manufacturing behind.

Let’s look at a graph, and then I’ll explain the word I omitted.  Below is the industrial output for the US since 1986 (I’ve taken annual averages of the monthly data; see here for the original Federal Reserve data):

Official Federal Reserve data. 2011 data includes the first four months of the year. Industrial output is measured in real terms, with 2007 as the base year.

What the picture shows is that far from “holding steady,” industrial output exploded during the Clinton administration (I’m a little shocked that Krugman forgot to mention this), and do you notice the lack of a “steep decline” after 2001?  A dip, yes, but 2007 levels were still 8.3% higher than 2000 in real terms (nothing compared to the growth in the 1990s, but still hardly a decline),

So what is happening here?  Why in an article dedicated to manufacturing does Krugman’s description differ so markedly from the actual data?  The answer is found in the word I omitted from his quote.  He is talking about manufacturing employment, and I’m talking about output.

Trends in employment are interesting in their own right, but Krugmanites mischaracterize US economic performance by slipping in employment numbers when they should be talking about output.  My guess is that that the majority of Americans who pay any attention to economic news think that US manufacturing has undergone a dismal decline in recent decades.  In this piece, Krugman quotes a Russian engineer saying, “I never see Americans actually making anything.”  This misperception is caused by a continual onslaught of substituting employment numbers for output numbers.  We have lost manufacturing jobs, and we do import a lot of goods from abroad, but US manufacturing continues to hum along, even despite recessions.

There is another name for declining manufacturing employment.  It is called technological progress.  Technology makes workers more productive.  Simply, we can make more and more stuff with fewer and fewer people as time goes on.  This is what progress entails.   Not that long ago, almost all humans were involved in the agriculture business.   Now, only a tiny percentage (in the developed world) produce food, and even if we count all people involved in the production and sale of food, including restaurants, it is not that high.  Do we refer to this as a decline in the food industry?  Only poor, undeveloped countries have large agricultural sectors.

Structural shifts in the economy can have serious effects on people’s lives, especially those with either low human capital or capital that is highly specialized in sectors experiencing employment declines.  Those effects should not be trivialized, but let’s stop the incessant whining about the decline of US manufacturing.  Even given the Great Recession, our industrial output continues to impress (and imagine what it could be without the massive weight of productivity killing regulations imposed by the Feds and the States).

A strong manufacturing sector will continue in the future unless, of course, the government tries to “fix” it.

3 thoughts on “U.S. manufacturing continues to impress

  1. This is one of the cases where it’s obvious to everyone that Krugman a) knows better and b) is therefore arguing in total bad faith.

  2. Figures don’t lie, but liars figure I suppose. Imagine what the employment curve (vs output) looks like for the farming sector of the economy!

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