The Right Opinion

It Just Ain't So

By Walter E. Williams · Mar. 7, 2012

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.

COPYRIGHT 2012 CREATORS.COM

8 Comments

Garry said:

The last paragraph of this piece is brilliant. It illustrates why it is vitally important to keep the value and reputation of the dollar sound. The problem is, the current crop of Democrats think they can abuse the value of the dollar and recklessly borrow money they have no intention of ever paying back. That may work for a while, but people aren't stupid. Very soon the value of the dollar will take a plunge because foreigners (and Americans, for that matter) will no longer accept our increasingly worthless dollars we keep printing. That's why gold is going through the roof.

Wednesday, March 7, 2012 at 10:55 AM

Mike said:

I agree on the productivity, manufacturing points, and understand the point on the trade balance statements. However, you may purchase $100 of groceries, but the grocer did not pay $100 for the same, so his goods account does not decrease by the same $100 - say it is $85. He has a $15 profit. So isn't that $15 difference what is called a trade deficit / imbalance? - at least between the two parties? He may spend that $15 in ways that may re-balance the whole ... but maybe not ...

Wednesday, March 7, 2012 at 2:58 PM

Mike said:

I agree on the productivity, manufacturing points, and understand the point on the trade balance statements. However, you may purchase $100 of groceries, but the grocer did not pay $100 for the same, so his goods account does not decrease by the same $100 - say it is $85. He has a $15 profit. So isn't that $15 difference what is called a trade deficit / imbalance? - at least between the two parties? He may spend that $15 in ways that may re-balance the whole ... but maybe not ...

Wednesday, March 7, 2012 at 3:14 PM

COS911 said:

Mike,The $15 isn't a deficit or imbalance (in your example), it simply is the grocer's income from that transaction. The point is, the grocer has something he valued more than the $100 in goods, namely the money, and Mr Williams has something he values more than the $100 in money, namely the food. Both have more utility than they had before the transaction, so both win. That's why the transaction went forward in the first place--both desired and benefitted from it.

Wednesday, March 7, 2012 at 4:43 PM

pete said:

Mike, you forget the grocer's time in labor. As Mr. Williams sells his time, effort and product for that $100, the grocer sells his time, effort and product. As a young aircraft mechanic I sold my knowledge and abilities for a low price because that was what they were worth on the market. As I gained more experience and knowledge I was able to get a better wage because that is what I was worth on the market.I doubt Mr. Williams got $100 for his early writings, tho today any originals may be worth something to document collectors.

Wednesday, March 7, 2012 at 4:49 PM

p3orion in Midland, Georgia said:

As technology advances, societies inevitably (and fortunately) advance along with it. For the past 200+ years, America has been at the forefront of this societal evolution. Perhaps this was due to some innate virtue in the American character, or maybe it has more to do with easy access to resources, and less (in centuries past) entrenchment in "things as they are" preventing needed change.But however fast such evolution occurs, it seems to follow a set path from agriculture to industrial, and from there to information and technology. The most backward cultures in the world are still primarily agricultural, and aspire to manufacturing. The more advanced ones like ours are making the next leap. Of course the transition is never complete (we still have farmers) but the main thrust driving employment changes.The reason China is now making huge leaps in manufacturing capacity is that they were ready to abandon an agrarian society and embrace manufacturing at just about the same time that Americans were poised for the next leap.I suspect that much of the hand-wringing over the state of manufacturing in America has something to do with the relatively high percentage of factory workers who are still unionized, as compared with high-tech and information workers. Unions may have had a place when America was entering its industrial era, but as we make the next transition, unions and their Democrat lap-dogs in Congress only hold us back.

Thursday, March 8, 2012 at 12:27 PM

desert said:

The census bureau is as big a liar as the communist mooslime in the oval office.....grew 11% ...? how freaking stupid do these people think we are? How in H can it grow when its all shipped out of the country? Apparently pretty stupid because the b a s t a r d s are still in govt, still drawing our tax dollars ....still crapping on America!

Monday, March 12, 2012 at 12:34 PM

Nancy Jones said:

I wish they would bring back local telephone operators!! Ones who can read, spell and speak English well!

Monday, March 12, 2012 at 6:56 PM