Yeah, that was super short sighted. It boggles the mind that anyone could have believed that replacing many of the core productive bits of the economy with fluff like management (and ownership), finance, and hospitality would lead to anything but weakness. It's not like people in other countries are going to do most of the actual productive work and continue to let Americans lord over them indefinitely. Under that plan, America would just seem to climb until everyone else realizes there's no there there anymore, and then it will fall to a 3rd world economy who's main advantage is people there will be desperate enough to work for low wages for the new wealthy countries. Of course, some Americans will experience wealth over their lifetimes as that happens, but they're basically getting fat and happy by eating their family's seed corn.
Building a plane is hard, but possible. With large enough a market, a nation will be able to afford, and more importantly will have every reason to, conducting millions of rigorous experiments to figure out all the key technologies, be it manufacturing process, optimal parameters for air dynamics, or materials.
BTW, in case someone forgets, manufacturing at low cost is the hallmark of industrialization. It makes no sense for Americans to snort that Chinese could make things at a fraction of the cost, just as it makes no sense for the British to despise what American could mass produce 100 years ago.
I would add that the US's apogee was due to it's role on WW2, whose success was due to the US's preexisting industrial infrastructure, not only manufacturing capability but technical and scientific infrastructure that supported it.
Since then the US not only gave up on its main strategic asset but also handed it over on a silver platter to the next world power.
The industrial complex that was built up during world war II was unprecedented, and the post war boom enabled it to grow further, allowing for things like secondary supply chains, "related" niche industries, and creating many very large companies which went beyond manufacturing products into finance, among other things.
The thing is, after the first generation of management of those companies aged out, the second generation didn't have any idea about the unique circumstances that allowed that industrial base to be created.
They chose to believe it was because of American superiority, American know how, etc.
So when they couldn't sustain the levels of growth and profit their predecessors created, the industries started eating themselves, with mergers, acquisitions, corporate raiding (Private Equity) and regulatory capture to allow it all to happen. Achieving short term gains by shipping jobs offshore was just a necessary thing to "get theirs".
Boeing was once one of many, and now it's one of the last.
The US will be unable to rebuild that industrial base for the foreseeable future, because the unique combination of the post war boom, the government sponsored head start in the war, and the emergence of new technologies just don't exist any more.
Jobs going overseas aren't the problem, really, so them coming back makes little difference. The problem is that our huge head start after World War II is gone because it's eaten itself, and now we need to start over.
Switzerland is a fascinating example of a country which almost entirely bans foreign competition in anything they can reasonably produce domestically. Costs are high, but wages are higher.
When the decision is largely made by the managerial and financier classes...
All of the "smartest people in the room" come through economics educations based on pat 2-line graphs and ricardian tables that make extremely grand claims about the world, and they all come out thinking the same way. They're not trying to be crooked, they're repeating what they were taught.
Given that a quarter of all political contributions are donated by the wealthiest top 0.01% (no, not a typo - and 84% of politicians take more from the top 0.01% than all donors giving less than $200), it is entirely unsurprising to me that our policy reflects their priorities.
It works well in the micro, but not the macro. Apple is a excellent example of this being ridiculously profitable: management, finance, R&D, engineering and all "high value" work is in the US, and the "boring" manufacturing stuff is handled offshore. This works very well for shareholders, management and skilled employees. The American machinists and die-makers (who don't get a say) lose out, and over time, their skills will be lost as the experienced workers retire without passing on their knowledge - then the whole industry suffers.
They've now almost reached the top of the value chain after about 30-35 years of diligently following this strategy. They can manufacture phones every bit as good as Apple's without help.
China used to need Apple more than Apple needs China. Now, Apple needs China more than Apple. Apple can't move its supply chain home without eye watering costs.
It won't be long before Apple phones start to lag Chinese phones technologically and it won't be long before China can start threatening sanctions that hurt the US more than they'd hurt China.
China took advantage of America's growing individual greed and short-termism. American companies know this, but they can't help themselves.
Working on an automotive line still pays ~2-4x higher than being a manager at a Starbucks, with added benefits like a regular work week and weekends.
To me, the relationship between education and class is a bit more insidious and doesn't necessarily flow the way that benefits society.
