Carpe Diem

The insourcing boom is bringing manufacturing back to the US

In an article in the December issue of The Atlantic titled “The Insourcing Boom,” Charles Fishman explores “the startling, sustainable, just-getting-started return of industry to the United States.” Much of the article features GE’s recent insourcing: “After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone.”  Here are some excerpts:

Many offshoring decisions were based on a single preoccupation—cheap labor. The labor was so cheap, in fact, that it covered a multitude of sins in other areas. The approach to bringing jobs back has been much more thoughtful. Jobs are coming back not for a single, simple reason, but for many intertwined reasons—which means they won’t slip away again when one element of the business, or the economy, changes.

Here are the five reasons given in the article for the reshoring trend of manufacturing output and production coming back to the US:

1. Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.

2. The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)

3. In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.

4. American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.

5. U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.

MP: It’s a long article, but well worth reading the whole thing.  The insourcing/reshoring trend is a promising development and it’s just getting started. Here’s a related CD blog post, featuring an article that I wrote for the National Chamber Foundation,  “Manufacturing in Our Favor: A Global Reallocation of Manufacturing.”

226 thoughts on “The insourcing boom is bringing manufacturing back to the US

  1. I don’t know if its a “boom,” but having once been in apparel manufacturing and watching that industry disappear, after we were the largest weavers and knitters of textiles on the planet, Mr. Perry, and the article, are skimming a few points.

    Note these quotes:

    “The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. It eliminated the tangle of tubing that couldn’t be easily welded. By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.”

    “So the dishwasher team remade its own assembly line. It eliminated 35 percent of the labor.”

    “What’s happening in factories across the U.S. is not simply a reversal of decades of outsourcing. If there was once a rush to push factories of nearly every kind offshore, their return is more careful; many things are never coming back. Levi Strauss used to have more than 60 domestic blue-jeans plants; today it contracts out work to 16 and owns none, and it’s hard to imagine mass-market clothing factories ever coming back in significant numbers—the work is too basic.”

    What you’re seeing is that the process of using LESS labor, in tandem with rising labor costs, it what’s bringing these jobs back, but its bringing fewer OF them back.

    When I was a kid, there were cut and sew operations right there in Midtown Manhattan. Hard to believe, with all the high end office space there is now. These plants eventually moved to rural Pennsylvania and then down South, near where the textiles were made. Then to Mexico, then to Costa Rica, then to Caribbean Islands under a US program called “Section 807.”

    Concurrently, this went to Korea- remember when your Reeboks first came from there? And Hong Kong, before the Chinese took over. And Taiwan. Lastly, apparel manufacturing is now done in China (where apparel labor shortages are becoming common,) and in India and Bangladesh.

    So what happened? Prosperity. With the cost of real estate in Hong Kong, I don’t think you’re going to see too many sewing factories set up. Taiwan and Korea are now tech superpowers. Hong Kong is now a global capital and banking powerhouse. But as the article pointed out, apparel will not come back here because it is so hard to take the labor content out of it. So out of all the reasons quoted, the “de-skilling” of the manufacture of the products is the chief reason these jobs are coming back.

    Its not a bad thing- but don’t expect a “boom.”

    • @Max I think you’re right, at least in industries that were formerly labor intensive. There is a great Econtalk Episode where Russ Roberts talks about these trends.

      http://www.econtalk.org/archives/2010/02/roberts_on_smit.html

      Excerpt: about 50 years ago, a typical North Carolina textile worker operated about five machines at once. Each capable of running a thread through a loom 100 times a minute. Today’s machines are six times as quick–600 times a minute. That’s the standard productivity change we think of. In addition, each machine itself is easier to oversee; so instead of overseeing 5 machines, each worker oversees 100 machines. Output per worker way up 20 times over; worker is 120 times more productive in total.

      However, I do think the energy boom in cheap natural gas is going to move some heavy industries back on shore.

      Also, as to the “de-skilling” of the labor market, there are some interesting points in this podcast. At least in this story, the lowest skilled workers are the ones in danger of having their jobs automated, while others with supposedly “blue collar” jobs are quite skilled, but as you point out, we need fewer of them.

      http://www.econtalk.org/archives/2012/02/adam_davidson_o.html

      And yes, I’m a huge fan of both Carpe Diem and Econtalk.

      • Thanks for the info, I will go through it later. One thing about the disappearance of the industry that upsets me is that no one ever told their story. This business employed millions of people over the years, and created vast wealth for the nation. The attempts to save the business were lame and half hearted. Unskilled laborers need a place to earn their bread, too. I used to hate visiting the factories, and felt sorry for the people working the sewing machines, doing the same operation over and over again. It wasn’t until much later that I realized those jobs still had value too.

        By the way, as a point of history: we get the insult “twirp” from the old English name of the man whose job it was to tend the “warp” on a weaving machine. “Where’s t’wirp, the machine needs tendin.”

    • ““So the dishwasher team remade its own assembly line. It eliminated 35 percent of the labor.”

      Max: “What you’re seeing is that the process of using LESS labor, in tandem with rising labor costs, it what’s bringing these jobs back, but its bringing fewer OF them back. ”

      As Mark said above:

      “U.S. labor productivity has continued its long march upward,”

      Redesigning a product in order to reduce the manhours required for its manufacture – that is exactly what is meant by “labor productivity gain”, right?

      As for the argument about de-skilling: it takes quite a bit of skill to automate a skilled labor task. Numerical control machines may replace skilled craftsmen. But the demand for computer numerical control programmers and operators is still strong, and these guys are definitely skilled workers.

      • “Redesigning a product in order to reduce the manhours required for its manufacture – that is exactly what is meant by “labor productivity gain”, right?

        As for the argument about de-skilling: it takes quite a bit of skill to automate a skilled labor task. Numerical control machines may replace skilled craftsmen. But the demand for computer numerical control programmers and operators is still strong, and these guys are definitely skilled workers.”

        But what replaces the jobs that this increased productivity eliminates? At one point, and for many industries, this becomes a losing gambit. If 10,000 employees can now do the work 100,000 once did, where do the 90,000 who lost their jobs find work?

        I’m not arguing against automation or robotics or production efficiencies. But consider the implications.

        In regards to Mr. Murphy’s earlier remarks, in a global economy, the job market IS a “zero sum” game. One nation wins at the other’s expense.

        That’s nothing to “rejoice” about when we find ourselves on the losing end.

        As a husband and father, while I welcome the return of even a SINGLE job, insourcing isn’t a panacea.

        Mr. Perry would also do well to acknowledge Mr. Obama’s promotion of this issue during the campaign.

        • max planck: “But what replaces the jobs that this increased productivity eliminates? At one point, and for many industries, this becomes a losing gambit. If 10,000 employees can now do the work 100,000 once did, where do the 90,000 who lost their jobs find work?”

          Is this a real question? Do you really not know? I’m going to assume you do not know – that you’re not joking.

          For at least 300 years – and probably much longer – humans have been successfully increasing the productivity of workers. Machines have enabled a few workers to do what hundreds formerly did. Robots and computers increased the productivity of the workforce even more. So what happened to all those displaced workers?

          Almost by magic, the number of workers continued rising, And – seemingly by magic – the output from all those workers skyrocketed. Humans – assisted by machines, robots, and computers – created more and more goods and services for their fellow humans to consume. The human being in today’s world has more toys, better food, a more comfortable life, a longer life, more leisure time, a less stressful existence – we could go on and on. And all this was made possible because each individual worker was able to produce more and more output.

          It’s hard for me to type this and not feel that you are putting me on. Certainly anyone who has studied economics – basic, simple economics – should understand how increasing productivity leads not to fewer jobs but to more output and higher living standards.

          • “Almost by magic, the number of workers continued rising,”

            Where’s the magic now, Skippy? No, I am not putting you on, and the industrialization of nations like China and India have transferred trillions of dollars worth of production off our shores.

            You think some “invisible hand” is going to help out.

            Nothing ever happens by itself, or for no reason, or for no cause. You’re suffering under the delusion that if we just leave things alone, the economy will simply return to an Eden like state.

            It never worked that way. What happens when the train stops? Because unless you’re blind, you must be noticing that there something profoundly different happening to the economy this around.

            Yeah- this time IS different.

          • Where’s the magic now, Skippy? No, I am not putting you on, and the industrialization of nations like China and India have transferred trillions of dollars worth of production off our shores.

            So you really *don’t* understand this stuff?

            Mind boggling.

          • John Dewey

            It’s hard for me to type this and not feel that you are putting me on.

            He’s NOT putting you on, John – he *really doesn’t* understand it. very sad.

          • Well, Ron H, I guess it is sad. But it is very irritating to me that someone would comment on an economics blog despite not having an understanding of very basic economics.

            There are economists who make a case for restrictions on free trade. So I can accept that someone here might question the benefits of globalization. But Max Planck was questioning above not about the benefits of unrestricted free trade. Rather, he was arguing that increasing the productivity of workers leads to permanent unemployment:

            Max Planck: “If 10,000 employees can now do the work 100,000 once did, where do the 90,000 who lost their jobs find work? ”

            I just do not believe that anyone who has taken an economics course would waste our time by asking that question.

          • I just do not believe that anyone who has taken an economics course would waste our time by asking that question.

            After reading many of his comments I can. Our friend is as ignorant of economics as one can get and knows less about the subject than my 12-year-old.

          • “After reading many of his comments I can. Our friend is as ignorant of economics as one can get and knows less about the subject than my 12-year-old.”

            This is coming from someone who can’t look at empirical evidence staring him in the face and have the ability to change his mind.

            That being the case, you’re dumber than a dog. At least their trainable.

            So there. Yo momma.

          • Max Planck: “If 10,000 employees can now do the work 100,000 once did, where do the 90,000 who lost their jobs find work? ”

            I just do not believe that anyone who has taken an economics course would waste our time by asking that question”

            If you’re so effing smart, than answer that question.

            I’ll be waiting for this received wisdom.

          • If you’re so effing smart, than answer that question.

            The point is that he is smart and you are stupid. Your question has been answered by many economists. The fact that you are not aware of their answer shows just how ignorant you are of the field.

          • “The point is that he is smart and you are stupid. Your question has been answered by many economists. The fact that you are not aware of their answer shows just how ignorant you are of the field.”

            You’re deflecting. Either answer the point or go away.

            “Many economists,” huh. That’s what you’re about isn’t it? “Economists.

            Bloody hucksters and fakirs.

          • You’re deflecting. Either answer the point or go away.

            I did. I gave you a link to Hazlitt, who will show you just how ignorant you are if you care to learn. After looking at II. The Broken Window, which is where the primary fallacy is discussed, you can move on to VII. The Curse of Machinery, where he shows you why Ron is right and why you are an economic illiterate. He also points out that if you go back to Adam Smith’s book, Wealth of Nations, you will find the pin maker example, in which machinery wiped out 99.98% of the jobs in the pin making sector. He also leads you to another reference, Felkin’s, A History of the Machine-Wrought Hosiery and Lace Manufactures, in which we find that even though the use of machines destroyed a huge percentage of the jobs in the sector, production grew by such a massive amount that employment increased 100 fold over the century that followed mechanisation. The parliamentary enquiry that looked into the effect of the introduction of the machines found that over a 27-year period the number of jobs went up by 4,400%. Hazlitt also leads you to Recent Economic Changes, and Their Effect on the Production and Distribution of Wealth and the Well-Being of Society, where you get to look at data that shows the impact of massive improvements in technology on the living standards of ordinary people.

            As I pointed out, you are so ignorant that you make Larry look like a genius. You need to stop pretending that you know everything and learn about the topic that is being discussed.

          • You idiot. You stupid, flaming, narcissistic dope. You’re using these ancient treatises as “proof?”

            Let me recommend an author to YOU: Nassim Taleb. He uses the example of a Turkey being fed and treated gently, and the turkey thinks this is the way things are for him. Things couldn’t be better.

            Then Thanksgiving came.

            Taleb’s work can be summed up, thus: you can’t tell the future by reading the past backwards. That’s what sunk the economy. And that ultimate failure, by the way, has applied to every single economic model that’s come our way.

            Things work- but only until they stop working. And that theme resonates through all of Taleb’s work. We seek stability, we seek rationality. We never get it, but it never stops us.

            Your reference to these old books is laughable stuff. Its a good thing you didn’t go into medicine.

          • Let me recommend an author to YOU: Nassim Taleb. He uses the example of a Turkey being fed and treated gently, and the turkey thinks this is the way things are for him. Things couldn’t be better.

            How ironic. You recommends an author who makes the same argument that I am making. And, as usual, you do not understand him. Taleb was asked how it was that a man who said that you can’t predict the future was so fond of making predictions. He pointed out that you are safe making one type of prediction. You go and find something that is fragile and predict that it will break. Now you may not be able to tell when it will break because that depends on far too many random factors but you can be sure that it will break. That is why I like physical gold but stay away from gold futures or options. The USD will break as will all fiat currencies issued by governments that overspend. When the dust settles gold and silver will still be money just as they have been for the past five thousand years of human history. Governments will have to default on their obligations either by repudiating their debts or by inflating their liabilities away.

            Things work- but only until they stop working. And that theme resonates through all of Taleb’s work. We seek stability, we seek rationality. We never get it, but it never stops us.

            That is my point idiot. You can only have an explosion of food stamp recipients go on for a while before something breaks. You can only spend 50% of tax revenues towards military related expenses before something breaks. You can only tax the ‘rich’ so much for so long until they adjust and something breaks. It is you who is arguing for stability and normal distributions and me who is calling for black swan events that make me an ‘extremist’ in your eyes. You are the turkey because you depend on the USD to hold its value and for the rest of the world to keep shipping stuff to the US in exchange for newly created money and credit forever.

            Your reference to these old books is laughable stuff. Its a good thing you didn’t go into medicine.

            My reference only shows that the historical events favour my claims and refute your arguments. You were the one that claimed that it was horrible when a sector of industry was wiped out by the introduction of machines. I showed that the fact that almost everyone in a particular segment of a sector lost his/her job it did not mean that the sector lost jobs. In fact the data shows massive gains in employment and a significant price deflation in goods and services purchased by the ordinary individual.

          • Your response is so incoherent and off point, there is no point in refuting it. You’re being willfully stupid.

            Help yourself.

          • That being the case, you’re dumber than a dog. At least their they’re trainable

            There. Fixed it for you.

            I guess economics isn’t your only problem.

          • “That being the case, you’re dumber than a dog. At least their they’re trainable”

            There. Fixed it for you.

            I guess economics isn’t your only problem.”

            The last refuge of a man who can’t defend his arguments is to point out a spelling error. And you know LESS than nothing about “economics.”

          • Not only do I understand it, I LIVED THROUGH IT, YOU PATHETIC @SSWIPE.

            LMAO

            Not just an ordinary @sswipe, but a *pathetic* @sswipe, eh? And shouting in all caps makes it even more impressive.

            With that devastating assault, you’ve convinced me you understand the subject. HaHaHaHaHa!

          • “Not just an ordinary @sswipe, but a *pathetic* @sswipe, eh? And shouting in all caps makes it even more impressive.

            With that devastating assault, you’ve convinced me you understand the subject. HaHaHaHaHa!”

            That’s right, needledick. It’s called “experience” which is something none of you have, obviously.

          • This is coming from someone who can’t look at empirical evidence staring him in the face and have the ability to change his mind.

