Rising Output Does Not Mean U.S. Manufacturing is OK

Ian Fletcher, writing at The Huffington Post, argues that rising manufacturing production does not mean that U.S. manufacturing is doing fine.

Here is the crux of his argument:

Critics of the decline thesis tacitly assert that the appropriate level is “more than yesterday,” so if our manufacturing output is going up, all seems to be well. Nothing simpler!

Unfortunately, the only rational standard for how much America should produce is how much Americans wish to consume. Because the only way to consume is either to produce what you wish to consume, or produce something else you can exchange for it.

And this is where American manufacturing is clearly falling short, because America is running a huge trade deficit in manufactured goods, and we don’t produce enough of anything else (raw materials, services) to cover the gap. So instead we borrow and sell off existing assets to pay for imports.

If Americans were willing to consume less, our manufacturing output would be just fine. But I don’t know a lot of people eagerly volunteering to accept a lower living standard.

At some point, it all comes out in the wash. Either America must start producing more, or consuming less. And the longer we remain in denial about the fact that manufacturing is a sick sector in this country, the more likely it will be the latter.

You can read the full article here.

– The Editors