The myth of US industry's demise

[skyson]

The myth of US industry's demise - Michael Brush

Chrysler bankrupt, General Motors (GM, news, msgs) on the brink, layoffs almost too deep to count. No wonder the recession has brought out a chorus of hand-wringers lamenting that America "doesn't make anything anymore" and that all the good jobs have been outsourced.

Few myths could be further from the truth. Despite headlines about low-wage workers in China and our factory jobs going to India -- which has happened in a lot of industries -- the U.S. is still far and away the biggest manufacturer in the world.

http://articles.moneycentral.msn.com...ys-demise.aspx

[don]

Re: The myth of US industry's demise

Consider the source.

[ax]

Re: The myth of US industry's demise

Consider the source.

Exactly. Aside from Markman and Fleckenstein (Jubak is on leave?), the other writing on this site is strictly MSM gobbledygoo.

[jiimbergin]

Re: The myth of US industry's demise

here is another source

http://www.ritholtz.com/blog/2009/02...-manufacturer/

[c1ue]

Re: The myth of US industry's demise

It is true that the US still has the most manufacturing capacity in the world.

I posted this graph a while ago in an iTulip conversation with JK:

World manufacturing output 2005.bmp

However, the problem lies with what this capacity consists of and where it will go from now.

Specifically how much of this capacity is defense, aerospace, and heavy machinery related?

Defense is almost entirely non-productive in the future sense.

Aerospace is subject to a massive worldwide overcapacity in airlines - both people and goods transport.

Heavy industry - outside of a few sectors like nuclear, again significant overcapacity.

It will be interesting to see how this breakdown looks like in 2 years - unfortunately we won't know it until 5 years from now.

[ricket]

Re: The myth of US industry's demise

http://articles.moneycentral.msn.com...ys-demise.aspx

I was in a "Country Store and Gift Shoppe" in the eastern United States yesterday. They had all sorts of "local" souvenirs for all of the places and landmarks you could visit in and around the area. 90% of the shop had products that were made in China. Only about 1 in 10 products had a "Made in the USA" label. This is the same for almost any retail location that I go to (which, keep in mind, retail makes up a large portion of the US "GDP").

I think that the reason that people believe we still make stuff, is because most of our "production" has been centered in industries/companies that were heavily financialized (i.e. FIRE-run) and thus the manufacturing capacity was all just a sham that was "put together" just enough to service the debt that they carried so heavily. The companies were producing off of borrowed time, and during the boom times people didnt notice. But now those times are over, the reality is sinking in and theyre all going under.

I agree that the U.S. still does in fact make quite a lot of things. But if China and all the other export driven economies were to retaliate for some of our hints at trade war tactics (i.e. "buy USA!"), then how long do you think the U.S. manufacturing capacity could pick up the slack were all the foreign made products to suddenly cease being shipped to the U.S.?

I give it about 3 weeks before all the shelves in most of the stores and supermarkets in the U.S. are 75% empty. What a shock *that* would be to the US public. Looks like were not so great of a country after all...

[skyson]

Re: The myth of US industry's demise

Specifically how much of this capacity is defense, aerospace, and heavy machinery related?

According to jiimbergin's cited source,

"The United States sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007, and $80 billion worth of autos and auto parts. Deere, best known for its bright green and yellow tractors, sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world."

Totol production output for 2007 was $1.6 trillion.

Wow, the USSR's contraction of production capicity was so significant. It may has more to do with the breaking up of the country, or the actual production capicity?

[Starving Steve]

Re: The myth of US industry's demise

It is true that the US still has the most manufacturing capacity in the world.

I posted this graph a while ago in an iTulip conversation with JK:

[ATTACH]1614[/ATTACH]

However, the problem lies with what this capacity consists of and where it will go from now.

Specifically how much of this capacity is defense, aerospace, and heavy machinery related?

Defense is almost entirely non-productive in the future sense.

Aerospace is subject to a massive worldwide overcapacity in airlines - both people and goods transport.

Heavy industry - outside of a few sectors like nuclear, again significant overcapacity.