            What empirical evidence is that, Max? Since everyone here is apparently missing it, maybe you would see fit to point it out to us. How about a link to a reference? Not just some opinion piece, mind you, but actual empirical evidence.

          • You think some “invisible hand” is going to help out.

            Yes, as a matter of fact, that is exactly what will happen.

            Max asks – perhaps seriously:

            If 10,000 employees can now do the work 100,000 once did, where do the 90,000 who lost their jobs find work?

            And then, after an excellent general explanation by john Dewey:

            If you’re so effing smart, than then answer that question.

            First of all you should be aware that Prof. Perry is a real stickler for correct grammar. He will periodically hold your errors up to ridicule for the entire world to see, so you might consider being more careful.

            Now to the question: I will for the moment take a chance that you are not just an ugly troll, and actually don’t know the answer. It’s in two parts.

            First, the reason a producer implements automation and productivity improvements is to reduce costs so that their product or service can be off offered at a lower price in order to take market share from competitors. This may results in more being produced at the lower cost using the same amount of labor, or it may mean producing the same amount with less labor, which is your worst nightmare.

            However – this lower price means that I, and millions of others who buy the product or service, have more money left over to spend on other things.

            Our greater demand for those *other things* creates jobs in those sectors that produce those other things, and THAT is where those 90,000 people found jobs.

            Yes, it is disruptive, and some workers are hurt, but many find they are better off than before, and every consumer of the product is clearly better off paying less. On balance, this is a net positive.

            In a global economy, political borders have no real significance, so it doesn’t really matter where those improvements occur. If jobs are moved to China and I buy Chinese made doodads cheaper than before, I have more money to spend – perhaps on American made widgets. It is NOT a zero sum game. We are all better off with lower prices.

            By the way, when you ask about the 90,000 workers who lost their jobs, surely you understand that they have found other jobs and aren’t still standing around outside the building where they used to work, right?

          • This is it, folks- this is the great refutation:

            First, the reason a producer implements automation and productivity improvements is to reduce costs so that their product or service can be off offered at a lower price in order to take market share from competitors. This may results in more being produced at the lower cost using the same amount of labor, or it may mean producing the same amount with less labor, which is your worst nightmare.

            However – this lower price means that I, and millions of others who buy the product or service, have more money left over to spend on other things.

            “Our greater demand for those *other things* creates jobs in those sectors that produce those other things, and THAT is where those 90,000 people found jobs.”

            REALLY? That’s your great theory?

            Aside from the fact there is no empirical evidence for this construct, which is apparently little more than a religious construct we can compare to the Virgin Birth, your statement is utterly f**king meaningless.

            Under this theory, the entire history of employment and demand can be boiled down to dropping the price of an Ipad/dishwasher/laptop and the “excess” savings miraculously finds it’s way into the economy in other purchases therefore guaranteeing or automatically replacing lost jobs.

            That is bullsh^t. Not only that, it flies in the face of your own country’s employment history!

            This is what the HBR article was driving at. You’re so obsessed with the theoreticals you have no idea what happens in the real world of business.

          • REALLY? That’s your great theory?

            Sounds right to anyone who can think logically and has looked at history.

            Aside from the fact there is no empirical evidence for this construct, which is apparently little more than a religious construct we can compare to the Virgin Birth, your statement is utterly f**king meaningless.

            No evidence? Did you forget the Industrial Revolution? All those steam engines and belt drives drove out of business people who did things by hand. Yet, employment exploded and cheap goods flooded the markets. For the first time in history the average man could see a substantial increase in his standard of living and live much better than his parents did.

            Under this theory, the entire history of employment and demand can be boiled down to dropping the price of an Ipad/dishwasher/laptop and the “excess” savings miraculously finds it’s way into the economy in other purchases therefore guaranteeing or automatically replacing lost jobs.

            No. It is all about productivity; producing a lot more with a lot less and creating wealth through the efficient use of labour. The fact that you do not understand shows a lot about your lack of reasoning skills and your inability to learn from history. You actually make Larry look like a genius.

            That is bullsh^t. Not only that, it flies in the face of your own country’s employment history!

            I suggest that you look again.

          • You people are absolutely delusional. Totally wrapped in religious-like fantasy, like jihadists:

            REALLY? That’s your great theory?

            “Sounds right to anyone who can think logically and has looked at history.”

            Really? Entire industries have never been wiped out by technology?

            “No evidence? Did you forget the Industrial Revolution? All those steam engines and belt drives drove out of business people who did things by hand. Yet, employment exploded and cheap goods flooded the markets. For the first time in history the average man could see a substantial increase in his standard of living and live much better than his parents did.”

            But your failed assumption here is that is some sort of “natural order” that guarantees that because it happened then, it will automatically keep on happening. That’s preposterous. The transitional forces acting on the American workforce in the past 30 years tell quite a different story than the Industrial Revolution. Your conceit is the process never stops, and this “progress” never ends, and no one ever gets hurt.

            When I first became a junior stockbroker, we were given lists of business owners to cold call. One thing that still stands out from those days: every single travel agent I called had their phone disconnected. Orbitz and other firms liked it laid waste to the industry in no time, all these people replaced by a search algorithm. Cheaper? Yup. Algorthims don’t need salaries, health insurance or pay FICA.

            But the net-net is that thousands of jobs were made irrelevant at a stroke. Why do you think I brought up the employment stats at Facebook and Google? Facebook’s market cap is $4 billion more than Boeing’s. But Boeing has 171,000 employees. Facebook barely cracks 4000!

            Unless you’re planning to bring back the hand loom, I suggest you start thinking about where the jobs are going to come from in the next 100 years. You think there’s no tipping point in technology’s replacement of labor. I’m telling you that you have to be blind never to have even CONSIDERED it.

            If you can’t draw a conclusion from the effects of these new business models versus the older ones, if you’re so brain dead that you can’t even detect a TREND from those dynamics, don’t go pumping yourself up as someone whose knowledgable about “economics” or more pointedly, what an ignoramus THINKS “economics” is.

            More to the point, it makes the AEIs bitching about the slow growth of employment retracement all the more disengenuous. OF COURSE THE PACE IS SLOWER THIS TIME AROUND. IT’S NOT THE SAME ECONOMY.

            These trends go well beyond Mr. Pethokoukis’ insipid bleatings about minor changes to marginal rates and capital gains. When the creators of Angry Birds can amass more capital and wealth than the entire production capacity of a Whirlpool refrigerator factory, I suggest you sit your ass down and ponder what that means before doling out your stupid pieties about “economics.”

            That’s why none of your answers make any sense- none of you are businessmen. And that’s what the HBR article was about. Platitudes are worthless currency.

          • Really? Entire industries have never been wiped out by technology?

            Why is that a problem? How many people do you think we should have making pins or buggy whips?

            But your failed assumption here is that is some sort of “natural order” that guarantees that because it happened then, it will automatically keep on happening. That’s preposterous. The transitional forces acting on the American workforce in the past 30 years tell quite a different story than the Industrial Revolution. Your conceit is the process never stops, and this “progress” never ends, and no one ever gets hurt.

            Are you really this ignorant or are you playing a game here? When productivity goes up people are better off as a whole because they can buy higher quality goods and can have more to spend on other things. Of course this only happens if people live within their means. I do not expect someone who makes $50K per year to have a lifestyle that requires $250K and expect that to continue. Productive people have no trouble finding jobs. People who do not have the skills or the work habits that the market demands will have trouble until they acquire those skills AND develop those work habits. That is the way the ‘natural order’ works. Your utopianism may work in a world where there is no scarcity but it does not work very well here.

            When I first became a junior stockbroker, we were given lists of business owners to cold call. One thing that still stands out from those days: every single travel agent I called had their phone disconnected. Orbitz and other firms liked it laid waste to the industry in no time, all these people replaced by a search algorithm. Cheaper? Yup. Algorthims don’t need salaries, health insurance or pay FICA.

            What you missed is the fact that the travel industry was booming because of the extra productivity. When I get on the cruise ship on Sunday I will see thousands of new jobs that were created because travel became more affordable to ordinary people who could never dream of such travels a generation before. As someone who is so ignorant that he keeps repeating the Broken Window Fallacy over and over again, you see the jobs lost but forget to account for the jobs that were created.

            But the net-net is that thousands of jobs were made irrelevant at a stroke. Why do you think I brought up the employment stats at Facebook and Google? Facebook’s market cap is $4 billion more than Boeing’s. But Boeing has 171,000 employees. Facebook barely cracks 4000!

            Boeing is not very profitable and depends on the government to stay in business. Facebook and Google don’t. Do you really think that we need to divert 50% of all tax revenues to defense and defense related industries so that people can keep their jobs? I guess that you responded before looking at Hazlitt’s refutation of your argument. What you stated above is dealt with not only in Chapter II, but in IV, IX, & XIV. Try learning a little before you show more of your ignorance.

            Unless you’re planning to bring back the hand loom, I suggest you start thinking about where the jobs are going to come from in the next 100 years. You think there’s no tipping point in technology’s replacement of labor. I’m telling you that you have to be blind never to have even CONSIDERED it.

            I leave the bringing back of inefficient production back to fools like you. Actually, your foolishness is not new. There have been idiots who have made the same argument for centuries now but somehow missed the fact that things were the opposite of what they thought.

            If you can’t draw a conclusion from the effects of these new business models versus the older ones, if you’re so brain dead that you can’t even detect a TREND from those dynamics, don’t go pumping yourself up as someone whose knowledgable about “economics” or more pointedly, what an ignoramus THINKS “economics” is.

            Ahhh, the ‘it’s different this time’ argument. Well, it isn’t. People will be better off once the trends that are not sustainable are allowed to be corrected by the markets. Note that I do not claim that things will get back to normal for the guy who was making $80K per year for a job that only produced $35K of value. That person will have to increase his own value to the consumers who ultimately pay him or has to force government to make consumers pay him regardless of the other options that they may have had.

            More to the point, it makes the AEIs bitching about the slow growth of employment retracement all the more disengenuous. OF COURSE THE PACE IS SLOWER THIS TIME AROUND. IT’S NOT THE SAME ECONOMY.

            The AEI people have their own issue with economics. Most of them claim to want free markets yet support bigger government, as you do, and are military Keynesians. Neither you nor they have a clue about economics.

            That’s why none of your answers make any sense- none of you are businessmen. And that’s what the HBR article was about. Platitudes are worthless currency.

            Who says that I am not a businessman? I have risked my own capital on plenty of ventures and have done quite well, thank you. While I do not do that as much any longer I still make a good living making bets about the future.

          • “Why is that a problem? How many people do you think we should have making pins or buggy whips?”

            Not at all- YOUR presumption is that SOMETHING will ALWAYS be there to replace the prior item, and it will create the same wealth it did before. That is not rational- that’s blind faith.

            “Are you really this ignorant or are you playing a game here? When productivity goes up people are better off as a whole because they can buy higher quality goods and can have more to spend on other things.”

            Provided the people who lost their jobs can get other ones. This seems to be a point you can’t grasp.

            “Productive people have no trouble finding jobs.”

            F*ck you. There are millions of people RIGHT NOW who were far more productive than a squashed cabbage like you ever was and they can’t get work. What a dope-ass remark.

            ” People who do not have the skills or the work habits that the market demands will have trouble until they acquire those skills AND develop those work habits. That is the way the ‘natural order’ works. Your utopianism may work in a world where there is no scarcity but it does not work very well here.”

            I guess all those law school grads who can’t get hired can easily find other disciplines to help pay off their tuition bills. God, are you an idiot. There are traders, hedge fund managers, analysts, lawyers, getting laid off in the hundreds of thousands, thanks to the lunacy you propogated, and now, those “lazy, unprepared” people will just have to figures things out, huh?

            Great, man.

            “What you missed is the fact that the travel industry was booming because of the extra productivity.”

            No, what you’re assuming is that the lower cost of web booking wasn’t just pocketed by the airlines who paid out fees to the travel agents before the technology came. Another example of infantilism.

            “When I get on the cruise ship on Sunday I will see thousands of new jobs that were created because travel became more affordable to ordinary people who could never dream of such travels a generation before.”

            Uh, that wasn’t because of Orbitz, meathead.

            “Boeing is not very profitable and depends on the government to stay in business. Facebook and Google don’t. Do you really think that we need to divert 50% of all tax revenues to defense and defense related industries so that people can keep their jobs?”

            WTF are you talking about and how is this germaine to the subject? We’re talking about different economic models, one for a new economy and one based on the old.

            “I guess that you responded before looking at Hazlitt’s refutation of your argument.”

            Oh, kiss my ass. Read the reviews on Amazon- he was predicting the bankruptcy of the US government when he wrote his libertarian screed 60 years ago- we’rer still waiting.

            That’s the trouble with you people- you read a book like that and now, you’re an “expert.” Sorry, pal. You failed to answer my questions, and deflected instead.

            What you stated above is dealt with not only in Chapter II, but in IV, IX, & XIV. Try learning a little before you show more of your ignorance.

            Unless you’re planning to bring back the hand loom, I suggest you start thinking about where the jobs are going to come from in the next 100 years. You think there’s no tipping point in technology’s replacement of labor. I’m telling you that you have to be blind never to have even CONSIDERED it.

            I leave the bringing back of inefficient production back to fools like you. Actually, your foolishness is not new. There have been idiots who have made the same argument for centuries now but somehow missed the fact that things were the opposite of what they thought.

            If you can’t draw a conclusion from the effects of these new business models versus the older ones, if you’re so brain dead that you can’t even detect a TREND from those dynamics, don’t go pumping yourself up as someone whose knowledgable about “economics” or more pointedly, what an ignoramus THINKS “economics” is.

            Ahhh, the ‘it’s different this time’ argument. Well, it isn’t. People will be better off once the trends that are not sustainable are allowed to be corrected by the markets. Note that I do not claim that things will get back to normal for the guy who was making $80K per year for a job that only produced $35K of value. That person will have to increase his own value to the consumers who ultimately pay him or has to force government to make consumers pay him regardless of the other options that they may have had.

            More to the point, it makes the AEIs bitching about the slow growth of employment retracement all the more disengenuous. OF COURSE THE PACE IS SLOWER THIS TIME AROUND. IT’S NOT THE SAME ECONOMY.

            The AEI people have their own issue with economics. Most of them claim to want free markets yet support bigger government, as you do, and are military Keynesians. Neither you nor they have a clue about economics.

            That’s why none of your answers make any sense- none of you are businessmen. And that’s what the HBR article was about. Platitudes are worthless currency.

            Who says that I am not a businessman? I have risked my own capital on plenty of ventures and have done quite well, thank you. While I do not do that as much any longer I still make a good living making bets about the future.

          • Here’s another brilliant excerpt:

            “By the way, when you ask about the 90,000 workers who lost their jobs, surely you understand that they have found other jobs and aren’t still standing around outside the building where they used to work, right?”

            No you idiot, that is the point of THIS ECONOMY. They most certainly HAVE NOT found other jobs, and the skills they learned to perform the jobs they did are now rendered as worthless as monopoly money. This statement, by itself, is enough to prove once and for all you are utterly oblivious to reality.

            You just made a complete ass of yourself making that statement.

          • No you idiot, that is the point of THIS ECONOMY. They most certainly HAVE NOT found other jobs, and the skills they learned to perform the jobs they did are now rendered as worthless as monopoly money. This statement, by itself, is enough to prove once and for all you are utterly oblivious to reality.

