The US has some terrible problems but this article doesn't discuss them, preferring a convenient and lazy argument based on nonsense:
> America doesn’t make its own shoes. It doesn’t make some nuts and bolts or fasteners, it doesn’t make industrial things anymore because if money is to be made off an industrial company it’s to buy and sell the company, not to make loans to increase the company’s production.
This is of course utter bullshit. The US manufacturing output is more than 1/2 china's (about 16% of world production vs 28% for china) despite having less than a quarter the population. Sure, on a per capita basis Germany produces more than the US but back of the envelope the US is #2 or #3. And that doesn't include agriculture which in the US (and other OECD countries but not China) is highly industrialized, or housing or other such: just factories making physical goods.
What has happened is that the US manufacturing has moved into a saddle curve: either products that are too low in value compared to their transport costs (e.g. paper) or of such high added value that the other costs mentioned in the article are not relevant (high precision bearings, some kinds of software, chip fab equipment...and yes some fasteners). Unfortunately some of this consists of arms (e.g. F-35) which are sort of the ultimate in Bastiat-style "broken windows" and end up reflecting very little in actual economic development and fundamental growth). But still, a huge amount of manufacturing.
Of course by the nature of this, the US ends up exporting less of its manufacturing output than a country like China would, as its goods are either non-exportable or of more limited utility.
I don't see how your facts disagree with the assertion. The US manufactures more in terms of dollars, but in terms of volume of goods the US falls behind significantly.
These goods require efficient labour - that is, labour that is efficiently reproduced, and therefore cost-effective housing, healthcare, and so on, to be made effectively, as well as high-volume, low cost, logistics.
Because of this, the US cannot do the kind of manufacturing China can do systematically, whereas China simply needs better technology to be able to manufacture the very high value goods that are dominant in the US
This inevitably leads to a weakening of the US manufacturing sector assuming competitive markets.
Also, if you're taking into account goods that cannot be imported or exported for structural reasons and whose components are of negligible price, you should do some adjustment for purchasing power parity, as the exact same goods in another economy would be sold at a much lower price
Thanks for your thoughtful comment. I'm afraid I'm not sure I understand/agree with your position. Certainly the volume of manufactured goods doesn't matter much to me any more than the total mass (which might even tip the scales, so to speak, in the US's favor).
I assume you mean that the US makes a smaller distribution of goods. From a Ricardo PoV this should be irrelevant.
OK, but we live in the real world. As I said, I do think there are some bad problems, a major one in this regard being the lack of supply chain diversity (some of which would be handy to have in the US). Lack of such diversity increases friction on developing new products. Not sure it's a long term problem though (see below).
The clue is in your statement "China simply needs better technology to be able to manufacture the very high value goods that are dominant in the US". China's labor advantage is where humans are required, and demographically, China faces a labor force squeeze in the coming decades, especially when compared to India and much of Africa, but also when compared to the USA. So the Chinese government does have a focus on increased high tech value add (consider planes and the humble biro (ball) pen) and automation. The US is also investing heavily in automation and has been for a while due to its labor costs (I believe the labor content of US manufacturing is lower than the OECD average).
So there's a race in the traditional Christiansen sense of "innovation" but in this case the US is extending the automation advantage downwards while China is following the "classic" path upwards (as with the canonical example of minimills). As the degree of automation increases the US margins go up leaving more capital for further development and eroding the advantages of economies that compete only on the basis of human labor -- a kind of extractive industry, actually, though not typically thought of that way. As the marginal cost of production drops, the comparative advantage shifts the other way and I presume all developed economies would incrementally "onshore" more of their manufacturing, in part for a simpler just in time system, and otherwise because at that point shipping cost becomes a material part of BOM cost.
This is almost completely a good thing, unless what you have to sell is labor. And that's the problem all around: the US labor force is not that well equipped any more for manufacturing jobs. That doesn't really bother me; I've always considered it absurd that some people think the function of companies is to provide jobs (or much worse, that the function of humans is to perform jobs). The right objective is to simply pay people to be alive and let them enjoy the goods and services they like. Let automation eliminate as much of the drudgery and danger as possible.
This does seem to be discouraging for probably 3B of the world's population who have nothing to sell but their unskilled labor. But the topic of this thread is the USA and China, so...
This excerpt tied the article to the present SNAFU well
"Wall Street groups buy the infrastructure. They’ll do what happened to Chicago when it sold all the parking meters, they’ll say, OK, instead of 25 cents an hour, it’s now charged $3 an hour. Instead of a $2 for the subway, let’s make it $8.
You’re going to price the American economy even further out of business because they say that public investment is socialism. Well, it’s not socialism. It’s industrial capitalism. It’s industrialization, that’s basic economics. The idea of what, and how an economy works is so twisted academically that it’s the antithesis of what Adam Smith, John Stewart Mill and Marx all talked about. For them a free- market economy was an economy free of rentiers. Free of rent, it didn’t have any rent seeking. But now for the Americans, a free-market economy is free for the rentiers, free for the landlord, free for the banks to make a killing. And that is basically the class war back in business with a vengeance."