It will be interesting to see how this breakdown looks like in 2 years - unfortunately we won't know it until 5 years from now.

If the skyline of Mexico City is any indication, watch "others" on this graph explode in the next few years. Mexico, Brazil, Chile, Argentina, et.al. will have their day in the sun. And of course, watch China and India explode; even Russia will expand production.

Meanwhile, the U.S. will wither-away because of several reasons, especially environmental regulation, and cost of energy. The apparent choice of the Obama Administration to bet the ranch on solar energy and windmills is a dead give-away of an America without a future.

[c1ue]

Re: The myth of US industry's demise

Skyson - good point on the output.

I'd also like to point out what Dr. Michael Hudson spoke to in his Super Imperialism book: a lot of the US manufacturing growth in this century has been due to rebuilding Europe (and building Japan) in the pre WW I to Korean War period.

Towards the end of this period the process was furthered by US lending via the IMF and World Bank - procedures all helped immensely by the accumulation of nearly 2/3rds of world gold back when gold WAS money.

If we look at what is happening today:

Where's the destroyed capacity that needs rebuilding? It is here. And it wasn't destroyed, it was relocated.

Where's the money to rebuild the capacity here? It went along with the capacity.

Fascinating twist on history.

[medved]

Re: The myth of US industry's demise

Defense is almost entirely non-productive in the future sense.

It is very productive. If US empire weakens and reduces its military presence around the world, there will be more local wars and more demand for American-made weapons. The history of Arab-Israeli wars shows, Russians are no match for the US as an arms vendor.

If the empire holds, it still needs more and more weapons, and defense industry will be subsidized by the rest of us.

Aerospace is subject to a massive worldwide overcapacity in airlines - both people and goods transport.

Heavy industry - outside of a few sectors like nuclear, again significant overcapacity.

This applies to any country in the world. US will benefit from the $ devaluation relative to ROW.

[BadJuju]

Re: The myth of US industry's demise

I give it about 3 weeks before all the shelves in most of the stores and supermarkets in the U.S. are 75% empty. What a shock *that* would be to the US public. Looks like were not so great of a country after all...

And I would give it two weeks before all the agricultural products (over 50% of the world's grains) the US produces and exports around the world to similarly disappear. It would not be a pretty picture for other nations to engage in a trade war with the US, I imagine.

[labasta]

Re: The myth of US industry's demise

Guys, correct me if I am wrong on this, but didn't the US classify really odd things in their "manufacturing" box?

I mean, wasn't construction and real estate thrown into the "manufacturing" pot along with burger flippers etc. (no insult to burger flippers).

I read that somewhere I think.

I imagine it's a bit like Scotland or Southern Germany and maybe other parts of Europe, where the real manufacturing is small engineering firms making machine parts. There's certainly little large scale stuff except for perhaps the military.

Technology has kind of wiped out jobs though in manufacturing. It's not the 1930s again.

Where do we go from here?

On a non-doomer note, I reckon alt energy/infrastructure would work if it really went the whole hog. I'm talking about electric cars, maglev trains, an overproduction of cheap energy like this one which I hope and pray happens in Ireland: spirit of ireland

It won't work if the money channeled is unproductive, or token-like IMO.

[medved]

Re: The myth of US industry's demise

Skyson - good point on the output.

I'd also like to point out what Dr. Michael Hudson spoke to in his Super Imperialism book: a lot of the US manufacturing growth in this century has been due to rebuilding Europe (and building Japan) in the pre WW I to Korean War period.

Towards the end of this period the process was furthered by US lending via the IMF and World Bank - procedures all helped immensely by the accumulation of nearly 2/3rds of world gold back when gold WAS money.

If we look at what is happening today:

Where's the destroyed capacity that needs rebuilding? It is here. And it wasn't destroyed, it was relocated.

Where's the money to rebuild the capacity here? It went along with the capacity.

Fascinating twist on history.

I don't see it as fascinating, it is pretty normal. Both Asia and Europe now have well developed manufacturing capacity. The "fascinating" part in this story is how quickly they were able to restore it from total ruin (Europe) or create it from scratch (Japan, S. Korea etc.). US historically had some "unfair advantage" because it escaped WWI and WWII with relatively small damage and loss of population. But you have to play the card you've been dealt, even if it's a good one. So America did.