            Look my simpleton friend. What you call THIS ECONOMY was created by a banking system that created money and credit out of thin air and distorted the market signals that investors use. Many of the jobs that were lost would never have been created in a true free market because the people would have been employed in other sectors where they were really needed. THIS ECONOMY needs to be left alone so that the malinvestments can be liquidated and assets can go into the hands that can use them more effectively. (And that does not mean hiring more people than should be hired.)

            I suggest that you learn a bit about economics. Given your utter ignorance, I suggest that you take a look at Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics.

          • More bullsh*t:

            “Many of the jobs that were lost would never have been created in a true free market because the people would have been employed in other sectors where they were really needed. THIS ECONOMY needs to be left alone so that the malinvestments can be liquidated and assets can go into the hands that can use them more effectively. (And that does not mean hiring more people than should be hired.)”

            What rubbish! Here’s your “logic:” If the jobs “created” by what you imagine to be meddling (as if there was such a thing as a “true free market” ) hadn’t happened, why, OF COURSE, jobs would have been “created” elsewhere where they were “really” needed.

            In other words, jobs are created by economic inputs, except for those times when they are not.

            Who are you kidding this crap? Is your mind that void of logical deductive capability to make a statement like that? You really are like a jihadist. A “true free market.” You’ll see 72 Virgins before that ever happens.

            You’re in over your head.

          • What rubbish! Here’s your “logic:” If the jobs “created” by what you imagine to be meddling (as if there was such a thing as a “true free market” ) hadn’t happened, why, OF COURSE, jobs would have been “created” elsewhere where they were “really” needed.

            I have not claimed that you have a free market or anything resembling it. All those construction jobs that got wiped away were created by the Fed’s bubble blowing exercise. No housing bubble no extra realtors, mortgage brokers, credit risk analysts, plumbers, electricians, and other construction workers. Without the bailouts all those big bonuses for the bankers would have vapourized and many of the bankers would have gone to jail as they should have. Without all those subsidies to wind and solar energy all those jobs that Obama created in China would have gone away and industries would not have moved jobs offshore because the power costs exploded.

            That is the way the real world works. When bureaucrats meddle they cannot direct the final outcomes.

            In other words, jobs are created by economic inputs, except for those times when they are not.

            Who are you kidding this crap? Is your mind that void of logical deductive capability to make a statement like that? You really are like a jihadist. A “true free market.” You’ll see 72 Virgins before that ever happens.

            You’re in over your head.

            Not at all. You are still ignorant of basic economics. Ron was right; you are a moron.

          • “I have not claimed that you have a free market or anything resembling it. All those construction jobs that got wiped away were created by the Fed’s bubble blowing exercise. No housing bubble no extra realtors, mortgage brokers, credit risk analysts, plumbers, electricians, and other construction workers.”

            What a load of crap! Now you’re telling us it wasn’t the Bush tax cuts that gave us all this “prosperity” (it was, in fact, the weakest job recovery of the post war era) but now you’re hanging this whole thing on housing huh?
            You’re shilly-shallying, pal, and the only person you’re kidding is YOU.

            “Without the bailouts all those big bonuses for the bankers would have vapourized and many of the bankers would have gone to jail as they should have.”

            If the bailouts didn’t occur, you would be eating grass right now. Whether they should have been criminally charged is another matter, but since Robert Khuzami of the SEC was the former chief counsel of Deutsche Bank, I don’t think that’s going to happen. You may want to read “The Big Short” instead of the Victorian crap you read.

            “Without all those subsidies to wind and solar energy all those jobs that Obama created in China would have gone away and industries would not have moved jobs offshore because the power costs exploded.”

            Oh, so now we’re blaming Obama for job growth AFTER the economy imploded, are we? You seem a bit confused, friend. You’re flailing wildly.

            “That is the way the real world works. When bureaucrats meddle they cannot direct the final outcomes.”

            Another incoherent piece of pyscho-babble.

            “Not at all. You are still ignorant of basic economics.”

            Sir, not only do you not know “basic economics,” you’re a third rate babbler and auto-didact.

          • What a load of crap! Now you’re telling us it wasn’t the Bush tax cuts that gave us all this “prosperity” (it was, in fact, the weakest job recovery of the post war era) but now you’re hanging this whole thing on housing huh?
            You’re shilly-shallying, pal, and the only person you’re kidding is YOU.

            Bush was in favour of big government and helped destroy the economy just as his dad, Clinton and Obama did. Printing money is not a way to prosperity. All it gets you is a crack up boom that brings the monetary system to a quick end, even if you have the reserve currency of the world.

            If the bailouts didn’t occur, you would be eating grass right now. Whether they should have been criminally charged is another matter, but since Robert Khuzami of the SEC was the former chief counsel of Deutsche Bank, I don’t think that’s going to happen. You may want to read “The Big Short” instead of the Victorian crap you read.

            Not at all. I will do fine with or without bailouts because I do not depend on them. And the last time I looked Iceland chose not to bail out the banks while the US, Greece, Spain, France, etc., did. Who do you think is better off right now?

            Oh, so now we’re blaming Obama for job growth AFTER the economy imploded, are we? You seem a bit confused, friend. You’re flailing wildly.

            I am blaming Obama for being even more clueless than Bush.

            Another incoherent piece of pyscho-babble.

            Actually, it is an empirical observation. For evidence look to Congress or the EU.

            Really? Are you sure you and I both live on the same planet, because that debt is being gobbled up by plenty of nations. Again, a complete ignorance of the markets. A glaring, obviously false, and patently stupid remark.

            Actually, it isn’t. If you look to the data you find out that most of the new debt being issued goes to the Fed.

            You let us all know when we “lose our way” OK, pal? I’ll put my money on Bernanke before I do on a half literate message board troll.

            Which proves your ignorance. Bernanke could not see a housing bubble and thought that the damage from it was contained. I did not make that error. Bernanke does not understand how crack-up booms work and what the end game must be in a Social Democratic system. He is even worse than my 12 and 14-year old sons. Of course, they have read their Hazlitt and like to hear Casey, Faber, Rogers, or Ron Paul talk about economics. As such they are not burdened by knowing things that are not true as Bernanke is.

          • “All those construction jobs that got wiped away were created by the Fed’s bubble blowing exercise”

            Just a quick note to thank you for acknowledging that Federal monetary and regulatory policy, and not housing policy, caused the asset inflation in real estate.

            You spent the better part of a week and dozens of posts telline me that was not the case, while I told you it was.

            Let’s file that remark under “They can be taught.”

            Lord knows what else you’ll discover.

          • Just a quick note to thank you for acknowledging that Federal monetary and regulatory policy, and not housing policy, caused the asset inflation in real estate.

            I have never claimed that it was just the housing policy. Had the Fed been tight there would have been no bubble in housing or anywhere else.

            Of course had Congress removed the implicit guarantees from GSE debt and repealed CRA the bubble would have gone to something other than housing when the Fed decided to add a huge amount of credit into the system. But it still would mean malinvestment and unnecessary jobs that could not be sustained.

          • That’s right, needledick. It’s called “experience” which is something none of you have, obviously.

            Hmm. Maybe experience is overrated, as you yourself pointed out.

            [Nassim Taleb] He uses the example of a Turkey being fed and treated gently, and the turkey thinks this is the way things are for him. Things couldn’t be better.

          • REALLY? That’s your great theory?

            Aside from the fact there is no empirical evidence for this construct, which is apparently little more than a religious construct we can compare to the Virgin Birth, your statement is utterly f**king meaningless.

            I see I have wasted my time. You are, in fact, just a worthless troll, not someone actually interested in the subject.

            That is bullsh^t. Not only that, it flies in the face of your own country’s employment history!

            Employment history? How about a reference to something supporting your assertion that creative destruction is bullshit. I suspect that you just conveniently pulled that from your ass because you thought it sounded good.

          • “Employment history? How about a reference to something supporting your assertion that creative destruction is bullshit. I suspect that you just conveniently pulled that from your ass because you thought it sounded good”

            When you have a concrete refutation to make, by all means do so. As far as “sounding good” no, I don’t fall back on stupid memes like quoting Schumpeter in the belief that it proves my economic literacy to others.

            You’re a know-nothing. A useful idiot for Larry Kudlow.

          • You really are like a jihadist. A “true free market.” You’ll see 72 Virgins before that ever happens.

            Jihadist? Yet another concept you don’t understand, eh Max? Your hilarious.

            You’re in over your head.

            While anything’s possible, you may have overlooked the fact that he’s standing on your shoulders.

          • “Jihadist? Yet another concept you don’t understand, eh Max? Your hilarious.”

            That’s “you’re” hilarious. Weren’t you the same moron who told me to watch my spelling?

          • Really? Entire industries have never been wiped out by technology?

            Sure they have. Rockefeller almost single-handedly destroyed the New England whaling industry. Suddenly almost everyone could afford to light their homes at night, not just the wealthy.

            But oh, the jobs lost! The horror! “Let’s gnash our teeth and tear our hair.” shrieks max in his ignorance.

            You are truly a drooler.

          • When I first became a junior stockbroker, we were given lists of business owners to cold call. One thing that still stands out from those days: every single travel agent I called had their phone disconnected. Orbitz and other firms liked it laid waste to the industry in no time, all these people replaced by a search algorithm. Cheaper? Yup. Algorthims don’t need salaries, health insurance or pay FICA.

            Heh! It’s possible the company was trying to get rid of you by giving you nonproductive leads. Maybe they realized too late what a loser they had hired.

          • For one, it would be impossible for them to do that.

            Secondly, they didn’t feel that way when I jumped ship and took 95% of my AUM with me.

            I taught them some other lessons too. But we won’t go into that here.

          • Your response is so incoherent and off point, there is no point in refuting it.

            Possible translations:

            1. I didn’t understand your comment.

            2. I don’t agree with you, but have nothing of substance to refute you with, so I will suggest your comment doesn’t make sense.

            3. Both of the above.

          • taught them some other lessons too. But we won’t go into that here.

            Yeah. I’ll bet one of those lessons was to ensure that future hires actually knew something rather than just being good at talking their own book.

          • Not at all- YOUR presumption is that SOMETHING will ALWAYS be there to replace the prior item, and it will create the same wealth it did before. That is not rational- that’s blind faith.

            Great work, Max! An entire paragraph with out an obligatory insult.

            You have this exactly backward. The prior item is always replaced because something better is *already* available to replace it. The auto industry didn’t grow up as a response to a decline in the buggy whip market, and it created far *more* wealth, not just the same wealth.

            The major lose of jobs was among horses, not people.

          • You have this exactly backward. The prior item is always replaced because something better is *already* available to replace it. The auto industry didn’t grow up as a response to a decline in the buggy whip market, and it created far *more* wealth, not just the same wealth.

            Our friend tends to get a lot of stuff backwards. But he does provide some great teaching points for the kids so he is very useful.

          • “You have this exactly backward. The prior item is always replaced because something better is *already* available to replace it. The auto industry didn’t grow up as a response to a decline in the buggy whip market, and it created far *more* wealth, not just the same wealth.

            The major lose of jobs was among horses, not people.”

            You still don’t get it, do you?

          • They most certainly HAVE NOT found other jobs, and the skills they learned to perform the jobs they did are now rendered as worthless as monopoly money.

            So you DO see them standing around outside the building they used to work in, or perhaps lying dead in the streets.

            Get a clue.

          • “So you DO see them standing around outside the building they used to work in, or perhaps lying dead in the streets.

            Get a clue.”

            Get a clue? You haven’t seen the long term unemployed stats that Jimmy P. puts up with glee every month?

            I should get a clue? You should get a mind. What a dope.

          • That is bullsh^t. Not only that, it flies in the face of your own country’s employment history! ”

            What employment history? Support your statement, asshole.

          • Vangel

            Our friend tends to get a lot of stuff backwards. But he does provide some great teaching points for the kids so he is very useful.

            Not as useful as I’d like. I would prefer some actual content in his comments.

          • Not as useful as I’d like. I would prefer some actual content in his comments.

            There is a lot of content in his comments. They repeat every economic fallacy that you care to mention. My son and I have already gone over four chapters of Economics in One Lesson where his claims are being refuted. The poor boy thinks that nobody could be as dense as our friend and can’t figure out how anyone with an internet connection can be so ignorant. He particularly likes the Bernanke praise even though Bernanke was clueless about the bubble and did not understand what Ron Paul was saying when he was talking about Austrian economics. He is also amused about the praise of Keynes.

            We have a whole set of audio lectures that he used to listen to before he would go to sleep in the evening. Our friend has him going back to them and listening to them all over again. A few days ago he was showing me the Tucker/Murphy discussion of Hazlitt’s refutation of the Curse of Machinery. What I fear is his gravitation towards the Walter Block position at such a young age. While he has never found the socialist position appealing as most young kids and unthinking adults do I expected some type of tolerance towards the Roderick Long types who are left libertarians but he has never really had much time for it. Actually, the series on the book is better than the book because the various economists who discuss each chapter add some insights that Hazlitt never mentioned. If you ever have a very long drive somewhere it may make sense to download the discussions from iTunes U and listen to the series.

          • “Not as useful as I’d like. I would prefer some actual content in his comments.”

            Yeah, as if referencing these Victorian artifacts on pin production was “content.”

            Gee- I’m REALLY impressed. No, seriously!

            What a joke.

          • Vangel

            There is a lot of content in his comments. They repeat every economic fallacy that you care to mention. My son and I have already gone over four chapters of Economics in One Lesson where his claims are being refuted. The poor boy thinks that nobody could be as dense as our friend and can’t figure out how anyone with an internet connection can be so ignorant. He particularly likes the Bernanke praise even though Bernanke was clueless about the bubble and did not understand what Ron Paul was saying when he was talking about Austrian economics. He is also amused about the praise of Keynes.

            Max as a teaching tool! That’s great. LOL.

            You’re right, he DOES provide a lot of material in that sense. Maybe I’ll copy all his comments on this and a couple of other threads to use in teaching my grandchildren. Having concrete examples to use with Hazlitt’s excellent primer would be even better.

            Thank you Max!

  2. Wait, now. I have it on the authority of much of Congress that outsourcing is simply a bad economic idea. Jobs should stay in the country of corporate origin. If jobs are coming into the US, then they must be outsourced from somewhere else, which would be bad wouldn’t it? Or are you saying that work should flow to where it can be done most efficiently? Someone ought to build an economic theory around that.

  3. The US has a huge advantage in capital-intensive manufacturing (We are still the world’s largest manufacturer in general, and by far the largest maker of “big ticket” items like plane engines). One worker on a machine can do a lot more in the US than he can in China (incidently, I was in China a year ago. Went on a tour on a factory there. Their capital and manufacturing techniques are years behind us).

    We’ll see a lot of capital-intensive production here. Textiles and other labor-intensive, not so much (those are being moved to other low-cost areas like Vietnam).

    • A lot of your stories being with the phrase “As a prior girlfriend used to say…” Are they the same girl, or many different ones? :-P

    • Or as readily accessible. Our luck was such that our shale is in fields that were being developed anyway. The infrastructure was already there.

    • True. Other than some stuff in Russia and off the coast of England, I haven’t heard of any deposits like what we have. But you are right; that doesn’t mean they aren’t out there.