Doesn't mean it's wrong, though. I found the part enlightening about America not being able to compete with China in manufacturing (if they wanted to) because health care, housing, education is so expensive in the US. Of course everything is more expensive in America than in China, that's crystal clear. However and nonetheless there's a reason why Germany still has a lot of industry and the US has not and the point that the US just puts its money where it generates the most money (not where it necessarily strenghens the local economy) resonates. It's really a shame how little the US politics influenced the economy in the right ways in the last 20-30 years. I'm talking infrastructure, affordable health care, minimum wages, TAXES etc.
Michael Hudson is PhD in Economics and a professor of economics that worked at Chase as a research economist. His conclusions aren't based on "reading the news from afar".
Kurt Wise is a PhD in paleontology from Harvard and is a young earth creationist. Having a PhD does not make you correct. And the guy above is right that there's very little data in the article. A lot of musings and general observations.
That's why I didn't just mention his degree, I mentioned that he's currently employed as a professor and that he worked at high level in the private sector in this field. There's not really much more you could ask for. I'm not sure Kurt Wise could find a job as a paleontology professor and as a forensic paleontologist in a very impactful position.
There is not that much data, of course. This is an article meant for laymen in economics, and is mostly focused on explaining the reasons why things are as they are. If you want quantitative analysis you can certainly find quite a bit that agrees with him.
Yes, and it's not wrong. In the US, 21% of GDP is from finance, which is materially non-productive, and this sector was growing at 6% pre-pandemic.
The use of finance is, at least in theory, it's ability to provide growth to productive sectors. When you're seeing finance being one of the primary drivers of growth by itself, whereas productive sectors don't grow, this indicates that you're lagging behind in your capacity to actually produce value.
To note, this isn't just an "interview with a Marxist". Michael Hudson has a PhD in economics and is a professor of economics at the Univeristy of Missouri. He's a classical economist, that happens to use some elements of Marxian economics too.
>The use of finance is, at least in theory, it's ability to provide growth to productive sectors.
The main distinction is between the primary market (which provides new funding to companies) and the secondary market (which trades existing securities). You need a certain amount of the latter to support the former by providing liquidity. But anything beyond the required amount starts creating what's known as deadweight losses in economics. Unfortunately, an increasing share of the overall financial sector is the secondary market (mainly proprietary trading operations).
Unless I'm misremenbering, in theory the effects of the primary market should correlate with growth in production, right? I'm dusty so I might misremember.
> The use of finance is, at least in theory, it's ability to provide growth to productive sectors.
No, like all other capitalist industries, the use of finance is increase the wealth of capital owners.
> When you're seeing finance being one of the primary drivers of growth by itself, whereas productive sectors don't grow, this indicates that you're lagging behind in your capacity to actually produce value.
No, because of its driving growth, it is producing value (not just for it's owners, which is it's narrow purpose, but for whoever is purchasing the service.) If a nation is seeing finance-driven growth, it's just a sign that that is where it's Ricardian comparative advantage lies in the system of trade. And if you look at international trade regimes, there's a pretty clear finance (and information/knowledge work more generally) - manufacturing - extractive heirarchy ranging from the core to the peripheries. Positive changes in relative position in the world economic order are associated very much with moving to the earlier part of that list.
The issue is that you're presupposing that there is a commensurate increase in production in the rest of the market so that you can import it. If you had a closed economy where only the secondary finance sector was growing, you wouldn't see any increase in production at all.
And not all information/knowledge work is non-productive. In fact, the vast majority is productive. Just not finance, as nothing is produced.
Commensurately, if you had an economy where abstract capital is being accumulated, but production isn't increasing, you're in huge trouble.
> America doesn’t make its own shoes. It doesn’t make some nuts and bolts or fasteners, it doesn’t make industrial things anymore because if money is to be made off an industrial company it’s to buy and sell the company, not to make loans to increase the company’s production.
This is of course utter bullshit. The US manufacturing output is more than 1/2 china's (about 16% of world production vs 28% for china) despite having less than a quarter the population. Sure, on a per capita basis Germany produces more than the US but back of the envelope the US is #2 or #3. And that doesn't include agriculture which in the US (and other OECD countries but not China) is highly industrialized, or housing or other such: just factories making physical goods.
What has happened is that the US manufacturing has moved into a saddle curve: either products that are too low in value compared to their transport costs (e.g. paper) or of such high added value that the other costs mentioned in the article are not relevant (high precision bearings, some kinds of software, chip fab equipment...and yes some fasteners). Unfortunately some of this consists of arms (e.g. F-35) which are sort of the ultimate in Bastiat-style "broken windows" and end up reflecting very little in actual economic development and fundamental growth). But still, a huge amount of manufacturing.
Of course by the nature of this, the US ends up exporting less of its manufacturing output than a country like China would, as its goods are either non-exportable or of more limited utility.