It Just Ain’t So
The U.S. Census Bureau reports that 2011 manufacturing output grew by 11 percent, to nearly $5 trillion. Were our manufacturing sector considered a nation with its own gross domestic product, it would be the world’s fourth-richest economy. Manufacturing productivity has doubled since 1987, and manufacturing output has risen by one-half. However, over the past two decades, manufacturing employment has fallen about 25 percent. For some people, that means our manufacturing sector is sick. By that criterion, our agriculture sector shares that “sickness,” only worse and for a longer duration.
In 1790, 90 percent of Americans did agricultural work. Agriculture is now in “shambles” because only 2 percent of Americans have farm jobs. In 1970, the telecommunications industry employed 421,000 well-paid switchboard operators. Today “disaster” has hit the telecommunications industry, because there are fewer than 20,000 operators. That’s a 95 percent job loss. The spectacular advances that have raised productivity in the telecommunications industry have made it possible for fewer operators to handle tens of billions of calls at a tiny fraction of the 1970 cost.
For the most part, rising worker productivity and advances in technology are the primary causes of reduced employment and higher output in the manufacturing, agriculture and telecommunications industries. My question is whether Congress should outlaw these productivity gains in the name of job creation. It would be easy. Just get rid of those John Deere harvesting machines that do in a day what used to take a thousand men a week, outlaw the robots and automation that eliminated many manufacturing jobs and bring back manually operated PBX telephone switchboards. By the way, if technological advances had not eliminated millions of jobs, where in the world would we have gotten the workers to produce all those goods and services that we now enjoy that weren’t even thought of decades ago? The bottom line is that the health of an industry is measured by its output, not by the number of people it employs.
When Americans buy more goods from Canadians, Chinese and Mexicans than they buy from us, it’s a problem. Or is it? Let’s explore whether buying more from a person than he buys from you is a problem, and let me give a personal example. I buy more from my grocer than he buys from me. In turn, he buys more from his wholesaler than the wholesaler buys from him. But sticking to my grocer and me, let’s see whether there’s a problem — what some people might call a trade deficit.
When I spend $100 at the grocery, my capital account (money) goes down by $100, but my goods account (groceries) increases by $100. My grocer’s goods account decreases by $100, while his capital account increases by $100. There’s a trade balance, whether my grocer is down the street, in another state or in another country.
Say Japan’s Sony Corp. sells me a $1,000 television. My capital account goes down by $1,000, but my goods account rises by $1,000. Suppose Sony doesn’t buy any wheat, corn, cotton or cars from Americans. People are tempted to say that there’s a trade deficit. Not true. Instead of using that $1,000 to buy goods from us, Sony might purchase stocks and U.S. Treasury bonds from us — in other words, invest in America. When Sony sells me a television, the corporation’s goods account (called “current account” in international trade) goes down by $1,000, but its capital account (stocks and bonds) rises by $1,000. Lo and behold, again a balance of trade.
By the way, it would be great if foreigners didn’t buy anything from us and just gave us cars, computers, televisions, clothing and other goods in exchange for slips of paper with pictures of past presidents such as George Washington, Andrew Jackson and Ulysses Grant. We could live the life of Riley. The world would bestow all manner of goods and services upon us, and all we’d have to do is have a few Americans employed printing dollars that foreigners would hold precious and keep.
Walter E. Williams is a professor of economics at George Mason University.
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