But if your goal Of to be an academic or researcher (in higher education or industry) the name of the school on your diploma masters. A mediocre Harvard PhD graduate will probably still have Job for life somewhere (depending in the field).
But choosing to get a no name PhD is certainly not a decision optimized for earning potential or job opportunities.
Namely this: you can bankrupt your competition by undercutting them - this is capitalism 101. Turns out you can do this at country-scale too! It is obvious but PhD economists cannot see it happen. They will hold onto their comparative advantage theory all the way to the poorhouse.
One supposed limiting factor to country-level jungle of capitalism is the Impossible Trinity. Quoting wikipedia: "It is impossible to have all three of the following at the same time: 1. a fixed foreign exchange rate 2. free capital movement (absence of capital controls) 3. an independent monetary policy"
Like an undying belief in Comparative Advantage, you cannot move up to the upper echelons of PhD Economist work without a bedrock belief in the Impossible Trinity.
In reality, turns out a dual currency structure is a great way to blow through the limitations of the Impossible Trinity. China is a spectacular success in lifting hundreds of millions of people out poverty. The Chinese people are hard working and innovative. One of their genius moves has been to create a dual-currency structure: the onshore and offshore yuan.
This dual currency structure is an absolutely brilliant solution - it affords the Chinese leadership tremendous opportunity to manage their own growth while circumventing the Impossible Trinity.
What is hard for me understand is why Econ PhDs with obvious evidence in front of them continue to disregard reality.
https://en.wikipedia.org/wiki/Comparative_advantage
https://en.wikipedia.org/wiki/Impossible_trinity
https://en.wikipedia.org/wiki/Internationalization_of_the_re...
That was Thacher's cunning plan. Break the unions and heavy industry. And then out compete Germany and France in the common market based on lower wages.
Did not work at all.
A California corporation has to pay roughly 30% of its profits to the state and federal government to start. Then it’s shareholders have to pay 25-30% of what’s left to their state and federal government. In practice that’s over a 50% rate, even if the shareholder is a low income retiree. There is little progressivity in taxing investment profits.
No wonder multinational US companies rarely bring profits from foreign subsidiaries back to the US.
Arguing about taxes is a race to the bottom in any case. What matters is returns on capital invested, which of course is affected by tax rates but not exclusively by them. There’s a reason Silicon Valley exists and it’s not because it’s always been cheap to produce there.
We should tax distributions that aren’t reinvested, and do it progressively.
If your startup turns a profit but still wants or needs to reinvest those profits in hiring more or more equipment, they still have to pay taxes on those earnings and only can reinvest half of them (there are some provisions to shield some reinvested profits from being taxed, but they are limited).
I’m all for taxing dividends and capital gains when investors cash out, I’m just saying don’t do it on profits that are reinvested.
Source on any of this? I don't think this is true - both effective and statutory corporate tax is lower. When factoring in things like the estate tax on capital, capital gains tax, etc. - all is much lower than during the 20th century.
> In practice that’s over a 50% rate, even if the shareholder is a low income retiree.
Among equity held by American households, the richest 1% own more than 50% of that equity - and the top 5% owns the lion's share (upwards of 3/4s). The "low income retiree" narrative is overstated. Moreover, that retiree could count paid dividends as ordinary income, which is taxed progressively (10% or less effective tax rate) if they are low-income.
Meanwhile, the estate tax is much lower than it was during the majority of the 20th century, despite the fact that more than half of all wealth is not earned but inherited by the wealthiest 5% of all American households (ie. the median dollar in the economy is inherited, not paid as a wage or from capital gains)
Why is lowering interest rates not resulting in increased manufacturing capacity as it did prior to recent years?
IMHO, that's mistaking a boogeyman for a cause. The real cause here is any policy that allows important productive capability to be moved away in search of short/medium term profit increases. The idea that you'd replace those jobs with higher-paying fluff was just a little sugar to make the poison taste better.
Also, I can't remember exactly where I read it, but some well-known successful businessman candidly said that lower taxes actually make it less likely for him to invest profits back into his business.
1) The decline of Soviet Union. Since the largest opponent is gone, elites of US did not need to suck up the working class as they did not need that many manufactoring power any more, and they could finally throw the working class under the bus because they didn't need to virtual signal their "higher living standard of the working class".
