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Old 10-11-2010, 10:48 AM
 
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I'm curious why the slow decline of the U.S. manufacturing sector is considered such a critical issue for the economy. Opinions of you economics types would be appreciated.

Would we consider Canada a prosperous, modern country? They have a much smaller manufacturing sector than the United States. Hong Kong used to have a manufacturing based economy, there was a time when it seemed almost any cheap trinket or toy when turned over said "made in HK" but they have become a service based economy and became very prosperous as a result.

As the standard of living in other countries rises it should reduce the attraction of manufacturing goods overseas, although the continued advances in production/manufacturing technology will keep on reducing the number or workers it takes to make a widget.

So is it possible to have a healthy economy with a continuously shrinking industrial base?
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Old 10-11-2010, 11:46 AM
 
Location: Seattle
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Quote:
Originally Posted by slackjaw View Post
I'm curious why the slow decline of the U.S. manufacturing sector is considered such a critical issue for the economy. Opinions of you economics types would be appreciated.
One of the significant advantages of having a diverse and strong manufacturing sector is that you get the agglomeration effect. If your parts supplier is across the street from your assembly line, which is down the highway from your tool manufacturer and in the same state as your steel producer, you're going to benefit from some significant efficiencies. Add on local engineering expertise, and you'll get a lot of versatility in the manufacturing process. You can make improvements quickly, and easily learn from another and adopt best practices.

The situation we are now starting to have in the US is that as vital links in the manufacturing chain starts falling apart, we're essentially forced to manufacture in China, not just because it's cheaper to do so. Instead it's because the fixed cost of rebuilding a factory for a minor component (that had previously closed) will be prohibitively expensive. Furthermore, it's also not worth the time sacrifice of shipping the minor part from China, so instead we close the rest of our perfectly functional factories and just manufacture the whole product in China. This leads to a vicious cycle.

Quote:
Originally Posted by slackjaw
Would we consider Canada a prosperous, modern country? They have a much smaller manufacturing sector than the United States. Hong Kong used to have a manufacturing based economy, there was a time when it seemed almost any cheap trinket or toy when turned over said "made in HK" but they have become a service based economy and became very prosperous as a result.
Canada, like Australia and Norway, has an economy highly dependent on raw resource extraction. None of them are comparable with the United States. We have 1/10th the natural resources per capita as Canada and Australia.

Hong Kong might not have a large manufacturing sector, but it is 10 miles away and a few tollbooths from the largest manufacturing zone in the world (Dongguan etc). So your distinction is really a semantic/jurisdictional one.

Quote:
Originally Posted by slackjaw
So is it possible to have a healthy economy with a continuously shrinking industrial base?
It is possible, but you have to do something else valued more. This becomes difficult to achieve nationally when you're a country the size of the United States. Not everyone can be entrepreneurs and corporate lawyers. And the value generated by our financial institutions is looking increasingly shady.
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Old 10-11-2010, 12:30 PM
 
Location: western East Roman Empire
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Originally Posted by Guineas View Post
It is possible, but you have to do something else valued more. This becomes difficult to achieve nationally when you're a country the size of the United States. Not everyone can be entrepreneurs and corporate lawyers. And the value generated by our financial institutions is looking increasingly shady.
Comparative advantage.

The US shot itself in the foot by attempting to provide executive-class housing to 50% of the population that is mediocre, at best, and by no natural law necessarily more competitive than the average Chinese worker.

Highfalutin, feel-good rhetoric notwithstanding, there is no way that a country of this size is going to produce like 70% of the population that is executive-class or high-tech competitive.

The US economy needs productive mediocre jobs for mediocre people in areas where there are comparative advantages even in the simple things like making shoes and socks, rather than pretending that paper degrees and being in the "greatest country in the world" justify value-destroying paper-pushers herded into pseudo-, ineffecient, executive-class housing and motor vehicles while the shift in global energy paradigm, among other momentous changes in the history of the industrial economy, makes these deadbeats even less competitive, comparatively or otherwise.

Last edited by bale002; 10-11-2010 at 12:49 PM..
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Old 10-11-2010, 01:09 PM
 
Location: Seattle
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Originally Posted by bale002 View Post
Highfalutin, feel-good rhetoric notwithstanding, there is no way that a country of this size is going to produce like 70% of the population that is executive-class or high-tech competitive.
Exactly.



A 1000 score SAT (500 verbal, 500 math) is scarily low, but that is actually the median. Half of all American seniors get an even lower score than that. To get below a 500 on the math section you would have to miss more than half of the basic pre-algebra and algebra questions.