      • Exactly right, brotio. Cheap energy found anywhere in the world is ultimately going to benefit consumers, Americans as well as foreign ones.

  4. Many countries in the EU have huge reserves of shale oil and shale NG. They have not enjoyed our fracking boom because the rights to these resources still belong to the state–very much unlike ND.

    The EU is now where Obama would love to see all of America–he’d KO the fracking boom in a heartbeat if he could. But he can’t.

  5. MP: It’s a long article, but well worth reading the whole thing. The insourcing/reshoring trend is a promising development and it’s just getting started….

    Perhaps but perhaps not. I would not say that higher oil prices and falling wages are as positive as you would imply.

  6. We’ll see a lot of capital-intensive production here.

    Capital requires savings and the last time I looked the US was not saving much.

    • Hello Vangel – not sure I follow you…S&P Capital IQ intell came out with these stats the other day.

      The nonfinancial companies in the S&P 500 were holding cash and equivalents valued at $1 trillion at the end of Q3 2012. This marks the ninth consecutive period in which corporate cash has topped that level, according to S&P Capital IQ Global Markets Intelligence Group.
      The three sectors with the biggest cash piles are Information Technology ($327.2 billion), Health Care ($201 billion) and Industrials ($179.1 billion).

      Companies are sitting on a lot of cash – I guess your point is consumers are not?

      • The nonfinancial companies in the S&P 500 were holding cash and equivalents valued at $1 trillion at the end of Q3 2012. This marks the ninth consecutive period in which corporate cash has topped that level, according to S&P Capital IQ Global Markets Intelligence Group.
        The three sectors with the biggest cash piles are Information Technology ($327.2 billion), Health Care ($201 billion) and Industrials ($179.1 billion).

        Companies are sitting on a lot of cash – I guess your point is consumers are not?

        No. My point is that the supposed cash that the companies are ‘sitting’ on has already been lent out to other companies, governments, and consumers. It may never come back except as newly printed money, which is not capital. This is the old master builder story that the Austrians use to illustrate how malinvestments happen.

        If you want to expand production you first have to build new facilities that will produce the supply chain goods that are far from the consumer. If you want to increase the production of machines that will help you assemble automobiles you need to make sure that the production of all of the raw materials that go into those products is sufficient. Then you have to make sure that the facilities that build the machines that you need to build the machines and factories have ample capacity. Once you have that you have to make sure that the skill sets that are required to implement your design plans are in place and finally that you have the skilled labour that can be hired to produce the goods in your just built factory.

        We have seen that many industries have some serious bottlenecks in the production chain. When the oil and mining companies tried to expand production they ran into serious shortages of everything from welders and electricians to people who could assemble the compressors and pumps that needed to be installed. The miners couldn’t even buy the tires needed for their open pit trucks because the tire manufacturers were not comfortable spending half a billion on a plant that might not be needed once the contraction began. There were massive cost overruns and the costs of production exploded. (Which is why many of the big producers in the mining and energy sector have seen their stocks decline even though the cost of the products they sell has gone up substantially.)

        My point is that ‘cash’ lent out to consumers and governments is not capital and an abundance of it does not mean that the supply of needed resources is sufficient for the execution of plans. I suspect that many companies will proceed and make plans with the expectation that they can get all they need at a low price and that they can sell because demand will be in place to justify the investments. But when you have massive distortions in signals coming from the capital markets because the central banks are busy manipulating rates as much as they can it is difficult to be optimistic that the planners will get it right.

        And note that I have not even began to mention the headwinds coming from the changes in Obama’s policies. I see many small businesses laying people off to get under the magic number that goes into effect once the healthcare rules are activated. I see many people scrambling to reclassify investments so that they can avoid tax liability headaches later. The uncertainty is too high to justify much in the way of initiating new action at this time for most corporations. The way I see it once the bump from the effects of the new QE efforts runs its course the economy will need another shot of ‘stimulus’ that will mean more debt and less capital formation. And once many of the sectors deal with their recognition of assets issues you will see much of the ‘capital’ that is being talked about disappear because it was never real to begin with.

      • Check what has happened with corporate debt, it’s up close to as much as cash & equivalents.

        I may have told you the story about one of the Chinese economists that I used to deal with when working over there. I asked how it was that he, who was a hard line sound money type, could feel comfortable with all those reserves that were sitting in USTs and was wondering what his employers in the government were thinking. He pointed out that a lot of the Chinese building activity was based on lots of borrowed money and that China was building infrastructure around the world, and buying resource companies around the world, with debt. He guessed that one day those reserves would become worthless but when the dust settled all that new infrastructure, new houses, factories, power plants, ports, would be there for the use of Chinese producers and consumers. When the money became worthless the people with the ability to make stuff would call the shots, not the consumes who overspent and no longer had a way to pay for what they needed.

        At the PDAC I see all kinds of foreign companies showing up. Many have no listing anywhere and very few employees. They are simply capital investment firms looking to purchase promising deposits that will be developed some time in the next few decades. They will be paid by ‘cash’ that has been borrowed against those reserves. And if you look at some of the prospect generators you will find that they have caught on. Some of the contracts do not just specify payments in USDs but in gold, silver, or commodity in question. The management of the companies does not trust the currency sufficiently to have cash based long term contracts in place.

        • Your interpretation is dead wrong again. Cash rich corporations have been piling into debt (see today’s WSJ for the facts) because of record low interest rates. Of the many uses include paying down higher cost debt requiring higher interest payments and buying back some their higher cost of capital common shares.

          • Your interpretation is dead wrong again. Cash rich corporations have been piling into debt (see today’s WSJ for the facts) because of record low interest rates. Of the many uses include paying down higher cost debt requiring higher interest payments and buying back some their higher cost of capital common shares.

            Yes, debt is cheap. That is why the corporations piled on debt. It will keep many of them alive even though they are not competitive and can’t stay in business without help from market manipulation or government favouritism.

          • “Yes, debt is cheap. That is why the corporations piled on debt. It will keep many of them alive even though they are not competitive and can’t stay in business without help from market manipulation or government favouritism.”

            Uhm, no- they are refinancing their debt and issuing more, so they can finance their dividends on the cheap, and in Microsoft’s case, avoid overseas repatriation taxes.

            Exxon’s debt sometimes yields less than a comparable Treasury, in this environment.

          • Uhm, no- they are refinancing their debt and issuing more, so they can finance their dividends on the cheap, and in Microsoft’s case, avoid overseas repatriation taxes.

            Cheap debt is made possible by the Fed’s money printing and credit expansion activities. Companies would not have access to artificially low priced credit if the central planners did not have the power to distort the bond market.

            Exxon’s debt sometimes yields less than a comparable Treasury, in this environment.

            Exxon is in better financial shape than the government. The last time I looked it did not have a hundred trillion in debt and unfunded liabilities.

          • “Cheap debt is made possible by the Fed’s money printing and credit expansion activities. Companies would not have access to artificially low priced credit if the central planners did not have the power to distort the bond market. ”

            It’s part of the plan. The Fed has nationalized the yield curve.

          • “Exxon is in better financial shape than the government. The last time I looked it did not have a hundred trillion in debt and unfunded liabilities.”

            This comment comes from the self proclaimed “economics expert.”

            I guess Exxon can issue debt backed by a fiat currency, right?

          • This comment comes from the self proclaimed “economics expert.”

            I guess Exxon can issue debt backed by a fiat currency, right?

            No. But Exxon has real assets that have real value and are worth far more than the liabilities. A fiat currency ultimately fails, particularly when it is issued by a country that owes several hundred percent of GDP in debt and unfunded liabilities.

            That said, I would agree if you mean to say that all debt that is denominated in fiat money should be avoided, particularly if you are talking about longer term debt.

          • “No. But Exxon has real assets that have real value and are worth far more than the liabilities. A fiat currency ultimately fails.”

            Are we taking that as an ex-cathedra remark, or the opinion of an idiot?

          • Are we taking that as an ex-cathedra remark, or the opinion of an idiot?

            Since I do not like Exxon’s management I do not make any predictions about the company. But since I am in a position to see the vulnerability of the American economic system I am making a prediction that Congress and Obama will break it. And that when that happens the bond bubble in US treasuries will cause significant harm to your capital markets. At that point even fools like you will figure out that the difference between Spain and the US is not as large as you may have thought.

          • “But since I am in a position to see the vulnerability of the American economic system I am making a prediction that Congress and Obama will break it. And that when that happens the bond bubble in US treasuries will cause significant harm to your capital markets. At that point even fools like you will figure out that the difference between Spain and the US is not as large as you may have thought.”

            ALL OF YOU ARE WITNESSES TO THIS STATEMENT.

          • Actually, if you bought them right, and had the stomach, you could have made a nice quick fortune in all three issues.

            However, all three of those nations use the Euro. The U.S. Dollar, as the prime reserve currency of the planet you happen to live on (sorry for the reminder) means that Treasuries trump ANY corporate.

            Your country is broke and cannot find buyers for its new debt issues. That is why the Fed is monetizing debt.

            Again, your statement reveals a profound ignorance of fixed income markets and bond basics. And you fancy yourself ever the “economic” wizard.

            You have no clue about purchasing power of fiat money and what happens to the currencies of countries that have governments that lose their way. You sound like a Brit before the Boer War and have no clue about the reversal of fortune that should be obvious to anyone who understands reality.

          • “Your country is broke and cannot find buyers for its new debt issues. That is why the Fed is monetizing debt. ”

            Really? Are you sure you and I both live on the same planet, because that debt is being gobbled up by plenty of nations. Again, a complete ignorance of the markets. A glaring, obviously false, and patently stupid remark.

            “You have no clue about purchasing power of fiat money and what happens to the currencies of countries that have governments that lose their way.”

            You let us all know when we “lose our way” OK, pal? I’ll put my money on Bernanke before I do on a half literate message board troll.

            ” You sound like a Brit before the Boer War and have no clue about the reversal of fortune that should be obvious to anyone who understands reality.”

            That was real deep.

      • He’s simply dead wrong…households have been piling into money markets and CDs at record rates for several years even though the returns on such assets are nil.

        • He’s simply dead wrong…households have been piling into money markets and CDs at record rates for several years even though the returns on such assets are nil.

          There is no cash sitting around in households or businesses. They simply deposited cash with institutions that have already lent it out. And even as some put money in CDs and money market funds, which lent that cash out, others were eager to borrow that money on both the household and corporate side. Eventually the debt has to be repaid and if that ‘cash’ is put to work it will have to come by calling in the debts of those that borrowed it in the first place. The net effect will not be positive.

          • vange,

            I agree completely that there is no cash sitting around idle. But I do not understand what you mean when you write:

            “The net effect will not be positive.”

            Are you saying that the act of lending and borrowing is not positive? The economic impact of transferring surplus capital to a household or cormpany which can put it to use must certainbly be positive.

            If you are arguing that transferring capital to government is likely to have negative consequences, than I agree with you.

          • Are you saying that the act of lending and borrowing is not positive? The economic impact of transferring surplus capital to a household or cormpany which can put it to use must certainbly be positive.

            No. What I am saying is that credit bubbles are not positive. When that money that savers think they have is put to other use it will likely be triggered by a need to spend due to a loss of confidence in the value of the paper that backs Federal Reserve Notes. Most people have a very wrong idea about hyperinflation. They think that you can see it coming and act accordingly to protect yourself but that is not the way things really work. Most of the currency destruction actually takes place in a very short period of time near the end. From the way things look I am seeing a serious problem from the explosion of credit as the Fed monetizes all new UST issues. Eventually some big player will try to leave the party and the rout will be on. The funny thing is that things may go the other way for a while. If we get another crash in real estate and the equity markets you could well see the demand for cash go up sharply and could see that demand stay ahead of the Fed’s printing presses for a while. But in the end the fundamentals will carry the day and the Federal Reserve Note will be devalued sharply against real assets. And that will not be a positive event.

            If you are arguing that transferring capital to government is likely to have negative consequences, than I agree with you.

            That is not in dispute except among some hard line lefties who talk about theft through taxation as ‘investment’.

      • I guess Exxon can issue debt backed by a fiat currency, right?

        Even better. Exxon can issue debt backed by ownership shares in the company, and a chance to share in future earnings.

        A fiat currency, on the other hand, ultimately returns to its intrinsic value.

        .

        • “Even better. Exxon can issue debt backed by ownership shares in the company, and a chance to share in future earnings.”

          Uh, Mr. “economist.” If safety was my goal, I believe I’ll take the full faith and credit of the United States Government as a credit over a corporate piece.

          You just failed Bonds 101.

          • Uh, Mr. “economist.” If safety was my goal, I believe I’ll take the full faith and credit of the United States Government as a credit over a corporate piece.

            You just failed Bonds 101.

            Actually, he didn’t. How well did investors in Greek, Spanish, or Italian bonds do? How about those nice 12% bonds issues by Iceland? I have more faith in Exxon, even though I do not particularly like the management, than I do in the US government because Exxon has to deal with real world realities while Congress can keep kicking the can down the road until there is no way to save the system.

          • “Actually, he didn’t. How well did investors in Greek, Spanish, or Italian bonds do?”

            Actually, if you bought them right, and had the stomach, you could have made a nice quick fortune in all three issues.

            However, all three of those nations use the Euro. The U.S. Dollar, as the prime reserve currency of the planet you happen to live on (sorry for the reminder) means that Treasuries trump ANY corporate.

            Again, your statement reveals a profound ignorance of fixed income markets and bond basics. And you fancy yourself ever the “economic” wizard.

  7. Manufacturing logged the same percent of GDP in 2011 as 2010. There was no “renaissance” last year. Better wait for the preliminary industry accounts data released next April, so the same can be generally said about 2012 relative to 2011. INDPRO is a clue. It is negative since May 2012.

    The manufacturing industry is not a growth driver in the economy. The best that can be stated is that recently it is tenuously hanging on to its share of GDP.

    Anecdote is not the plural of data.

      • Would it be possible for you to write one post instead of two?

        1. The manufacturing INDPRO level was 94.0 in May and 93.0 in October. It’s called negative, a decline.

        2. Professor Perry stated: Here are the five reasons given in the article for the reshoring trend of manufacturing output and production coming back to the US

        I didn’t notice any “employment” in that sentence. In any event, the BLS employment survey says that 11,000 manufacturing jobs out of a total of 672,000 private sector jobs have been created since May 2012.

        • Would it be possible for you to write one post instead of two?

          Yeah, sorry about that. I hit “enter” too soon.

          1. The manufacturing INDPRO level was 94.0 in May and 93.0 in October. It’s called negative, a decline.

          The numbers I am looking at on FRED are a little different, but that’s no matter.

          It was 92.5 one year ago. It was 88.5 two years ago. It was 95.1 in September. It’s called positive, an increase. One month does not a trend make. When we analyze the long-term trend, we see manufacturing industrial production has been rising since July 2009. There are always ups and downs in the monthly data. That is why one needs to smooth it out and look for long-term trends. By picking two data points and observing them in a vacuum, you arrive at an erroneous conclusion.

          [T]he BLS employment survey says that 11,000 manufacturing jobs out of a total of 672,000 private sector jobs have been created since May 2012.

          What is with this obsession with May? Regardless, the point stands. Manufacturing jobs and plants are coming back.

          Perry stated: Here are the five reasons given in the article for the reshoring trend of manufacturing output and production coming back to the US

          I didn’t notice any “employment” in that sentence.

