Manufacturing industry’s health ≠ number of manufacturing jobs

We often hear that the American manufacturing industry is in major decline. In fact, the point often goes without saying these days, or at least without good data to back it up. That’s not to say that the number of manufacturing jobs in America hasn’t dropped off–that much is certain. But is the number of people employed in the manufacturing industry a good indication of that industry’s health?

The answer is no, and here’s why.

First: Consider the chart below from the Mercatus Center’s Veronique de Rugy:

As you can see, even though the number of manufacturing jobs has consistently fallen since around 1980, US manufacturing output is much higher these days than ever before (except for just prior to the 2008 financial crisis). As de Rugy explains, this means the average American manufacturer is more than three times more productive today than they were in 1975. This reveals true economic progress–producing more with less.

Second: In a recent paper, Clemson University’s Bruce Yandle (also affiliated with the Mercatus Center) explains a fact about manufacturing in America I hadn’t considered before. He writes,

“Information technology that drives the cost of contracting and managing is the big unknown in all this. As I have pointed out before, the US economy, especially the manufacturing economy, is disintegrating. Picture a large paper producer, for example. In decades past, that producer would have its own fleet of trucks, timber operation, steam-generated electricity, internal shop for major repairs, large engineering department, finance department, human resources, and distribution and warehousing operations, all as part of one paper-producing firm. Today, that same paper producer contracts out for transportation, logistics, engineering, energy, heavy maintenance, and for some finance and personnel services.

As contracting costs have fallen, the firm has disintegrated. Dramatic improvement in information technology has been the driver. The result? A smaller share of the workforce is employed in paper manufacturing, but more paper is being produced.”

He doesn’t cite data to back up this story (I’m not even sure if any relevant metrics exist), but it makes sense to me and jives with my own tangential experience with the manufacturing industry.

I work at a sales agency that sells for small manufacturers throughout Pennsylvania. Often, we will facilitate everything from product conceptualization to market research and advertising to shipping to final sale for our manufacturer client, leaving them to do only what they do best–manufacture product (don’t you just love the division of labor?). The result is that the number of people working for the manufacturing firm is trimmed down until only those people working on the assembly line, plus a few supervisors, remain employed at that firm. The few dozen employees at my workplace–accountants, marketers and salespeople who, decades ago, might have been employed directly by the manufacturer–are categorized under “business services.” This grows the “professional business services” labor force and a shrinks the “manufacturing” labor force despite no decrease in manufacturing output. If anything, outsourcing business services like shipping and sales–the cost of which is falls with advancements in information technology–only increases manufacturers’ efficiency.

I could say more about the state of manufacturing in the US. Suffice it to say, though, that the number of jobs in a particular industry is no indication of that industry’s overall health. Jobs are important, but that’s an entirely different discussion.

Quote of the Day: Frank Hollenbeck

From Frank Hollenbeck in today’s Mises Daily article:

“We live on a planet with a constraint called gravity. We can adapt to the law of gravity by creating innovations such as airplanes, but we cannot defy the law of gravity by jumping off a building without a parachute. The same is true in economics and of the law of scarcity. We falsely believe that somehow if government legally counterfeits intrinsically worthless paper or spends someone else’s money we will be able to upend the law of scarcity.”

Quote of the Day: Mises

From the introduction of Ludwig von Mises’ Human Action.

“It is true that economics is a theoretical science and as such abstains from any judgment of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends. Ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.”

I often read online Austrian economic commentary. A common theme I note in these threads is the erroneous conflation of Austrian economics with libertarian political theory or some other philosophy about the good with regard to political organization. While many Austrian economists are indeed political libertarians, Austrian economics and libertarianism are not synonymous. As Dr. Steve Horwitz defines, Austrian economics is “a set of analytical propositions about the world and how to study it,” not “a set of policy conclusions or settled interpretations of history.” Unfortunately, this mistake is as common among proponents of Austrian economics as it is among the Austrian school’s critics.

In that vein, I recommend this video by Prof. Steve Horwitz about what Austrian economics is and what Austrian economics is not.

A New Vision

I first created this website intending it to become my online writing portfolio. I wanted to keep all my published articles in one place in order to show prospective employers, find more freelance work and keep my pieces organized.

I’ve since learned this is a pretty sorry way to promote my stuff. Not only were my grandparents the only people who ever visited the site, but I shouldn’t really be re-posting entire articles here anyways–submitting them for publication almost always means giving up rights over the article to the publisher.

