Relevant and even prescient commentary on news, politics and the economy.

Is the Growth of Manufacturing Production a Mirage?

by Kenneth Thomas

Is the Growth of Manufacturing Production a Mirage?

A lot of people lament the decline in manufacturing employment, which has fallen by about 1/3 since 2000. As Upjohn Institute economist Susan Houseman points out in the linked article, we’re talking about 5.5 million lost manufacturing jobs in that time frame. Here’s what it looks like in long perspective

Graph of All Employees: Manufacturing

Instead of recovering as it did in previous recessions, after the 2001 recession manufacturing employment continued to fall, as Houseman points out.


But a number of commentators, including Matthew Yglesias and some more conservative ones cited by Houseman, have argued that what we really ought to be looking at is manufacturing output, which has risen steadily except for small blips during recessions.

Graph of Industrial Production: Manufacturing (NAICS)

What’s wrong with needing fewer people in manufacturing due to greatly increased productivity?
 
Houseman argues that the increased productivity is a mirage, due to a single industry, computers. She writes:

Real value added in the computer industry grew at a staggering rate of 22 percent per year from 1997 to 2007 and 16 percent per year from 2000 to 2010. In contrast, average growth of real value added in the rest of manufacturing was just 1.2 percent per year from 1997 to 2007; real value added in the rest of manufacturing was actually about 6 percent lower in 2010 than at the start of the decade.

With that kind of growth, many multiples of GDP growth, we must be an export powerhouse in computers and electronics, right? (Insert joke here.)*

Of course we aren’t, so where does that gigantic growth rate come from? If you remember the debates over inflation that gave us the Boskin Commission, you will recall that one of its criticisms of Bureau of Labor Statistics Consumer Price Index (CPI) data was it did not adequately account for improvements in quality over time. Houseman argues that the huge increases in computer power and semiconductor processing speed are what are beneath the apparently massive growth in productivity in the industry. In other words, the price deflators used to calculate real growth are the real reason productivity is apparently growing so rapidly in computers.

If Houseman is right, it means that falling manufacturing employment really is a problem; we have not become so productive that we simply need fewer manufacturing workers. And the fact that productivity is growing by leaps and bounds, yet our trade deficit in electronics keeps getting worse, seems to me to be strong evidence that she is on to something.

From the Austin Lounge Lizards song, “The Drugs I Need.”*

cross posted with Middle Class Political Economist

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Public Transit Benefit was down, is now up again (in Senate)

by Linda Beale

Public Transit Benefit was down, is now up again (in Senate)

One of the tax provisions that lapsed last year was a very popular tax expenditure supporting public transportation–a tax credit for commuters using mass transit was allowed to lapse back to a $125 monthly benefit from the stimulus level of $230 a month.  Ironically, in a time of clear importance environmentally of cutting back on cars and increasing use of public transit, Congress had given preferential treatment to support for parking (likely supporting most those commuters at the higher end of the income scale who like to drive their BMWs from Connecticut to New York City, or commuters who don’t have decent access to public transit):  the parking subsidy actually increased to $240 a month.

Today, the Senate passed the Surface Transporation Reauthorization Bill (see summary, here; for text and other actions, see S.1813 on Thomas).  The bill as passed included a provision, retroactive to Jan first of this year when credit lapsed to the lower level, that would restore the public transit credit at the same level as the current parking subsidy.  See PR Newswire, Senate Approves Increase to Pre-Tax Benefits for Public Transportation Commuters, Commuter Benefits Work for US.org (Mar. 14, 2012).  The House may delay action on the bill though Boehner has said he would call the Senate version for a vote if the GOP majority doesn’t agree on an alternative.  See Linda Scott,  Senate Passes Transportation Bill, PBS NewsHour (Mar. 14, 2012).

It’s good to see Congress moving to correct this.  As Sen. Lautenberg noted

“Mass transit boosts the economy, reduces dirty auto emissions and takes cars off our congested roads. We fought hard to include this provision in the bill so that transit riders can enjoy the same benefits as drivers. I’m pleased that this bill finally appears poised for Senate passage, and I urge the House to follow suit and approve this bill immediately.” Lautenberg: Increased transit rider tax benefit would help thousands of New Jersey commuters (Mar. 13, 2012). 

Favoring cars over public transit didn’t make sense except as just another example of the way tax expenditures favor high income taxpayers generally–the real face of class warfare in the U.S.A. today. 
(Though of course, it goes to show that it is much easier to get some kind of tax break through Congress these days–in spite of the right’s whining about needing to cut spending–than it is to enact a reasonable program with expenditures specifically targeted at the purpose  intended.  This is why Obama’s corporate tax proposal provides a scattershot corporatist oriented reduction in corproate tax rates for “manufacturers”, instead of doing what we should do, which is leaving the corporate tax statutory rate where it is, and providing an incentive program for corporations that bring significant numbers of new jobs back to the US.)
If you don’t believe my point about class warfare, just look at the way the balance works out between beneficiaries of the various programs that the right likes to refer to as “entitlements” and wants to cut, versus the beneficiaries of numerous tax expenditures in the Code that the right seems endlessly willing to extend, increase, and rationalize.

The result is a general pattern of reallocation of resources in ways that amount toredistribution upwards to those already at the top of the income distribution.  Looks a lot like rewarding rich Congressional cronies while punishing the poor, the elderly and the vulnerable.  See, e.g.,  Eduardo Porter, A Nation With Too Many Tax Breaks, New York Times (Mar. 14, 2012), at B1 (and, off topic but relevant given  Rush Limbaugh’s despicable slurring of the Georgetown student advocating for full coverage of contraception under the Health Care law, notice that Reagan’s signing of the 1986 tax reform act was in the middle of a slew of older white males–not a female in the picture!).  The article compares the distribution of federal benefits (programs like unemployment, Social Security, Medicare, Medicaid, housing assistance, and food stamps, but not Pell grants or Veterans Benefits) to the distribution of tax expenditures (exemptions, deductions and credits like the preferential rate on capital gains, the home mortgage interest deduction, and the deduction for charitable contributions).

The federal benefits are much more evenly distributed, though the primary benefit does go to those in the lowest two quintiles (as intended by the nature of the programs).  The bottom 40% of taxpayer families by income group get about 60% of the program benefits.  But the tax expenditures–all those goodies built into the Code through crony capitalism–go much more disproportionately to those at the very top of the income distribution:  the top 20% get a whopping 67% of the benefit of tax expenditures, with the second highest quintile getting an additional 14%, adding up to 81% of the benefit going to the top 40% of the income distribution (and this spread may undercount, since it compensates for generally larger taxpaying units in the top income layers).  The lowest 40% get only 11% of the tax expenditures.

There is a good graphic for this, that you can access through this link.

crossposted with ataxingmatter

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What would you tell your child?

As our manufacturing sector has shed jobs, especially during the past 15 years, there have been few opportunities for young people to start working and train in manufacturing.

Now that manufacturing is picking up just a little, and as the boomer work force hits retirement age, there are reports of a growing shortage of skilled manufacturing workers and allied skills (welders in particular).

So what do tell young people? Get into manufacturing, learn the skills, and you may have a job for an entire career, or maybe for ten years until the offshoring starts again. How do we convince young people, who have seen nothing but deterioration in their lifetimes, that devoting time and energy to manufacturing will have a good payoff?

Or should we tell them the economy is lousy, there may be nothing else, take the job and ride it as long as you can? What would you tell your child?

Interested in your opinions.

Tom aka Rusty Rustbelt

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