2) The rise of competitive investment banking, including predative M&A and other "unethical" stuffs that blue blood bankers did not do (much) during the 50s and 60s.
A friend of mine was in business school in the 90s. She told me all that low end production was going to be outsourced to lower cost places, and that the US would be mostly management.
I was stunned that not just a person, but a school could be so stupid. What, did they think the Chinese could make shit but would never learn how to manage things or design them? Worse yet, they can now do design, production, logistics, and the US no longer knows how to make a lot of things.
I've even read that Krugman now sees that as a mistake.
Way to go, followers of Jack Welch.
I've wondered, whether the concern for foreign propaganda, targeting US communities disconnected from reality by group-think, is perhaps misguided, in its focus on populists. Sure, sometimes you target propaganda at troops. But the usual and higher-leverage target for deception, is leadership.
Huh? That plane had a design issue, not a manufacturing issue. While the loss of life was tragic, it also wasn't a major design blunder; it's the sort of thing you can fix with a new sensor and a software update. On the other hand, the 787 shows that the US can build planes.
> trains
Bombardier still makes trains in North America, and Alsom builds some trains in the US.
I actually agree with your point, but tech manufacturing moving to East Asia is the bigger story. There's also an argument that the jobs didn't materialize because the workers weren't educated enough for better paying jobs and were too expensive for manufacturing jobs.
In other words, greed.
Furthermore, speaking for my observations of the West, most of the political focus has been on progressing redistributive and environmental policy. Resisted every step of the way by people screaming that the policies are economic disasters. Mining and manufacturing is simply not easy in the West and doing what China does would be flat out illegal - so it isn't so strange if the States starts falling behind.
There have been a lot of changes in the US for the last 30 years. Are there any that can honestly be said to have been pro-free-market, or even experimentally proven to be good ideas? China has been running constant experiments with free market policies in places like Shenzhen and has been building engines of manufacturing wealth and prosperity. Running experiments with an open mind is a great way to figure out what works.
I have literally no idea where you're getting this from, at least from the US's perspective. The EPA has been gutted by the GWB and Trump admins, and the courts blocked anything serious the Obama admin tried to do. There was "welfare reform" in the 90s which reduced redistribution. Taxes on the wealthy have fallen a bunch. The bankruptcy reform in the mid 2000s was a disaster.
I think it might be you who doesn’t know what they’re talking about.
Many startups have tried to enter the consumer electronics space because they thought assembly would be “trivial”, only to find that once the first EVT samples start coming back from China it is anything but trivial.
The tolerances on an iPhone are some of the best around. People don’t always appreciate just how strict the tolerances are for hardware assembly until they’ve tried to do it themselves.
The labor & environmental arbitrage mafia won the war, so fixing the problem is going to be an uphill battle, rather than merely preventing the market from rolling downhill.
Also, it may be that globalization is coming for them next but that they are higher up the hierarchy.
There seems to be a reawakening towards manufacturing in the US with electric cars and rockets. It’s not just Tesla and SpaceX. It’s Rivian, Rocket Lab, Virgin Galactic, etc... I hope it strengthens.
https://www.macrotrends.net/countries/USA/united-states/manu...
Yet employment is down ~4 million people in the same period:
https://fred.stlouisfed.org/series/MANEMP
Edit: Here's a FRED blog post talking about the same thing: https://fredblog.stlouisfed.org/2014/12/manufacturing-is-gro...
https://www.heraldtribune.com/article/LK/20120123/News/60519...
https://money.cnn.com/2017/05/03/technology/apple-tim-cook-a...
As of 2020 the US has not seen these new jobs materialize outside the upper 5% of wage earners in the economy. The trend also shows that the US is losing the capability to manufacture high-end products such as iphones, planes ( 737-max), and trains. The manufacturing jobs which are returning tend to be making the same things that were made 3 decades ago with both inferior wages and quality to what those workers did previously (see American Factory).
While lifting billions of people out of poverty in China and the developed world is a laudable achievement, and the realization of competitive international products was nigh inevitable - the elimination of domestic manufacturing in the US was largely the result of policy choices which enabled businesses to move out of US environmental and labor regulations while still selling into the US market.