          He’s assuming you read the article. Judging my your comments, I am guessing you didn’t.

          In the article, GE is mentioned. But a quick Google search brings up many more: Dow Chemical, Wham-O, Honda, GM, Ford, Toyota, the list goes on.

          This reshoring has been going on for several years now. To truly assess the impact, you cannot arbitrarily pick two points (especially ones that occur within 5 months of each other) and do your analysis on that. You need all the data points you can get. Otherwise, you are just cherry-picking data to tell the story you want. So, let’s do that:

          The earliest “reshoring” article I found comes from March 2010. There may be earlier ones, but that was what I found. So, let’s look at employment in the MFG sector from March 2010-now (October 2012). Between that time period, some 679,000 non-seasonally-adjusted manufacturing jobs have been added (source: BLS). Now, are you really going to sit there and claim there has been no return of jobs?

          • Judging my [sic] your comments, I am guessing you didn’t.

            Why would I read a puff piece when data is available?

          • Why would I read a puff piece when data is available?

            Because you are commenting on said puff piece.

          • If you don’t read it, you might end up commenting on something that is not even in the piece.

          • What is with this obsession with May?

            2012 IPMAN peaked in April at 95.8. October printed 94.4. The proof is in data, not wishful thinking.

            In 2011, manufacturing was 11% of GDP. Perry is on a 2012 rah-rah roll not an empirical roll. The point is simple. The 2012 data thus far indicates that manufacturing will not exceed its 2007 share (business cycle peak) of GDP (12.5%) in 2012. Period.

            Try again with more wishful thinking in 2013. It won’t happen no matter how many puff “rah-rah” pieces Perry blogs.

          • Marmico, I do not understand your point. How does a potential business cycle peak disprove the points made here?

            Your point is: manufacturing is NOT coming back because productivity between April and October has slowed.

            My point is: so what? 5 months of data does not offset the long-term trends in this market. There is far more going on than just a 5 month slowdown.

            Manufacturing’s share of GDP has been steadily declining across the world. Source Does that mean manufacturing is declining across the world? Of course not! It means services are rising faster.

            The way I see it, you have no case. 5 months of data and a misinterpretation of percentages.

          • he 2012 data thus far indicates that manufacturing will not exceed its 2007 share (business cycle peak) of GDP (12.5%) in 2012. Period.

            So what? That doesn’t mean the article is incorrect. That doesn’t mean manufacturing is in decline. That does disprove the hundreds of thousands of manufacturing jobs added, or the hundreds of thousands more that need to be filled.

          • When dealing with proportions, it is important to remember the mathematics behind it:

            X/Y = X’s share of Y.

            Both X and Y can increase, but if Y increases at a faster pace, that means X’s share will fall.

            Just because X’s share is falling does not mean X is falling.

          • Jon, that is a great way to explain the concept of proportions. You need to consider teaching.

          • Thank you, Walt.

            I was a tutor in college and I loved it. I am working towards and Masters and (hopefully) my PhD now. I do hope to go into teaching one day.

            It will also make it easier for me to indoctrinate America’s youth in my radical free market principles :-P

          • It will also make it easier for me to indoctrinate America’s youth in my radical free market principles.

            Oh Damn! Please hurry.

      • I have a 2.0% y-o-y. But that doesn’t really matter. I am just wondering why the descripency (forgive my spelling, too).

        Also, this decline from April to October is not unprecedented. It’s not good, but it’s not drastically unusual, either.

        What we are seeing here is a slowdown in growth. The long-term trend is still rising, but not at the pace it was this past year.

        Does this disprove the article’s point? Not at all. Business cycles are a part of the economy. Certainly the recession in Europe, Japan, and Brazil, plus slowdown in Canada and China aren’t helping.

  8. How long do you think it will be before GM gets on board?

    The USA is only a tiny portion of GM’s future expansion plans–China and Mexico remain major beneficiaries. GM now builds more cars, sells more cars and hires more people in China than it does in the USA. And when do they start manufacturing that expensive Chevy Volt battery instead of importing it from S. Korea?

  9. “How long do you think it will be before GM gets on board?”

    GM is already on board. They had a ground breaking for a new $7.5 million building in Flint, Michigan today. GM is global now, so all of the future business will not necessarily be in the U.S. There are a lot of GM retirees like me and new stockholders to answer to now.

      • Yeah, I miss that one-ply sandpaper that was passed off as toilet paper.

        How much capital does GM already have in the U.S. as compared to other countries?

        • Making a dumb comment is one way to avoid addressing reality. GM’s future is not in the USA–the UAW has made sure of that. And as long as they are controlled by the Feds that make GM even less competitive than they now are, this won’t change.

          • My dumb was a reply to your dumb comment. You get back what your give.

            GM’s future is global, which includes the U.S., and no automaker is about to concede the lucrative U.S. market in the near future. Have you noticed we have more manufacturers coming in all the time?

  10. Thanks for the article! I read the whole thing while my heating and cooling students were taking their final exam, and I did not feel like I was cheating because it was related to our coursework.

    My last 12 years at GM was in a joint UAW/GM preventative maintenance program to save costs and keep our workers competitive. I know for a fact that unions and management can work together to get any job done as good or better in the U.S. than anywhere else.

    • Walt,

      Were you in the UAW, or just worked with them?

      I ask because I have a theory regarding unions and I’d like an insider’s perspective.

      • Jon,

        I was a UAW union appointee, and a 38.7 years active UAW union member before retiring March 1st of this year. What do you want to know?

          • U are wrong, MacDaddyWatch. I worked until I decided not to work. My last unemploymnent check before I retired in March was drawn during President Reagan’s first year in office.

          • If you are talking about the Jobs Bank, that was brought to the bargaining table by management/GM in 1984, agreed to by the UAW for concessions, and GM’s liabilty to it was always capped by the roughly the amount of those concessions. If you are not aware, that’s how negotiating works whether it is a labor contract or a contract to build a house. It is gone now.

            “The jobs bank was written into the UAW contracts in 1984, when GM was attempting to make factories more automated and flexible. The theory behind the bank was that the automakers would be forced to find work for idled employees. The program capped how long workers could remain in the bank and how much the automaker would contribute.

            “The idea was we would help the companies be more productive, and they would find more work for our members,” Gettelfinger said. “That is one portion of the agreement where we have undoubtedly kept our end of the bargain.”"

            “The jobs bank also may be protected by concessions the union has given the automakers in the four years since the last contracts were signed. In the past two years, the union agreed to buyouts of more than 80,000 hourly workers at all three automakers, depleting the number of employees in the jobs bank programs. GM’s jobs bank is practically non-existent, for instance.)

            (Source USA Today, 7-27-2007)

        • Walt,

          Here are my thoughts on unions:

          I probably depart from most of my fellow libertarian when I say have no intrinsic problem with unions and collective bargaining. A union, as I see it, is not much different from a trade organization for companies, like a National Association of Wholesalers (NAW) or National Marine Manufacturers Association (NMMA). They are a method for dissemination information among its members, and we all know information is good.

          That said, I object to union membership as a condition to employment. I find that to be a violation of an individual’s right to property (his labor, his wage) and life (his ability to choose who he associates with). You and I could spend all day arguing about whether or not this is good or bad, but that is not my point here.

          My question to you is this: could unions survive in a “right-to-work” nation. My theory is they would survive, by adapting to the new conditions. I am just interested in your thoughts.

          • Jon, have you seen the Michigan news today about RTW? I’ll get back here later today about my answer to your question after I have a chance to collect my thoughts.

          • All I know is they are having a vote on it. I generally avoid reading editorials, unless it is someone whose’s thoughts I actually care about (in this case, you).

            If you do not want to post here, feel free to shoot me an email: jmurphy8289@gmail.com

          • jon-

            why do you see that as a departure from libertarian views?

            i agree with your viewpoint completely.

            if individuals wish to voluntarily organize and negotiate collectively with a prospective or current employer, that seems perfect compatible with libertarian notions.

            it’s simply an exercise of the freedom to associate.

            like you, i have no issue whatsoever with that.

            my issue arises when a majority, by the virtue of organizing, can force their views upon a minority or an employer and take away THEIR freedom of contract and association.

            i think we agree that the issue is one of coercion. if a union can force an employer to hire only union members and force employees to accept their collective bargaining against heir will and pay for losing their liberty to boot then that is where it diverges with libertarian thought.

            i do not think most libertarians object to voluntary and non coercive collective bargaining.

          • Jon

            I probably depart from most of my fellow libertarian when I say have no intrinsic problem with unions and collective bargaining.

            I think most of your fellow libertarians would agree with you, and favor freedom of association and assembly, as you do, which means they would have no problems with unions or collective bargaining.

            What they might object to, as you do, is the use of government force to require membership, and in addition they might object to use of government force to require employers to negotiate with a union, as that group the “corporation” should have the same right to freedom of association, which of course includes freedom to NOT associate.

            In my own view all employment should be “at will”. Both employers and employees should be free to enter into any agreement they both prefer, and to end that agreement when that agreement no longer benefits one or both parties.

            Just my $0.02 worth.

            …and we all know information is good.

            Absolutely. Information is always good. the more the better.

          • No, Jon, that’s not a duplicate post by morganovich. I posted 1 minute after he did, and didn’t see his comment.

          • No, Jon, that’s not a duplicate post by morganovich. I posted 1 minute after he did, and didn’t see his comment.

            Well, that is creepy.

          • Jon,

            I think everyone should be able to join or not join a labor union. If they decide not to join, they should not receive any of the benefits that are negotiated by the union. That’s not how it works now in RTW states. If I hire an agent to represent me, why should I pay my agent to represent you free? RTW must get rid of the free riders to earn my support.

            Personally, I think labor unions were slow to change to a global economy, but I think that as the GE article Professor Perry posted yesterday, we have changed. Is it enough change and fast enough? I don’t know. I spent my last few years doing things to improve GM and trying to make jobs more secure because they were profitable and value added and not just because we always did things that way. I was not always popular with the people who were reassigned to streamline operations because they were moved out of their comfort zone and away from what they were used to doing. Change is difficult to master.

            I have faith in U.S. workers, both union and non-union, that we can meet any challenge and compete with anyone in the world doing just about anything if we put our minds to it. That will require that workers be treated with respect and more than just inputs of production by employers and that employees realize they have to be part of the solution and not part of the problem. I don’t see anything except problems from adversarial relationships in the same company—save that for your competitors.

            I do support changing the NLRA to reflect 21st century realities. That’s one of my research areas I will not go into here. For now, though, the NLRA is the law of the land.

          • Thank you very much for you thoughts, Walt.

            I don’t care what the others say, I enjoy when you post.

          • morganovich and jon murphy,

            Libertarians (little l) likely do not have any problems with workers assembling into unions. But libertarians should have problems with government restricting how employers can react to workers who do form unions. I think libertarians would give employers the right to replace workers who choose to strike.

  11. As if wished for, this came up from the Harvard Business Review. This should shut you fakers and pretenders up, once and for all.

    But it won’t.

    December 2012
    .

    ..

    Saving Economics from the Economists

    by Ronald Coase

    Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

    That was not the case in the past. When modern economics was born, Adam Smith envisioned it as a study of the “nature and causes of the wealth of nations.” His seminal work, The Wealth of Nations, was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, shortsightedness, and other defects. The book also stirred up and guided debates among politicians on trade and other economic policies. The academic community in those days was small, and economists had to appeal to a broad audience. Even at the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Economics remained relevant to industrialists.

    In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another.

    NOTE: At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter.

    Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost. (Gee- sound familiar? MP)

    This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void.

    Government is increasingly seen as the ultimate solution to tough economic problems, from innovation to employment.

    Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.

    NOTE: But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task. During most of human history, households and tribes largely lived on their own subsistence economy; their connections to one another and the outside world were tenuous and intermittent. This changed completely with the rise of the commercial society. Today, a modern market economy with its ever-finer division of labor depends on a constantly expanding network of trade. It requires an intricate web of social institutions to coordinate the working of markets and firms across various boundaries. At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy.

    It is time to reengage the severely impoverished field of economics with the economy. Market economies springing up in China, India, Africa, and elsewhere herald a new era of entrepreneurship, and with it unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists.

    Ronald Coase is a Nobel laureate in economics and a professor emeritus at the University of Chicago Law School. He is launching a new journal, Man and the Economy, with Ning Wang of Arizona State University, who contributed to this column.

    Comments
    Kerri2712/06/2012 12:32 AM

    “The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate. ” This could not be more true..

    Nafkot Alemaw12/05/2012 03:54 AM

    So true.

    Deus-DJ12/03/2012 04:48 PM

    Dr. Coase, you do realize that Chicago was one of the main drivers of dumbing down the profession, right?

    So would I take your position to be an endorsement of heterodox economics, which is everything you say economics should be?

    • Max

      That is excellent, thank you. Dr. Coase (Dec 29 will be his 102nd birthday) is right.

      But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists.

      It sounds like Coase is recommending shit-canning Keynesian and neo-Keynesian economics as currently favored by big government types, and returning to our roots, the economics of Smith, Ricardo, Say, Bastiat, and especially the Austrian School of Mises, Rothbard, and Hayek which of course is the study of man as he is and the economic system as it actually exists.

      • “It sounds like Coase is recommending shit-canning Keynesian and neo-Keynesian economics as currently favored by big government types, and returning to our roots, the economics of Smith, Ricardo, Say, Bastiat, and especially the Austrian School of Mises, Rothbard, and Hayek which of course is the study of man as he is and the economic system as it actually exists.”

        He is saying nothing of the kind, and I don’t see how you got that out of his statement. In fact, he was saying the OPPOSITE.

        “In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.

        This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void.”

        What you call “economics” and the slavish fealty to these “schools” (Chicago, Austrian. etc) has so disconnected itself from the real world of business management, it has rendered itself practically useless in the realm of genuine application to business problems.

        And it goes to the heart of these genuinely stupid arguments presented on forums like this. Freiderich Von Hayek is DEAD, and so is the world he lived in, politically, economically and socially, but people cling to him (and Milton Friedman) as if all economic theory and history died on the same day they did. This idol worship amounts to little more than the substitution of idolatry for reality. The theories HAVEN’T worked, and that should be obvious to you today.

        Do you think any of these Austrian school economists imagining a firm whose one function was Leveraged Buy Outs and sought from the outset not to GROW a business, but squeeze the life out of it and move on to the next victim? They would be horrified. And at least they would have brains enough to understand it’s social ramifications.

        We were told in this election that the unemployed were lazy. That is bullsh*t.

        We’ve moved on- things are very much more complex and intertwined in a way the old masters could not have possibly imagined.

        Sorry folks. But Bob Dylan went electric a long time ago, and he ain’t going back. Neither can you.

        And this little piece shows why the characters here are so lame in their arguments. They don’t KNOW BUSINESS.

        I have one idiot here who keeps complaining about GM’s presence in China. Does this jerk realize that GM has had a presence in Germany that pre-dated Hitler coming to power and has been in Australia since 1931? And Ford Motor Co. has been producing vehicles worldwide for nearly a century?

        You people are “economists,” you’re dumb groupies without a shred of practical business knowledge. And the upshot is, when the historical evidence is presented in front of you, like the Pope, you just KNOW the Virgin Birth really happened.

        It didn’t.

      • In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter.

        He is referring to the rise in popularity of Keynes, you numbnuts, and the replacement of actual observation with mathematical models.