Would you trust someone like that to be your physician or accountant? You'd barely trust them to be your cashier. Yet, there are many colleges in the US who will take someone with a 1000 or lower SAT (out of 1600), to end up having them either drop out with a load of debt, or employed in retail sales or some cubicle.

At some point countries like China will figure out the cubicle paper-pushing scam that entails the bulk of American middle class "productivity."
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Old 10-11-2010, 02:26 PM
 
Location: Ohio
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Outstanding job fellas.

Quote:
Originally Posted by slackjaw View Post
I'm curious why the slow decline of the U.S. manufacturing sector is considered such a critical issue for the economy.
Brain-washing.

Manufacturing has always been the gauge to determine if America is economically healthy. Whether it is or isn't the proper gauge is totally irrelevant, because that is the perception that was created and it is perception that drives reality.

Since 1945, Americans have been led to believe that manufacturing is King; the World revolves around US manufacturing; and that it is/was the reason for America's "greatness."

It would take decades to counter-socialize Americans to the truth.

Quote:
Originally Posted by slackjaw View Post
Would we consider Canada a prosperous, modern country? They have a much smaller manufacturing sector than the United States. Hong Kong used to have a manufacturing based economy, there was a time when it seemed almost any cheap trinket or toy when turned over said "made in HK" but they have become a service based economy and became very prosperous as a result.
That's baseless. When comparing two or more things, the underlying assumption is that those things are similar.

There are no similarities between Canada/Hong Kong and the US. They can only be contrasted. You would need to compare the US to a country that has a population in excess of 200 Million people.

Ohio has 23 Million people compared to Canada's 30 Million, so you could compare the economy of the State of Ohio to Canada, but not Canada to the US. Of course, the Ohio Air and Army National Guards could probably invade and over-run Canada in less than 12 Months.

There are a few things that you are over-looking.

Canada has always been reliant on the US for manufacturing support. For example, Canada does not build it's own automobiles, it simply imports them from the US (and elsewhere). Canada can also import anything it doesn't need or want to manufacturing from the US.

Canada has no defense manufacturing. It has always purchased military items from either Britain or the US. Canada did have a modification facility that produced aircraft under license in the distant past, like the F-104s (CF-104s), F-5s (CF-5s), B-57s (Canberra) etc but those have disappeared.

Not only that, there's no need to for Canada to establish a manufacturing base when it can trade oil and natural gas to the US for those things.

And that brings us to another issue you have over-looked. Canada is fast becoming a single-cash crop economy based on oil/natural gas (the Saudi Arabia of the West).

Oil and natural gas are extremely capital intensive.

Canada simply could not develop a strong manufacturing base even if it wanted to do so, because all of the capital was being sucked up into oil and natural gas research, exploration, development, production, refinement and distribution.

In fact, Canadian economists have been begging the Canadian government for the last several years to halt or slow exploration and development of oil and natural gas, because it is sucking capital out of the manufacturing and other sectors, and Canada has lost manufacturing jobs because of that.

Quote:
Originally Posted by slackjaw View Post
As the standard of living in other countries rises it should reduce the attraction of manufacturing goods overseas, although the continued advances in production/manufacturing technology will keep on reducing the number or workers it takes to make a widget.
You're talking about decades, and I don't mean one or two decades I mean more like 80-120 years.

Your average Ukrainian makes about $30/month. There are people in other countries who make about the same amount, but actually have a higher standard of living than Ukrainians.

Consider that in 1910, US auto workers were paid $5/day.

That amounts to about $100/month.

Did I mention that Ukrainians and others earn around $30/month?

50 years later in 1960 the US Minimum Wage was $0.90/hour.

At the same time, National Sugar and United Fruit paid sugar cane workers in Honduras and Nicaragua $0.90/day for a 10-12 day.

But National Sugar and United Fruit would only pay Cuban sugar cane workers $0.30/day for doing the same work (and for that reason plus several others namely that US Corporations owed back-taxes and refused to pay despite being ordered to pay by Cuban courts and the Cuban government, Castro lawfully expropriated US multi-national assets).

If you're thinking the rest of the world will catch up to US wages in your life-time, you're going to be in for quite a shock because it will not happen, nor would you want it to happen, and none of the governments of those countries would allow it to happen.

Sure, you often here liberals whining that someone in a Nike shoe factory only makes $0.75/hour, but to force them to start paying $5/hour would result in massive hyper-inflation and destroy that country's economy (and the country too).

