How economists blew the analysis of the manufacturing jobs shock
How economists blew the analysis of the manufacturing jobs shock
Just to give you the frame of reference, here is the historical graph of manufacturing jobs in the US for the past 50 years:
After peaking in 1979, the number more or less gradually declined in the 1980s, and then stabilized in the 1990s, before plummeting right after 2000.
As written by Gwynn Guilford, the consensus of economists’ opinion was that while
the US had hemorrhaged manufacturing jobs, losing close to 5 million of them since 2000. Trade may have been a factor—but it clearly wasn’t the main culprit. Automation was.
….
For a decade or so, this phenomenon had been put forth by Ivy League economists, former US secretaries of treasury, transportation, and labor, Congressional Research Services, vice president Joe Biden, president Barack Obama—and by Quartz too, for that matter. In a 2016 New York Times articletitled “The Long-Term Jobs Killer is Not China. It’s Automation,” Harvard economist Lawrence Katz laid out the general consensus: “Over the long haul, clearly automation’s been much more important—it’s not even close.”
Susan Houseman, an economist at the Upjohn Institute, and her colleagues, examined microdata available from the Federal Reserve, and discovered that this entire rationalization was based on technological improvements in only one industry — computers. As the article states, once they
strip[ped] away the computers industry output from the rest of the data[, t]hat revealed just how the rest of manufacturing was doing—and it was much worse than what Houseman and her colleagues expected.
“It was staggering—it was actually staggering—how much that was contributing to growth in real [meaning, inflation-adjusted] manufacturing productivity and output,” says Houseman.
The culprit was “quality improvement.” The computing power of your smartphone is probably millions of times better than the Univac computer of the 1950s. In fact, it’s much better than its ancestor of only 10 years ago. So your new smartphone is clearly worth “more” than an equivalently priced smartphone of 10 years ago.
The problem is, this quality improvement was assumed to be general across all of American industry. It wasn’t. Strip away computer quality improvement, and, well:
according to Houseman’s data, without computers, manufacturing’s real output expanded at an average rate of only about 0.2% a year in the 2000s. By 2016, real manufacturing output, sans computers, was lower than it was in 2007.
Here’s the nut graph (if the formatting doesn’t show properly, the important thing to know is that the light blue line well below the others is real manufacturing output less computers):
To put this in more dinosaurian terms, imagine if American factories were churning out exactly as much of exactly the same stuff in 2019 as they had been in 1969. Obviously we would say that there was no growth at all. But now make one change: where in 1969 automakers were churning out 10 million 1969 Chevy Impalas, in 2019 they are churning out 10 million 2019 Honda Accords. OK, modern Accords are light-years better than the Impalas of long ago, but we wouldn’t say that American industry across the board had improved.
That’s the mistake that economists made. Take away improvements in the computer industry, and American manufacturing really hasn’t made any progress at all – and still there are 4.5 million fewer jobs in manufacturing than there were at the end of 1999. And all of those jobs outside of the computer industry were due not to automation, but to trade.
Since the 2016 election, I’ve been leery of choosing sides between the “economic anxiety” trope and the “they’re all racists” theory, because I don’t see them as necessarily inconsistent. A white racist who is content with how things are going might vote for, e.g., Barack Obama, while that same racist, if stressed, will look for a scapegoat – like Mexicans and Muslims – to blame. Obama himself in a “Kinsey gaffe” referred to people “who cling to their guns and their religion.” That’s why in 2016 the national election result tracked so well with the economic voting models, while among the hardest-hit places in the 2016 “shallow industrial recession” were those of the upper Midwest that put Trump over the top.
(Dan here… Go here for a cogent video argument start arround 17 minutes in to hear Susan Houseman explain.)
You should really go back to 1820. Consolidation is a beeootchhh. I was there in the early 2000’s and the early 80’s when the last 2 happened. My grandfather told me about the 20’s as he got laid off in 1926, which was the beginning of the first major consolidation wave after a 100 years of growth.
Sorry, but this post is a mumbling mess. Most of the factory base up north left in the 60’s. Yup, how about that. Many plants moved down south and out west to California once the air conditioner set in. That is why 1980 so many “ghost industrial cities” started showing up………and they had been that way for years. Its really amazing tech can do. Not everything needed to be made up north anymore due to natural concerns.
There is no “high cost”. Nor did it have the impact on the 2016 like you think.
Interesting .. but economists — including de Long — have been proclaiming much of the last decade that that AI and robots (aka “automation”) have not been responsible for the drop in US manufacturing employment. Nor have they placed any blame on the growth of Chinese or other Asian manufacturing capabilities — “outsourcing” is another myth, they declare, and those of us who recall Stephen Jobs telling Bill Clinton back in the 1990s that US companies were going to send manufacturing abroad whether or not the US government approved are just old fogies with rocks in our heads and Alzheimer-affected memories.
Ricardo showed back in the 1820s that overall job losses just didn’t happen in an expanding economy, so there! So what was going on, to explain the slow post-Recessional growth in employment and wages? A big, never explained drop in the male age 18-54 workforce has drawn much attention over the last decade. There seems to be another drop in the female workforce, which gets much less attention. As for the specific shortfall in manufacturing employment … well manufacturing is a smaller and smaller part of the overall economy, and just look at those fantastic productivity gains in computers and communications! So really, who cares?
I don’t think professional economists much like manufacturing and engineers and production workers, to be honest. They’d be happy to be rid of all that dull stuff, and happier yet to sit in their air conditioned offices examining statistics that show the significance of merchant bankers and financiers and hedge fund managers and venture capitalists — other people of high status who sit in air conditioned offices making their wealth dealing in paperwork.
Mike, the problem your missing is 2 fold:
1. He is talking about the “rustbelt” in general
2.Your forgetting jobs onshored due to the same forces that caused offshoring. In the end, it comes out with the same graph. Nothing changes. Steve Jobs was a big nothing. A con man conning. Apple itself should be liquidated.
NDD:
Here is an old article from 2008 by Der Spiegel which may have relevance to what you are saying. Is America Slouching Towards Protectionism? The graph will give you a better picture of declining employment in manufacturing.
Add this to the calculus arguing against for the ‘economic anxiety’ trope and against the ‘they’re all racists’ theory:
https://policytensor.com/2019/11/11/class-reproduction-in-america-revisited/
Powerful evidence.
Eric:
Welcome to Angry Bear. First time comments always go to moderation to weed out spam, spammers, and advertising