        Very popular, of course, with those who believe – as Keynes did – that government should play a major role in directing economic activity, but unable to predict such major events as the Great Depression, the current Great Recession, and unable to explain asset bubbles resulting from government interference in the economy, in fact not of much use to anyone trying to plan their businesses, as Coase points out.

        • “He is referring to the rise in popularity of Keynes, you numbnuts, and the replacement of actual observation with mathematical models.

          Very popular, of course, with those who believe – as Keynes did – that government should play a major role in directing economic activity, but unable to predict such major events as the Great Depression, the current Great Recession, and unable to explain asset bubbles resulting from government interference in the economy, in fact not of much use to anyone trying to plan their businesses, as Coase points out.”

          I don’t draw that out of this at all. What he was pointing out that there was a divergence between economic theory and actual practice, and as economies grew larger and more complex, government began to take a larger role. But I see that – and I think the author did- as something more of an organic response to an evolving economic landscape or a particular situation.

          “the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter”

          “This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void.”

          • I don’t draw that out of this at all. What he was pointing out that there was a divergence between economic theory and actual practice, and as economies grew larger and more complex, government began to take a larger role. .”

            Read that piece again, carefully and think ‘Keynes” when Coase mentions a divergence between theory and practice.

            Human beings and human nature haven’t changed in any fundamental way in thousands of years. Only the external trappings have changed. The fundamentals of how individuals interact and work to improve their well being haven’t changed either.

            Freiderich Von Hayek is DEAD, and so is the world he lived in, politically, economically and socially..”

            Not at all. People are the same as they have ever been. Evolution doesn’t happen in a century.

            The theories HAVEN’T worked, and that should be obvious to you today.

            That’s correct. The Keynesian notion that those in government are somehow more enlightened than everyone else and can somehow guide and direct an entire economy better than individuals actually making their own decisions in their own interest using their own money and relying on market signals to guide them has been debunked.

            Do you think any of these Austrian school economists imagining a firm whose one function was Leveraged Buy Outs and sought from the outset not to GROW a business, but squeeze the life out of it and move on to the next victim?

            Of course they could. Knowing that individuals and groups of individuals (firms) act in their own self interest would make such a firm easy to imagine. The mechanics might be new to them, but that’s the easy part.

            By the way, not all Austrian economists are dead.

            They would be horrified. And at least they would have brains enough to understand it’s social ramifications.

            You apparently have little understanding of Austrian economics.

          • “Freiderich Von Hayek is DEAD, and so is the world he lived in, politically, economically and socially..”

            Not at all. People are the same as they have ever been. Evolution doesn’t happen in a century.

            “The theories HAVEN’T worked, and that should be obvious to you today.”

            That’s correct. The Keynesian notion that those in government are somehow more enlightened than everyone else and can somehow guide and direct an entire economy better than individuals actually making their own decisions in their own interest using their own money and relying on market signals to guide them has been debunked.

            “Do you think any of these Austrian school economists imagining a firm whose one function was Leveraged Buy Outs and sought from the outset not to GROW a business, but squeeze the life out of it and move on to the next victim?”

            Of course they could. Knowing that individuals and groups of individuals (firms) act in their own self interest would make such a firm easy to imagine. The mechanics might be new to them, but that’s the easy part.

            By the way, not all Austrian economists are dead.

            “They would be horrified. And at least they would have brains enough to understand it’s social ramifications.”

            You apparently have little understanding of Austrian economics.”

            ———————————————————

            You try so damned hard to “beat” me in an argument, you simply miss the point I’m making entirely. You really cannot absorb what I’m saying.

            And contrary to your belief, the world HAS changed. All of these thinkers- as we are- are prisoners of their own time and experience.

          • You try so damned hard to “beat” me in an argument, you simply miss the point I’m making entirely. You really cannot absorb what I’m saying.

            And contrary to your belief, the world HAS changed. All of these thinkers- as we are- are prisoners of their own time and experience.

            You missed his point dumdum. Human nature has not changed. The nature of government has not changed. Go and read Bastiat and you recognize exactly the same economic issues and arguments that he dealt with. Hazlitt’s book is as fresh today as it was seventy years ago.

            My son says that you would be much more enlightened if you did not think that people own prices but I doubt that you can ever learn very much because yours is a theological position that has no desire for fact and logic.

          • “My son says that you would be much more enlightened if you did not think that people own prices but I doubt that you can ever learn very much because yours is a theological position that has no desire for fact and logic.”

            Your son will be lucky to learn what I forgot. And tellingly, if anyone can be accused of substituting a dead theology for the reality of today’s economy, it’s YOU.

            Spare me the pieties. These books were written before entire industries were carted off to the Third World.

            Idiot.

          • Your son will be lucky to learn what I forgot. And tellingly, if anyone can be accused of substituting a dead theology for the reality of today’s economy, it’s YOU.

            Actually, you have never learned anything that seems to be useful in understanding how the world works. Yours is a theological position that has no place for reason or logic and refuses to learn from history or experience. The fact that you missed a reference that was obvious to a 12- and 14-year-old shows just how little you know about a subject on which you are commenting.

            Spare me the pieties. These books were written before entire industries were carted off to the Third World.

            Idiot.

            The books were written when entire industries were being destroyed by new technology. Their arguments are just as valid today as they were then. The fact that you do not care about the logic or the historical evidence is your problem, not mine.

          • “The books were written when entire industries were being destroyed by new technology. Their arguments are just as valid today as they were then.”

            They don’t have the same implications today than they did in Queen Victoria’s time.

            Sorry.

          • They don’t have the same implications today than they did in Queen Victoria’s time.

            Sorry.

            You are right. At that time people did not have safety nets to get them through the transition or as many opportunities as there are today. Of course, at that time there were also no rules that stopped them from working either but that is what you get when you lose economic freedom.

          • It has absolutely nothing to do with “safety nets.” Its not even germaine to the warped philosophy you’re trying to push, which only further exposes your intellectual weakness.

          • “Go and read Bastiat and you recognize exactly the same economic issues and arguments that he dealt with. Hazlitt’s book is as fresh today as it was seventy years ago. ”

            No, it is not, and that’s where your head gets stuck up your ass. Someone else has been noticing this too. Ignore it at your own peril:

            http://krugman.blogs.nytimes.com/2012/12/11/human-versus-physical-capital/?smid=tw-NytimesKrugman&seid=auto

            THAT’S the issue you’re studiously avoiding. And for your kid’s sake, I wouldn’t be doing that.

          • I don’t draw that out of this at all.

            Of course you don’t. You miss all obvious references that even my kids get. When I read your comment on the problem with mechanization my 14-year old suggested that you read the beginning of Wealth of Nations. He has an audio-book that we used to help put him to sleep at night and seems to have remembered the pin-maker example.

          • Idiot: the author was pointing out the disconnect between the economic theories and the real world of business.

            “When modern economics was born, Adam Smith envisioned it as a study of the “nature and causes of the wealth of nations.” His seminal work, The Wealth of Nations, was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, shortsightedness, and other defects. The book also stirred up and guided debates among politicians on trade and other economic policies. The academic community in those days was small, and economists had to appeal to a broad audience. Even at the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Economics remained relevant to industrialists.”

            And then that changed.

            “The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.”

            I guess your 12 year old got that too.

          • Vangel

            He has an audio-book that we used to help put him to sleep at night and seems to have remembered the pin-maker example.

            Heh. Some kids get “The Three Bears” at bedtime, others get Adam Smith.

          • Heh. Some kids get “The Three Bears” at bedtime, others get Adam Smith.

            Their favourite was Jeff Riggenbach’s series, The Libertarian Tradition. The commentary on Tolkien and Spooner went over very well and should be read or listened to by anyone interested in learning.

          • “Their favourite was Jeff Riggenbach’s series, The Libertarian Tradition. The commentary on Tolkien and Spooner went over very well and should be read or listened to by anyone interested in learning.”

            Wow, that’s REALLY impressive! LOL!!

            This is like a Monty Python skit.

          • THAT’S the issue you’re studiously avoiding. And for your kid’s sake, I wouldn’t be doing that.

            Avoiding it? What is there to avoid? More income from capital is a GOOD thing, moron.

            How much of YOUR income derives from labor and how much from capital? Would you rather live on investments or digging ditches? Would you rather drive your own cement truck or operate your own concrete pump, or do you prefer operating your own shovel as the workers in the video I linked to were doing? I realized by your response at the time that the point went right over your head.

            The difference is *capital*.

            Idiot.

            Would

          • How much of YOUR income derives from labor and how much from capital? Would you rather live on investments or digging ditches? Would you rather drive your own cement truck or operate your own concrete pump, or do you prefer operating your own shovel as the workers in the video I linked to were doing? I realized by your response at the time that the point went right over your head.

            Our friend is as ignorant as Larry.

          • The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.

            As with so much else it appears you have filtered this through your particular lense of ignorance and short sightedness to incorrectly assume that the role of economics is to guide entrepreneurs, and that without such guidance they are helpless – forgetting that they have succeeded for thousands of years without any such guidance.

            It might help you to think of economics as a quest to understand how people act rather than as a set of directions on *how* to act.

            Krugman misses that point and so do you.

          • “As with so much else it appears you have filtered this through your particular lense of ignorance and short sightedness to incorrectly assume that the role of economics is to guide entrepreneurs, and that without such guidance they are helpless – forgetting that they have succeeded for thousands of years without any such guidance.

            It might help you to think of economics as a quest to understand how people act rather than as a set of directions on *how* to act.

            Krugman misses that point and so do you.”

            Your response is, once again, incoherent. How the hell you came to the conclusion that ” the role of economics..was to guide entrepreneurs” was never the issue at hand.

            You’re so wound up trying to argue for argument’s sake you’ve constructed your own narrative to make responses to points no one is making.

            You’re nuts.

          • Wow, that’s REALLY impressive! LOL!!

            This is like a Monty Python skit.

            Once again Max prematurely ejaculates an opinion on something of which he has little or no knowledge.

          • “Once again Max prematurely ejaculates”

            right in your mouth. That should keep you quiet for awhile.

          • “Your son will be lucky to learn what I forgot. ”

            That may be closer to the truth than you realize. You have either forgotten an incredible amount or you have never learned it, as you sure as hell don’t seem to know much now.

          • And contrary to your belief, the world HAS changed. All of these thinkers- as we are- are prisoners of their own time and experience.

            That’s an interesting point, and true as far as it goes, but you seem to be forgetting that some people throughout history – some of whose names are mentioned on this thread – have been able to lift their gaze a little higher and have seen a little further into the distance instead of just staring at their feet as you seem to do waiting for guidance from Krugman.

          • I’m not “waiting for guidance” from anyone. The numbers are in front of your face, as are the business models, and the economy itself.

            If you can’t the transitioning happening right in front of your eyes, don’t fancy yourself the Great Thinker or economically literate. This remaking of the economy has been going on for quite some time, and ultimately, there comes a denouement.

          • Your response is, once again, incoherent. How the hell you came to the conclusion that ” the role of economics..was to guide entrepreneurs” was never the issue at hand.

            That’s from your quote of Coase. Don’t you even understand what you’re quoting? Get a grip.

            Idiot

          • “That’s from your quote of Coase. Don’t you even understand what you’re quoting? Get a grip.”

            Then you didn’t even understand the point of the piece.

          • right in your mouth. That should keep you quiet for awhile.

            Heh! Not even close. You don’t have anywhere that much control. It’s still in your pants.

          • Then you didn’t even understand the point of the piece.

            Look, moron, I’ve explained the piece – that you brought here – to you already, and you don’t even understand what you quote from it. I give up. Try reading the piece again with comprehension=on, and reread my explanations. If you still don’t get it, ask someone else. I’m not wasting any more time trying to educate a shit-for-brains like you..

          • “Look, moron, I’ve explained the piece – that you brought here – to you already, and you don’t even understand what you quote from it. I give up. Try reading the piece again with comprehension=on, and reread my explanations. If you still don’t get it, ask someone else. I’m not wasting any more time trying to educate a shit-for-brains like you..”

            You’ve explained nothing, and merely cooked up your own interpretation.

            To underscore your persistent mendacity, here is another piece on Coase which underscores his point- and the correlation I was drawing from it, not the bullshit you were:

            http://www.businessweek.com/printer/articles/84302-urging-economists-to-step-away-from-the-blackboard

          • To underscore your persistent mendacity, here is another piece on Coase which underscores his point- and the correlation I was drawing from it, not the bullshit you were:

            Christ on a crutch! You have posted another piece that supports my earlier explanations, and you don’t even realize it. There is no hope that you will understand what you’re reading. Coase’s point is that droolers like Bernanke and Greenspan are missing the reality because they are too busy looking at charts and numbers and as he says – and I quote directly from the piece – “Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.”

            That is a *direct refutation* of Keynesian and neo-classical economics – and of Krugman.

          • “Christ on a crutch! You have posted another piece that supports my earlier explanations, and you don’t even realize it. There is no hope that you will understand what you’re reading. Coase’s point is that droolers like Bernanke and Greenspan are missing the reality because they are too busy looking at charts and numbers and as he says – and I quote directly from the piece – “Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.”

            That is a *direct refutation* of Keynesian and neo-classical economics – and of Krugman.”

            Nonsense. You’re not even conscious regarding this.
            Are you this ignorant about economic history?

            Coase didn’t call Bernanke or Greenspan “droolers” and SPECIFICALLY in Greenspan’s case, you can’t even call him a chart guy. The guiding principle of his economic life was that markets could govern themselves, and this was imbued in him by his close friendship with Ayn Rand.

            “The financial crisis forced economists to confront the limitations of their profession. Former Federal Reserve Chairman Alan Greenspan admitted as much when he told Congress in October 2008 that markets might not regulate themselves after all.”

            This belief- which was the core of Greenspan’s being- was the thing that got us into trouble. If Greenspan had intervened when he was supposed to as Fed Chair, a lot of the froth may not have come to the boil. But he never thought that financial institutions would wilfully sow the seeds of their own destruction.

            Coase THEN says:

            “Coase says the problem runs deeper: Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.”

            And that was the point that I was trying to make. There is a plain divergence from theory and practice, and muttering these shibboleths from the ancient texts ain’t gonna cut it in today’s world.

            And this was by no means a slam at Keynes either. Keynes – among many things- considered his general theory of Employment, Interest and Money to be the foundation of what would later be known as “Keynesian,” but you’re talking about him like he was a quant. If ANYTHING, Keynes key concern about the general welfare of actual people who do the work in an economy doesn’t make him some cloistered analyst (i.e., as an arrogant tool like Hubbard cynically attempts to instill “policy” that will “encourage” certain results.)

            The kind of quantitative economic analysis Coase is referring to came later. Clearly, Keynes was a man of ideas, as Hayek was.

            I think you have a genuine cognition problem here. Or, the more likely explanation, is that you’re plainly a stupid asshole.

          • In addition, just in case you didn’t get it when you read the Coase article, here it is again:

            ““When Coase and Wang hosted a conference on China in 2008, they noticed that “many Chinese academics had never talked to either policymakers or entrepreneurs from their own country. They had learned only what Coase calls “blackboard economics,” sets of theories and mathematical relationships between bits of data. “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught “game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions.”

            See if a light comes on in that darkness you call a brain.