Are you assuming that average wages for manufacturing in the US will still be $10/hour 50 years from now?

If that were the case, it would still be cheaper to off-shore, since those workers would only be making $2/hour.

Quote:
Originally Posted by slackjaw View Post
So is it possible to have a healthy economy with a continuously shrinking industrial base?
It would require radical changes in the current education system in the US, and no, radical changes do not include spending more money on education.

Radical changes would be things like:

1) Banning Spanish/French language instruction
2) Introducing Slavic, Asian, Arabic and African language instruction
3) Starting foreign language instruction in Grade 3 instead of Grade 9
4) Reducing High School from 4 years to 2 years
5) Making biology, chemistry, physics and algebra mandatory
6) Introducing 2-year predatory academies and vocational schools
7) Closing state 2-year colleges, universities and junior colleges
8) Limiting university enrollment to those with SAT scores of 1300 or better

That would make the US education system similar to 90% of the countries on Earth (and notice they're advancing and improving and the US isn't).

What that would do is allow the US to move into the 5th Economy of Research & Development and Testing & Evaluation.

If the US fails to do that, then other countries will begin to move into the 5th Economy, and they will be able to position themselves globally and control market share, and then the US will really be screwed.

You should ignore things like "productivity." The US is productive only because it is automated, but the cost of automation is often more than the cost of manual labor.

The irony is that in order for the US to compete against other countries, it will have to out-produce them and the only way to do that is through increased automation, but then increased automation results in fewer jobs, and lower paying jobs, since it requires nothing to stare at a line all day.

Look at Kao (formerly Jergens) that runs production lines. The employees (and they are temporary employees) do nothing except stare at the line to make sure the bottles are capped, the labels aren't skewed or damaged, and the air brush has printed the product codes/dates etc on the bottle.

And you want me to pay them $25/hour? For what? I can train a chimpanzee to do that. I could also automate that even further so that all I need is someone to press a start/stop button to get the line going (and I could train a chimpanzee to do that too).
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Old 10-11-2010, 03:19 PM
 
Location: San Diego California
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The simple answer is that a healthy economy is dependent on outside money. If you are not bringing in money from outside sources, the economy cannot grow. Whether it is accomplished by manufacturing, farming, or tourism, the concept is the same. In a service based economy you fix my car and I paint your house and no wealth is created, only exchanged.
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Old 10-11-2010, 03:22 PM
 
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Originally Posted by Mircea View Post
If you're thinking the rest of the world will catch up to US wages in your life-time, you're going to be in for quite a shock because it will not happen
I don't think they'll catch up, but the closer they get the less advantageous it becomes to manufacture something ten thousand miles away. I've seen articles about companies pulling out of India because of rapidly rising labor costs eroding the margin they gained, although that was probably in the IT industry so not necessarily comparable to building widgets.

Quote:
The irony is that in order for the US to compete against other countries, it will have to out-produce them and the only way to do that is through increased automation, but then increased automation results in fewer jobs, and lower paying jobs, since it requires nothing to stare at a line all day.
It would indeed be interesting to know what percentage of lost manufacturing jobs are because of workplace being relocated overseas versus new robot can put the bolts on instead of $35/hour union guy.
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Old 10-11-2010, 03:24 PM
 
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Originally Posted by jimhcom View Post
In a service based economy you fix my car and I paint your house and no wealth is created, only exchanged.
But aren't there many examples of countries with healthy economies that are service based? Can't services be consumed by external forces?
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Old 10-11-2010, 03:58 PM
 
Location: Seattle
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Originally Posted by slackjaw View Post
But aren't there many examples of countries with healthy economies that are service based? Can't services be consumed by external forces?
Financial and consulting services can be consumed by external forces. Serving a cold beer at Hooters, not so much.

The question though is are we approaching the maximum of practical financial "innovations"? In science and technology, there is no upper limit of innovation except for the laws of thermodynamics. But in finance, there certainly has to be a logical limit towards number crunching. I don't care how brilliant you are, at some point financial "innovations" become navel-gazing (technical indicators of technical indicators), borderline fraudulent (subprime loans and collateralized derivatives) or desperate (hidden credit card fees).
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Old 10-11-2010, 04:31 PM
 
Location: State of Superior
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There must be a balance of trade for any country to survive, long term. The value of the dollar is based on it , as is out debt to other Nations when we import everything , and send nothing back except empty containers.
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