U.S. Economy: Doing More With Less

Hardly a day goes by without some pundit bemoaning the loss of the U.S. manufacturing base, and with it, jobs. Usually the blame is placed on China.

It’s nice, frequently heated rhetoric. But it’s also utter nonsense.

To bemoan the loss of manufacturing jobs is to bemoan economic progress. Not asked enough of those with rose-colored visions of a not so glamorous manufacturing past is what advanced economic society anywhere in the world has gotten that way by way of clinging to days gone by. In the U.S. we can point to Michigan as a state stuck in the past, and the result is massive unemployment in concert with the outflow of the state’s best and brightest citizens.

Of course there’s an unknown story to be told about manufacturing, though it’s one that those in thrall to heavy human operated machinery choose to ignore. To put it simply, we’re manufacturing more than ever, albeit with a great deal less in the way of human input. This is what they call progress.

Indeed, as a recent USA Today editorial noted, “American companies are making lots of stuff”, and in fact they’re producing “about 80% more than in 1979 with nearly 8 million fewer workers.” Some would like to blame China here, but in truth they should be cheering the very innovations that attract job creating investment by virtue of companies doing more with less.

For one, the happy destruction of jobs was always thus, and it’s a signal of an advancing society. Considering agriculture, from 1900-1920 in the U.S. agriculture and mining accounted for 30-40% of total employment. Today that number is a fraction, but far from pushing Americans to the breadlines, economic evolution pushed them into better, higher valued work. Would anyone in their right mind really like to return to the days in which the U.S. economy was largely farm based? The same applies to manufacturing.

Considering manufacturing, if we date its decline as an employer to the 1970s, it should be said that the drop in actual workers has coincided with a rise in higher-paying work away from the factory floor. Specifically since the ‘70s, managerial and professional employment has been the fastest growing job category.

The definition of productivity is reducing costs without reducing output, and American manufacturers have done just that. But as evidenced by the rise of better paying managerial and professional work, Americans have hardly suffered this increase in productivity. Indeed, while the number lags now due to unrelated drivers of high unemployment, amid manufacturing’s descent as an employer since the ‘70s, the work force participation rate actually rose from 60% in 1970, to 66.1% in 2005.

Yes, manufacturing jobs were destroyed as is always the case in a healthy economy, but those jobs were once again replaced with better ones. And rather than blame China, we should instead embrace advancement. Just as productivity enhancements reduced manufacturing employment, so did the computer reduce the need for clerks and secretaries. Not acknowledged is how much worse off we’d be if Americans were still stuck in the work of yesteryear.

But since they’re not, rather than blame China, we should thank investors. It was investors whose intrepid doings funded advancement that freed us from labor the markets no longer wanted, plus it’s investors who are unwilling to pay the wages that used to prevail in manufacturing. Instead of blaming China here, we should blame Americans who wanted a standard of living higher than what investors in manufacturing were willing to pay. As evidenced by labor force participation rates, rates that once again rose amid a massive drop in manufacturing employment, Americans happily got what they desired.

Moving to China, it’s time that Americans who bemoan the loss of that which wasn’t so great see what the prevailing wage – once again provided by investors – is for manufacturing. Considering average income in the rising country itself, that works out to $2,000/year (as of 2007), according to The Elephant and the Dragon author Robyn Meredith. Even the poorest of the working poor in the U.S. don’t earn so little.

And what about factory wages in China? According to Meredith “Chinese factory workers, whether making light bulbs, talking toys, or tennis shoes, earn each day about what Americans pay for a latte at Starbucks.” These are the kinds of jobs we want to lure back to the U.S.?

The simple and happy truth is that there are no jobs without investment, and as evidenced by factory worker pay in China, investors have no interest in paying anywhere near the wages Americans have grown accustomed to. So assuming we resumed manufacturing light bulbs and tennis shoes stateside thanks to some benevolent investor, the wages that support this activity are so low that no Americans would apply for the work. Extremely low pay in China supports the positive pronouncement that we long ago left low value factory work in the rearview mirror, and with good reason. One can’t get buy on one Starbucks latte per day.

In The Federalist Papers, Alexander Hamilton warned his readers about falling for the “deceitful dream of a golden age.” Manufacturing is just that. Once the employer of many at high wages, those days are long past, so to dream of a manufacturing future for the United States is to pine for excruciating poverty.

John Tamny is editor of RealClearMarkets and Forbes Opinions, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading.

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