          • ““When Coase and Wang hosted a conference on China in 2008, they noticed that “many Chinese academics had never talked to either policymakers or entrepreneurs from their own country. They had learned only what Coase calls “blackboard economics,” sets of theories and mathematical relationships between bits of data. “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught “game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions.”

            BUT NONE OF THIS IS A SLAM OF GREENSPAN, KRUGMAN, BERNANKE OR ANY OF THE OTHER VILLIANS YOUR FETID IMAGINATION COMES UP WITH. You’re using Coase’s complaint as a weapon to use against people you don’t like.

            I don’t think that is what Coase was complaining about.

          • “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught “game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions”

            Just to belabor the point of your preposterous responses, we generally do not associate Keynes, Hayek, or the earlier “masters” with things like “game theory.” Those were developed not long after they died.

            Oh, and by the way, just going through an earlier post of yours, you challenged me on my point about unemployment, and I believe your response was “Prssent your evidence, asshole.”

            I did- those were the BLS charts Krugman provided in his blog. You then proceeded to call him a “hack” as if that addressed the point.

            It didn’t. Nothing you write addresses the point.

            I think I’m done with you now. Thanks for playing.

          • They don’t have the same implications today than they did in Queen Victoria’s time.

            Yeah, job loss and unemployment were *different* then.

            One thing that WAS different is that unemployment benefits in those days weren’t available for 99 weeks.

          • “Yeah, job loss and unemployment were *different* then.

            One thing that WAS different is that unemployment benefits in those days weren’t available for 99 weeks.”

            Look at post industrial England and then take a ride through OUR country- the parallels may shake you a bit- they don’t look at all different.

          • I did- those were the BLS charts Krugman provided in his blog. You then proceeded to call him a “hack” as if that addressed the point.

            That’s it? Can you really be that dense? There is nothing in those charts that addresses unemployment.

            Try harder to understand your own references. You really suck at it.

            Idiot.

        • Coase didn’t call Bernanke or Greenspan “droolers…”

          No, moron, I did.

          …and SPECIFICALLY in Greenspan’s case, you can’t even call him a chart guy. The guiding principle of his economic life was that markets could govern themselves, and this was imbued in him by his close friendship with Ayn Rand.

          If it’s possible, you’re even stupider than I thought. Greenspan gave up his objectivist roots long before he covered his ass in his speech to Congress. Do you not understand politi-speak when you hear it? A laissez-faire capitalist free market guy would no more become Chairman of the Fed than would the Pope bow toward Mecca 5 times a day. The very idea of creating money and affecting interest rates would be antithetical.

          You ARE correct that I may be unfairly criticizing Keynes. I would instead condemn the neo-Keynesians or neo-liberals – whichever they prefer these days.

          “”he financial crisis forced economists to confront the limitations of their profession. Former Federal Reserve Chairman Alan Greenspan admitted as much when he told Congress in October 2008 that markets might not regulate themselves after all.

          Markets have not been allowed to regulate themselves, so there’s no way to know. “Gee, I had no idea.” Greenspan said. Don’t you expect the Chairman of the Fed to have an idea? If he wasn’t up for the job he shouldn’t have been there. Poor little Alan.

          • If it’s possible, you’re even stupider than I thought. Greenspan gave up his objectivist roots long before he covered his ass in his speech to Congress. Do you not understand politi-speak when you hear it? A laissez-faire capitalist free market guy would no more become Chairman of the Fed than would the Pope bow toward Mecca 5 times a day. The very idea of creating money and affecting interest rates would be antithetical.

            It is possible that he is a lot stupider than you think. And it is possible that our friend does not understand politi-speak when he hears it because he does not understand many things. My son still thinks that there is no way for any adult to be this stupid and thinks that he is just putting us on just like Bennie must have.

          • Your response is every bit as incohate as Ron’s.

            The fact that Greenspan “gave up his objectivist roots” – which is doubtful, by the way- BEFORE he gave his speech, but AFTER his policies laid waste to the economy doesn’t prove your point.

            The two of you are poseurs.

          • The fact that Greenspan “gave up his objectivist roots” – which is doubtful, by the way- BEFORE he gave his speech, but AFTER his policies laid waste to the economy doesn’t prove your point.

            The two of you are poseurs.

            Sorry dumdum but Greenspan gave up his ‘objectivist roots’ long before he became the chairman of the Fed. He would not have been appointed if he had not. As for laying waste to the economy, that comes from the type of reckless credit expansion that Krugman was always praising.

          • “Sorry dumdum but Greenspan gave up his ‘objectivist roots’ long before he became the chairman of the Fed. He would not have been appointed if he had not. As for laying waste to the economy, that comes from the type of reckless credit expansion that Krugman was always praising.”

            You’re just flat wrong.
            His apology ADMITTED his objectivist theories guided his recklessness.

            You’re as big an asshole as Ron.

            ‘bye

          • You’re just flat wrong.
            His apology ADMITTED his objectivist theories guided his recklessness.

            I see that you are making stuff up again dumdum or that you are not familiar with Greenspan’s turn to the dark side. Greenspan decided to become an insider and part of the central planning clique in the late 1960s. While he still talked a good game when it came to his association with Rand and her ideas he was no longer an Objectivist and certainly about as far from being an Austrian as you can be without being a Krugman type.

          • From the Wiki:

            “Objectivism

            Objectivist movement

            Philosophy[show]

            Organizations[show]

            Theorists[show]

            Literature[show]

            Related topics[show]

            Philosophy portal

            v ·
            t ·
            e

            In the early 1950s, Greenspan began an association with famed novelist and philosopher Ayn Rand.[43] Greenspan was introduced to Rand by his first wife, Joan Mitchell. Rand nicknamed Greenspan “the undertaker” because of his penchant for dark clothing and reserved demeanor. Although Greenspan was initially a logical positivist,[51] he was converted to Rand’s philosophy of Objectivism by her associate Nathaniel Branden. He became one of the members of Rand’s inner circle, the Ayn Rand Collective, who read Atlas Shrugged while it was being written. During the 1950s and 1960s Greenspan was a proponent of Objectivism, writing articles for Objectivist newsletters and contributing several essays for Rand’s 1966 book Capitalism: the Unknown Ideal including an essay supporting the gold standard.[52][53] Rand stood beside him at his 1974 swearing-in as Chair of the Council of Economic Advisers. Greenspan and Rand remained friends until her death in 1982.[43]

            He has come under criticism from Harry Binswanger,[54] who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. However, when questioned in relation to this, he has said that in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled. He said he himself had to make such compromises, because he believes that “we did extremely well” without a central bank and with a gold standard.[55] In a Congressional hearing on October 23, 2008, Greenspan admitted that his free-market ideology shunning certain regulations was flawed.[56] However, when asked about free markets and Rand’s ideas in an interview on April 4, 2010, Greenspan clarified his stance on laissez faire capitalism and asserted that in a democratic society there could be no better alternative. He stated that the errors that were made stemmed not from the principle, but from the application of competitive markets in “assuming what the nature of risks would be.”[57]

          • He has come under criticism from Harry Binswanger,[54] who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. However, when questioned in relation to this, he has said that in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled.

            Correct. He made compromises and chose money and power over principles. Try reading your own references.

          • “Correct. He made compromises and chose money and power over principles. Try reading your own references.”

            I do. One obscure footnote regarding one man’s OPINION doesn’t erase the man’s philosophy.

            But, of course, you already knew that. You had to say SOMETHING. Fool.

          • I do. One obscure footnote regarding one man’s OPINION doesn’t erase the man’s philosophy.

            Words are cheap. Actions tell us what we need to know. Greenspan chose to get on the inside and work as a central planner. No matter what you are trying to sell, an Objectivist does not do that.

          • “Words are cheap. Actions tell us what we need to know. Greenspan chose to get on the inside and work as a central planner. No matter what you are trying to sell, an Objectivist does not do that.”

            Stop jerking off. You’re telling us that Greenspan would never take the job of Chairman has he not renounced his principles first?

            You’re following the Rin H. method of discourse. Deflect, deceive, and Don’t ever stay on point.

          • Stop jerking off. You’re telling us that Greenspan would never take the job of Chairman has he not renounced his principles first?

            I said that he would never have been offered the job had he not renounced his opposition to big government, deficits, and fiat money. He wanted to be on the inside and be a central planner and gave up his principles as a result.

            You’re following the Rin H. method of discourse. Deflect, deceive, and Don’t ever stay on point.

            I am staying on point. Greenspan was a central planner who tried to manipulate rates and the economy. Even though Objectivists are statists in my book that is going too far and does not fit with their principles. When a man gets praised by both Democrats and Republicans alike you know that he is not arguing for a hard money system and is in favour of central planning.

          • Oh, get off it:

            This is a picture of Rand with Greenspan after he was sworn in to Ford’s Council of Economic Advisors:

            http://www.nytimes.com/imagepages/2009/08/02/business/02bbt_CA0.ready.html

            I guess that august group just sat around and let things happen since they were so against any government intervention.

            Then there is his ACTUAL TESTIMONY:

            “Lawmakers weren’t buying his explanations. “You had the authority to prevent irresponsible lending practices that led to the subprime-mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price,” said Rep. Henry Waxman (D., Calif.), chairman of the House committee.

            Lawmakers read back quotations from recent years in which Mr. Greenspan said there’s “no evidence” home prices would collapse and “the worst may well be over.”

            The 82-year-old Mr. Greenspan said he made “a mistake” in his hands-off regulatory philosophy, which many now blame in part for sparking the global economic troubles. He quoted something he had written in March: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”

            He conceded that he has “FOUND A FLAW” IN HIS IDEOLOGY and said he was “distressed by that.” Yet Mr. Greenspan maintained that no regulator was smart enough to foresee the “once-in-a-century credit tsunami.”

            So stop the shilly shallying- like most cowards, you can’t admit you’re wrong when it’s right in front of your face, and you’ll simply find another stupid reason to deflect instead of owning up.

            In the meantime, read Rand’s biography- self sufficiency was a noble idea- except of course, for her.

          • My son still thinks that there is no way for any adult to be this stupid and thinks that he is just putting us on just like Bennie must have.

            He may be right. This certainly goes beyond ignorance, which is curable.

          • You’re just flat wrong.
            His apology ADMITTED his objectivist theories guided his recklessness.

            LMAO!

            Oh boy! And just when I thought it couldn’t get any worse.

          • This is a picture of Rand with Greenspan after he was sworn in to Ford’s Council of Economic Advisors:

            OMG. I can’t believe it. OK, point by point.

            A waste of my time, no doubt, but 2 things:

            1. Having your picture taken with someone doesn’t mean you’re their ideological twin. They were *friends*. If you had any you would know that friends may have different views and disagree on many thing.

            2. But this was 1974. He was an *economic adviser* to Pres Ford, so we don’t know his economics or his politics based solely on that, and we don’t know if he had strayed from Rand’s loving arms at that time.

            But what should be crystal clear is that to become chairman of the Fed 13 years later, he would have had to change is views considerably. An objectivist or libertarian or Austrian economist as chair of the Fed is like a vegetarian accepting a position as chief taste tester at a meat processing plant.

            I guess that august group just sat around and let things happen since they were so against any government intervention.

            meaningless drivel.

            Then there is his ACTUAL TESTIMONY:

            “Lawmakers weren’t buying his explanations. “You had the authority to prevent irresponsible lending practices that led to the subprime-mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price,” said Rep. Henry Waxman (D., Calif.), chairman of the House committee.

            Political finger pointing by a man who would destroy even more of the manufacturing in the US if he had his way. And – he is really ugly to boot.

            Lawmakers read back quotations from recent years in which Mr. Greenspan said there’s “no evidence” home prices would collapse and “the worst may well be over.”

            Even those scumbags knew he was clueless.

            The 82-year-old Mr. Greenspan said he made “a mistake” in his hands-off regulatory philosophy, which many now blame in part for sparking the global economic troubles. He quoted something he had written in March: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”

            Pure CYA. You obviously don’t understand politi-speak.

            He conceded that he has “FOUND A FLAW” IN HIS IDEOLOGY and said he was “distressed by that.” Yet Mr. Greenspan maintained that no regulator was smart enough to foresee the “once-in-a-century credit tsunami.

            More CYA. “I couldn’t possibly have known that would happen.” Any Austrian could have told him exactly what would happen, but no one wanted to hear bad news warnings from those buzzkills.

            Once in a century credit tsunami? Give me a break. This is the guy who directed interest rate policy for the US. Is he admitting to being incompetent? This is the guy who lowered interest rates in an attempt to soften the fall from the dot-com bubble, and by so doing allowed a housing bubble to form. The credit tsunami is a result of his tinkering.

            So stop the shilly shallying- like most cowards, you can’t admit you’re wrong when it’s right in front of your face, and you’ll simply find another stupid reason to deflect instead of owning up.

            I can’t remember ever before being accused of shilly-shallying. I’ll have to look that one up.

            In the meantime, read Rand’s biography- self sufficiency was a noble idea- except of course, for her.

            I have no idea what you think that means.

            Idiot.

          • Once again, your reply is sheer deflection. It’s really just too f**king stupid to answer.

            Help yourself.

          • Once again, your reply is sheer deflection. It’s really just too f**king stupid to answer.

            Help yourself.

            Typical cut & paste answer from Moron Max when he has no real response.

            Idiot

          • Grow up one day.

            Aren’t you surprised that you found a person dumber than Larry and Bennie so quickly? Our pal is not only an idiot but he has no clue at all that he is an idiot. At least the other guys admitted once in a while that they may have been over their heads.

          • “Aren’t you surprised that you found a person dumber than Larry and Bennie so quickly? Our pal is not only an idiot but he has no clue at all that he is an idiot. At least the other guys admitted once in a while that they may have been over their heads.”

            Thank you for employing the same construct I was railing against, in response.

            Like talking to furniture….

          • Thank you for employing the same construct I was railing against, in response.

            Like talking to furniture….

            Yes, trying to discuss something with you is like talking to furniture. And you are dumber than Larry and Walt. At lest they know that some of the time they are clueless about what they are talking about.

          • “Yes, trying to discuss something with you is like talking to furniture. And you are dumber than Larry and Walt”

            Yeah, man. Your mom’s box.

            God, are you an ass.

          • There is absolutely nothing in all of your commentary that would lead a rational person of even modest education to believe that you know a damned thing about “economics.”

            You’re only kidding yourself.

  12. Just repeat this sentence to yourselves AGAIN:

    “But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task.”

    That, folks, is the source of your problems- and stupefying ignorance.

    • “But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task.”

      My point exactly! I thought you understood that.

  13. Once upon a time, Youngstown, Ohio, was a typical smokestack city, part of the steel belt running through Pennsylvania and Ohio. As with Camden, things there started turning south in the 1970s. From 1977 to 1987, the city lost 50,000 jobs in steel and related industries. By the late 1980s, the years of Ronald Reagan’s presidency when it was “morning again in America,” it was midnight in Youngstown: foreclosures, an epidemic of business bankruptcies, and everywhere collapsing community institutions including churches, unions, families, and the municipal government itself.

    Burglaries, robberies, and assaults doubled after the steel plants closed. In two years, child abuse rose by 21 percent, suicides by 70 percent. One-eighth of Mahoning County went on welfare. Streets were filled with dead storefronts and the detritus of abandoned homes: scrap metal and wood shingles, shattered glass, stripped-away home siding, canning jars, and rusted swing sets. Each week, 1,500 people visited the Salvation Army’s soup line.