That said, I’m going to start blogging here. I’ll keep my professional writing portfolio on the “Articles” page for future reference, but this site will primarily be for my blog. By doing this, I hope to write more often and explore subjects I’m interested in but not necessarily qualified to write about for a magazine or journal.

I’ll also be working on the format of the blog over the next few days. I like simple blogs, but I want to link most of my online professional and social media accounts to this page.

I got published: The Key to Achieving “Lift-Off” for the Poor

I got published at ValuesandCapitalism.com. This time, I respond to an article by New York Times columnist Nicholas Kristof about poverty, children and so-called “safety nets.”

“Sounds nice, but safety nets aren’t for lifting off. They are for catching falls. Lift-off requires a firmer foundation—one that can withstand the ebbs and flows of recession, unemployment and other extraneous dampers on economic success. That firm foundation is a moral culture.”

Read the article at Valuesandcapitalism.com, originally published on March 21, 2014.

I got published: President Obama Doesn’t Know His History

I got published at ValuesandCapitalism.com. I write about President Obama’s stilted view of history as displayed during his State of the Union Address last Tuesday.

In essence, President Obama claimed that technological advances that undermined old-fashioned ways of doing things inhibit middle-class growth. They pull the rug out from underneath Americans who depend on hard work and responsibility to make ends meet. No longer do people’s financial futures depend on their own effort, but rather, technology and competition has introduced extraneous factors into the economic equation that undermine the norm of hard work being the key to financial success.

Technology, he says, makes life harder.

Read the article at ValuesandCapitalism.com, first published on January 30, 2014.

I got published: Securing Economic Progress: A Lesson from Robinson Crusoe

I got published at ValuesandCapitalism.com. I wrote about the prerequisites of economic progress.

Property rights are an essential ingredient for economic progress. If human beings doubt that the fruits of their labor will remain theirs to use as they wish, they will be less likely to work so hard gathering resources and more likely to consume their resources as soon as possible.

Read this article at ValuesandCapitalism.com, first published on Wednesday, January 15.

I got published: Economic Progess: Don’t Take it for Granted

Assuming that next year will automatically be better than the last is a bad idea. Read why in my new article at ValuesandCapitalism.com.

History shows time and again that significant economic regress is possible. Unlike in America, economic relapse and distress have lasted for decades in many regions around the world, not just for the few months and years following a financial crisis.

Read the article at at Valuesandcapitalism.com, first published on January 7, 2014.

New Year’s Resolution: Save and Sacrifice Now to Flourish Later

My wife is a nurse. Every evening, she tells me stories about her patients.

One day, she told me about a patient who quit taking her insulin. She was recently diagnosed with diabetes, and decided she didn’t have time for insulin shots. They were painful. They took time out of her day. For her, the present inconvenience of following the doctor’s orders wasn’t worth whatever pain it might prevent in the future.

Her health quickly deteriorated. She returned to the hospital one month later—this time to the emergency room. Because of her uncontrolled diabetes, a small sore on her leg had developed into a serious bone infection. She would never walk again.

Unfortunately, stories like this are common at hospitals. The sickest people are often those who ignore their doctor’s advice; yet hospitals exist, of course, to serve the sickest people. Because of this, doctors and nurses expect to see many patients admitted for preventable illness—it comes with the job.

Medical professionals are not the only ones that deal with such behavior, however. I recently spoke to a financial advisor who recounted similar stories about some of his clients. One couple in particular ignored his advice and took a 401(k) loan to buy a second home. They’d seen a family friend double his investment in just six years and were convinced they would do the same. That was in 2007.

I’ve heard economists discuss similar frustrations with policymakers in Washington. While extending new credit and driving interest rates down might stave off recession in the short term, such policies are not sustainable in the long term. Nevertheless, the Federal Reserve continues to use new money to stimulate demand. They’ve guaranteed low interest rates for months and even years to come, enticing investment into risky projects that remain untested outside of our inflationary economic environment.

Another obvious parallel are the spending habits of the average American. Half of all Americans have less than three months’ worth of emergency savings and one in three is not saving for retirement. Of course, not everyone enjoys a steady job and enough income to make ends meet. But more than half do. That being said, such decisions are anything but conducive to a secure financial future. They defy the most basic of instructions about wise financial planning, and I doubt any of the culprits would honestly disagree.