Now we are back to "normal", and there is a lot of manufacturing capacity all around the world. Both US capital and its unions will learn to share the market for it with other countries. There is nothing wrong with it, and it is not a "twist".

[metalman]

Re: The myth of US industry's demise

I don't see it as fascinating, it is pretty normal. Both Asia and Europe now have well developed manufacturing capacity. The "fascinating" part in this story is how quickly they were able to restore it from total ruin (Europe) or create it from scratch (Japan, S. Korea etc.). US historically had some "unfair advantage" because it escaped WWI and WWII with relatively small damage and loss of population. But you have to play the card you've been dealt, even if it's a good one. So America did.

Now we are back to "normal", and there is a lot of manufacturing capacity all around the world. Both US capital and its unions will learn to share the market for it with other countries. There is nothing wrong with it, and it is not a "twist".

one can argue we were back to 'normal' in 1971. then the fire econ & the dollar.

so... when does the really big war start?

[c1ue]

Re: The myth of US industry's demise

It is very productive. If US empire weakens and reduces its military presence around the world, there will be more local wars and more demand for American-made weapons. The history of Arab-Israeli wars shows, Russians are no match for the US as an arms vendor.

If the empire holds, it still needs more and more weapons, and defense industry will be subsidized by the rest of us.

Medved,

I'm afraid I totally disagree. The cost of American weapons is so high that it is simply impossible for lesser nations to afford them.

As for the Arab-Israeli wars - I know for a fact that the Arabs were using export quality Russian equipment. Certainly the US stuff is better in general, but equally certainly that the multiplier (number * quality) was not in the US' favor in the heart of the Cold War era. The fact that the Israelis did well is entirely a function of their using their top line equipment very well against poorly trained and coordinated enemies. Last I looked there is not a single Arab nation in the top 50 highest quality militaries in the world with the possible exception of Turkey.

The collapse of the Soviet empire and its subsequent 20 year hiatus in major arms development has left Russia behind in many respects such that the previous nuclear equalizer is now to Russia's benefit (as opposed to the US' before).

So again, lots of little wars do benefit arms production. But who uses American equipment outside of captive protectorates like Taiwan, Japan, and Saudi Arabia? No one else does because it is too damned expensive.

This applies to any country in the world. US will benefit from the $ devaluation relative to ROW.

Some will benefit, but a lot won't. Secular falls in demand mean permanent reductions in needed capital equipment irrespective of price. And on the price front - there are a lot of nations who now create heavy equipment whether farm machinery or otherwise. Once again, the exported stuff is damned expensive and a 50% fall in the dollar might not be enough in every case - especially as the ROW is ALSO devaluing if not as fast.

Ultimately the tie breaker may well be credit. Another area where the US is handicapped.

Now we are back to "normal", and there is a lot of manufacturing capacity all around the world. Both US capital and its unions will learn to share the market for it with other countries. There is nothing wrong with it, and it is not a "twist".

Sorry, there is nothing normal about this. Previously 'X' worldwide manufacturing capability was reduced to 'X' minus 'Y' by destruction of European capacity (and manpower). US share of Z (postwar worldwide manufacturing capacity) thus grew not just due to filling wartime demand, but also to rebuild the 'Y' portion.

Today we don't have a minus in a worldwide sense. What we have is a giant black hole of demand for product in the US, and a massive manufacturing and labor capacity in the ROW.

The point I've been continuously stressing is that this manufacturing capacity does not have to always feed the US black hole - it can go instead to filling demand in the nations with the capacity.

In the meantime the rebuilding of both labor and manufacturing capacity in this nation - especially in a declining credit and rising taxation/burden environment - is not going to be pretty.

So I do say it is a twist. A similar 'hollowing out' occurred with Spain and the massive New World bullion shipments, but Spain had the money and inflation and just lost the manufacturing capacity.

The US in contrast doesn't have the money and has shipped off the capacity.