Like my wife’s patient, the behavior I describe above indicates a general disregard for future wellness in favor of present satisfaction. Economists call this a “high time preference.” Instead of investing in long-term projects that yield generous and lasting returns, many of us prefer instead to spend in the present. We value today more than tomorrow. We live as if the future holds only blessings.

I’ve seen the negative effects of high time preference in my own life, with regard to both my health and personal finance. I’m sure you have, too. Like the woman in the story above, the effects are painful—and sometimes permanent. They might arrive via phone call from a debt collector or via notice from your landlord. They may surface on your report card or on your bathroom scale. If enough of us give in, they can even show up in the form of economic recession, when we realize there just isn’t enough money to go around.

But how they arrive is not important. What matters is that they always will.

So take time at the beginning of this year to reflect on your thinking with regard to the future, the present and how you use what you’ve been given. Make 2014 your year of growth—not catch up and squeak by. Remember that though it may always be uncertain, the future is worth preparing for.

This article was originally published at Valuesancapitalism.com on January 2, 2014.

How the Fed Makes Unemployment a Good Thing

This article was originally published at Valuesandcapitalism.com on December 3, 2013.

Imagine a world where unemployment is good—where fewer people working means more prosperity. Both time and resources would be infinitely abundant. Consumer goods would invent themselves. The standard of living would improve most swiftly when human beings stay out of the way.

This world, of course, is a fantasy. Until someone invents a self-improving robot fueled by human indolence, unemployment only hampers economic growth.

That is, until November 2013.

If history is any guide, the Labor Department’s announcement earlier this month that the U.S. economy added 204,000 jobs in October—twice what most economists expected—should have sparked excitement across Wall Street and the nation. But while markets did gain on the day, early-morning futures turned quickly negative after gaining before the report’s release. The talk of the town was anything but positive.

Explanations for this twist of events were quick and forthright: Indications of economic progress sparked fear that the Federal Reserve would taper its bond-buying program.

Since 2009, the Federal Reserve has created money to funnel into the economy via bond-buying and bailouts (a.k.a. “quantitative easing”). This policy was designed to lower interest rates, create credit, and stimulate demand with the ultimate goal of lowering unemployment. The result has been significant growth in stock prices and apparent economic recovery evidenced by a slow and steady drop in unemployment.

Understandably, investors have come to love quantitative easing. Though many voice concerns about the long-term effects of this policy, few deny that quantitative easing mitigated the immediate effects of the 2008 financial crisis. Even fewer would deny that quantitative easing is now vital to the health of many major financial institutions.

But of course, such a policy cannot continue forever. Quantitative easing must eventually come to an end—a fact even Fed officials often note. It is this ominous thought that sparked last month’s scare. Lower unemployment signals economic recovery. Economic recovery signals a sooner end to the Fed’s bond-buying and bailouts.

A similar episode occurred earlier this year when Federal Reserve Chairman Ben Bernanke hinted that quantitative easing may taper off if inflation remains steady and unemployment continues to drop. The stock market lost 4.3 percent over the three trading days following his comments.

U.S. Treasury Securities

This last episode was different, though, because no announcement was needed. The strong jobs report alone was enough to spook investors even before the Fed could announce changes to quantitative easing. What is good news at almost any other time and in any other place is bad news on Wall Street today.

This spells disaster for the American economy. The same quantitative easing policy designed to decrease unemployment is itself the cause of investors’ fear of strong jobs reports and other positive economic news in general. The fact that lower unemployment hurts the stock market means the Fed has created a lose-lose situation whereby lowering unemployment creates a simultaneous collapse in stock prices. They have kept up their money-printing too long. The Fed has become its own worst enemy.

But even worse, the Federal Reserve has pitted Wall Street against the American people by inadvertently linking lower unemployment with lower stock prices. Big banks now have reason to want high unemployment in order to extend the life of quantitative easing. While bankers themselves do not make economic policy, they do control the flow of money into and out of their vaults. They can tighten and expand credit. Conspiracy theories aside, banks do have considerable power over the rate of economic growth, and knowing that investors at-large fear a slow-down to quantitative easing does anything but encourage them to help speed up the recovery process.

While high unemployment will never be good news for the real economy, that doesn’t mean that financial institutions and the economic powers that be will always feel the same crunch. When economic stimulus is directly linked to the unemployment rate, like the Fed has done with quantitative easing, those depending on stimulus for their profits should only be expected to react negatively to news of job growth.