    The Wall Street Journal called Youngstown “a necropolis,” noting miles of “silent, empty steel mills” and a pervasive sense of fear and loss. Bruce Springsteen would soon memorialize that loss in “The Ghost of Tom Joad.”

    If you were unfortunate enough to live in the small industrial city of Mansfield, Ohio, for the last forty years, you would have witnessed in microcosm the dystopia of destruction unfolding in similar places everywhere. For a century, workshops there had made a kaleidoscope of goods: stoves, tires, steel, machinery, refrigerators, and cars. Then Mansfield’s rust belt started narrowing as one plant after another went shut down: Dominion Electric in 1971, Mansfield Tire and Rubber in 1978, Hoover Plastics in 1980, National Seating in 1985, Tappan Stoves in 1986, a Westinghouse plant and Ohio Brass in 1990, Wickes Lumber in 1997, Crane Plumbing in 2003, Neer Manufacturing in 2007, and Smurfit-Stone Container in 2009. In 2010, General Motors closed its largest, most modern U.S. stamping factory, and thanks to the Great Recession, Con-way Freight, Value City, and Card Camera also shut down.

    “Good times” or bad, it didn’t matter. Mansfield shrank relentlessly, becoming the urban equivalent of skin and bones. Its poverty rate is now at 28 percent, its median income $11,000 below the national average of $41,994. What manufacturing remains is non-union and $10 an hour is considered a good wage.

    Midway through this industrial auto-da-fé, a journalist watching the Campbell Works of Youngstown Sheet and Tube go dark, mused that “the dead steel mills stand as pathetic mausoleums to the decline of American industrial might that was once the envy of the world.” This dismal record is particularly impressive because it encompasses the “boom times” presided over by Presidents Reagan and Clinton.

    The “Pit” Deepens

    In 1988, in the iciest part of the Frost Belt, a Wall Street Journal reporter noted, “There are two Americas now, and they grow further apart each day.” He was referring to Eastport, Maine. Although the deepest port on the East Coast, it hosted few ships, abandoned sardine factories lined its shore, and its bars were filled with the under- and unemployed. The reporter pointed out that hehad seen similar scenes from a collapsing rural economy “coast to coast, border to border”: shuttered saw mills, abandoned mines, closed schools, rutted roads, ghost airports.

    Closing up, shutting down, going out of business: last one to leave please turn out the lights!

    Such was the case in cities and towns around the country. Essential public services — garbage collection, policing, fire protection, schools, street maintenance, health-care — were atrophying. So were the people who lived in those places. High blood pressure, cardiac and digestive problems, and mortality rates were generally rising, as was doubt, self-blame, guilt, anxiety, and depression. The drying up of social supports, even among those who once had been friends and workmates, haunted the inhabitants of these places as much as the industrial skeletons around them.

    In the 1980s, when Jack Welch, soon to be known as “Neutron Jack” for his ruthlessness, became CEO of General Electric, he set out to raise the company’s stock price by gutting the workforce. It only took him six years, but imagine what it was like in Schenectady, New York, which lost 22,000 jobs; Louisville, Kentucky, where 13,000 fewer people made appliances; Evendale, Ohio, where 12,000 no longer made lights and light fixtures; Pittsfield, Massachusetts, where 8,000 plastics makers lost their jobs; and Erie, Pennsylvania, where 6,000 locomotive workers got green slips.

    Life as it had been lived in GE’s or other one-company towns ground to a halt. Two travelling observers, Dale Maharidge and Michael Williamson, making their way through the wasteland of middle America in 1984 spoke of “medieval cities of rusting iron” and a largely invisible landscape filling up with an army of transients, moving from place to place at any hint of work. They were camped out under bridges, riding freight cars, living in makeshift tents in fetid swamps, often armed, trusting no one, selling their blood, eating out of dumpsters.

    Nor was the calamity limited to the northern Rust Belt. The South and Southwest did not prove immune from this wasting disease, either. Empty textile mills, often originally runaways from the North, dotted the Carolinas, Georgia, and elsewhere. Half the jobs lost due to plant closings or relocations occurred in the Sunbelt.

    In 2008, in the sunbelt town of Colorado Springs, Colorado, one-third of the city’s street lights were extinguished, police helicopters were sold, watering and fertilizing in the parks was eliminated from the budget, and surrounding suburbs closed down the public bus system. During the recent Great Recession one-industry towns like Dalton, Georgia (“the carpet capital of the world”), or Blakely, Georgia (“the peanut capital of the world”), or Elkhart, Indiana (“the RV capital of the world”) were closing libraries, firing police chiefs, and taking other desperate measures to survive.

    And no one can forget Detroit. Once, it had been a world-class city, the country’s fourth largest, full of architectural gems. In the 1950s, Detroit had a population with the highest median income and highest rate of home ownership in urban America. Now, the “motor city” haunts the national imagination as a ghost town. Home to two million a quarter-century ago, its decrepit hulk is now “home” to 900,000. Between 2000 and 2010 alone, the population hemorrhaged by 25 percent, nearly a quarter of a million people, almost as many as live in post-Katrina New Orleans. There and in other core industrial centers like Baltimore, “death zones” have emerged where whole neighborhoods verge on medical collapse.

    One-third of Detroit, an area the size of San Francisco, is now little more than empty houses, empty factories, and fields gone feral. A whole industry of demolition, waste-disposal, and scrap-metal companies arose to tear down what once had been. With a jobless rate of 29 percent, some of its citizens are so poor they can’t pay for funerals, so bodies pile up at mortuaries. Plans are even afoot to let the grasslands and forests take over, or to give the city to private enterprise.

    Even the public zoo has been privatized. With staff and animals reduced to the barest of minimums and living wages endangered by its new owner, an associate curator working with elephants and rhinos went in search of another job. He found it with the city — chasing down feral dogs whose population had skyrocketed as the cityscape returned to wilderness. History had, it seemed, abandoned dogs along with their human compatriots.

    Looking Backward

    But could this just be the familiar story of capitalism’s penchant for “creative destruction”? The usual tale of old ways disappearing, sometimes painfully, as part of the story of progress as new wonders appear in their place?

    Imagine for a moment the time traveler from Looking Backward, Edward Bellamy’s best-selling utopian novel of 1888 waking up in present-day America. Instead of the prosperous land filled with technological wonders and egalitarian harmony Bellamy envisioned, his protagonist would find an unnervingly familiar world of decaying cities, people growing ever poorer and sicker, bridges and roads crumpling, sweatshops a commonplace, the largest prison population on the planet, workers afraid to stand up to their bosses, schools failing, debts growing more onerous, and inequalities starker than ever.

    A recent grim statistic suggests just how Bellamy’s utopian hopes have given way to an increasingly dystopian reality. For the first time in American history, the life expectancy of white people, men and women, has actually dropped. Life spans for the least educated, in particular, have fallen by about four years since 1990. The steepest decline: white women lacking a high school diploma. They, on average, lost five years of life, while white men lacking a diploma lost three years.

    Unprecedented for the United States, these numbers come close to the catastrophic decline Russian men experienced in the desperate years following the collapse of the Soviet Union. Similarly, between 1985 and 2010, American women fell from 14th to 41st place in the United Nation’s ranking of international life expectancy. (Among developed countries, American women now rank last.) Whatever combination of factors produced this social statistic, it may be the rawest measure of a society in the throes of economic anorexia.

    One other marker of this eerie story of a developed nation undergoing underdevelopment and a striking reproach to a cherished national faith: for the first time since the Great Depression, the social mobility of Americans is moving in reverse. In every decade from the 1970s on, fewer people have been able to move up the income ladder than in the previous ten years. Now Americans in their thirties earn 12 percent less on average than their parents’ generation at the same age. Danes, Norwegians, Finns, Canadians, Swedes, Germans, and the French now all enjoy higher rates of upward mobility than Americans. Remarkably, 42 percent of American men raised in the bottom one-fifth income cohort remain there for life, as compared to 25 percent in Denmark and 30 percent in notoriously class-stratified Great Britain.

    Eating Our Own

    Laments about “the vanishing middle class” have become commonplace, and little wonder. Except for those in the top 10 percent of the income pyramid, everyone is on the down escalator. The United States now has the highest percentage of low-wage workers — those who earn less than two-thirds of the median wage — of any developed nation. George Carlin once mordantly quipped, “It’s called the American Dream because you have to be asleep to believe it.” Now, that joke has become our waking reality.

    During the “long nineteenth century,” wealth and poverty existed side by side. So they do again. In the first instance, when industrial capitalism was being born, it came of age by ingesting what was valuable embedded in pre-capitalist forms of life and labor, including land, animals, human muscle power, tools and talents, know-how, and the ways of organizing and distributing what got produced. Wealth accumulated in the new economy by extinguishing wealth in the older ones.

    “Progress” was the result of this economic metabolism. Whatever its stark human and ecological costs, its achievements were also highly visible. America’s capacity to sustain a larger and larger population at rising levels of material well-being, education, and health was its global boast for a century and half.

    Shocking statistics about life expectancy and social mobility suggest that those days are over. Wealth, great piles of it, is still being generated, and sometimes displayed so ostentatiously that no one could miss it. Technological marvels still amaze. Prosperity exists, though for an ever-shrinking cast of characters. But a new economic metabolism is visibly at work.

    For the last forty years, prosperity, wealth, and “progress” have rested, at least in part, on a grotesque process of auto-cannibalism — it has also been called “dis-accumulation” by David Harvey — of a society that is devouring its own.

    Traditional forms of primitive accumulation still exist abroad. Hundreds of millions of former peasants, fisherman, craftspeople, scavengers, herdsmen, tradesmen, ranchers, and peddlers provide the labor power and cheap products that buoy the bottom lines of global manufacturing and retail corporations, as well as banks and agribusinesses. But here in “the homeland,” the very profitability and prosperity of privileged sectors of the economy, especially the bloated financial arena, continue to depend on slicing, dicing, and stripping away what was built up over generations.

    Once again a new world has been born. This time, it depends on liquidating the assets of the old one or shipping them abroad to reward speculation in “fictitious capital.” Rates of U.S. investment in new plants, technology, and research and development began declining during the 1970s, a fall-off that only accelerated in the gilded 1980s. Manufacturing, which accounted for nearly 30 percent of the economy after the Second World War, had dropped to just over 10 percent by 2011. Since the turn of the millennium alone, 3.5 million more manufacturing jobs have vanished and 42,000 manufacturing plants were shuttered.

    Nor are we simply witnessing the passing away of relics of the nineteenth century. Today, only one American company is among the top ten in the solar power industry and the U.S. accounts for a mere 5.6 percent of world production of photovoltaic cells. Only GE is among the top ten companies in wind energy. In 2007, a mere 8 percent of all new semi-conductor plants under construction globally were located in the United States. Of the 1.2 billion cell phones sold in 2009, none were made in America. The share of semi-conductors, steel, cars, and machine tools made in America has declined precipitously just in the last decade. Much high-end engineering design and R&D work has been offshored. Now, there are more people dealing cards in casinos than running lathes, and almost three times as many security guards as machinists.

    The FIRE Next Time

    Meanwhile, for more than a quarter of a century the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. Between 1980 and 2005, profits in the financial sector increased by 800 percent, more than three times the growth in non-financial sectors.

    In those years, new creations of financial ingenuity, rare or never seen before, bred like rabbits. In the early 1990s, for example, there were a couple of hundred hedge funds; by 2007, 10,000 of them. A whole new species of mortgage broker roamed the land, supplanting old-style savings and loan or regional banks. Fifty thousand mortgage brokerages employed 400,000 brokers, more than the whole U.S. textile industry. A hedge fund manager put it bluntly, “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.”

    For too long, these two phenomena — the eviscerating of industry and the supersizing of high finance — have been treated as if they had nothing much to do with each other, but were simply occurring coincidentally.

    Here, instead, is the fable we’ve been offered: Sad as it might be for some workers, towns, cities, and regions, the end of industry is the unfortunate, yet necessary, prelude to a happier future pioneered by “financial engineers.” Equipped with the mathematical and technological know-how that can turn money into more money (while bypassing the messiness of producing anything), they are our new wizards of prosperity!

    Unfortunately, this uplifting tale rests on a categorical misapprehension. The ascendancy of high finance didn’t just replace an industrial heartland in the process of being gutted; it initiated that gutting and then lived off it, particularly during its formative decades. The FIRE sector, that is, not only supplanted industry, but grew at its expense — and at the expense of the high wages it used to pay and the capital that used to flow into it.

    Think back to the days of junk bonds, leveraged buy-outs, megamergers and acquisitions, and asset stripping in the 1980s and 1990s. (Think, in fact, of Bain Capital.) What was getting bought and stripped and closed up supported windfall profits in high-interest-paying junk bonds. The stupendous fees and commissions that went to those “engineering” such transactions were being picked from the carcass of a century and a half of American productive capacity. The hollowing out of the United States was well under way long before anyone dreamed up the “fiscal cliff.”

    For some long time now, our political economy has been driven by investment banks, hedge funds, private equity firms, real estate developers, insurance goliaths, and a whole menagerie of ancillary enterprises that service them. But high times in FIRE land have depended on the downward mobility of working people and the poor, cut adrift from more secure industrial havens and increasingly from the lifelines of public support. They have been living instead in the “pit of austerity.” Soon many more of us will join them.

    • Once upon a time, Youngstown, Ohio, was a typical smokestack city,…

      The US steel industry became too uncompetitive and was a burden on American manufacturers and consumers who wanted a better product at a lower price. The US steel industry had to invest in new equipment and plants and get rid of workers that were no longer needed. This is not new. The process has been going on for centuries.

    • What a great fairy tale to read to one’s children at bedtime. Lots of appeal to emotion! I’m sure the tears will flow.

      On a more positive note, there’s this:

      Did You Know…

      The United States is the world’s largest manufacturing economy, producing 18.2 percent of global manufactured products, according to the World Bank. China is second with 17.6 percent.1

      U.S. manufacturing produces $1.8 trillion of value each year, or 12.2 percent of U.S. GDP. For every $1.00 spent in manufacturing, another $1.48 is added to the economy.2

      Manufacturing supports an estimated 17.2 million jobs in the U.S.—about one in six private sector jobs. Nearly 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing.

      In 2011, the average U.S. manufacturing worker earned $77,060 annually, including pay and benefits. The average worker in all industries earned $60,168.

      U.S. manufacturers are the most productive workers in the world, far surpassing the worker productivity of any other major manufacturing economy, leading to higher wages and living standards.

      Two-thirds of manufacturers pay income taxes at individual rates. Therefore, any tax increase on individuals is a tax increase on manufacturers.

      U.S. manufacturers perform two-thirds of all private sector R&D in the nation, driving more innovation than any other sector.

      Taken alone, U.S. manufacturing would be the tenth largest economy in the world.

      In addition US manufacturing output has increased each year since 2004, except for 2008-2009.

      And to help dry all those tears, here’s a little story of a nation that lost all its jobs,but then got them back:

      • “The United States is the world’s largest manufacturing economy, producing 18.2 percent of global manufactured products, according to the World Bank. China is second with 17.6 percent.”

        China passed us in the last quarter.

    • What is SEEN is the loss of steel industry jobs. What is UNSEEN is the competitive advantage gained in other industries that use steel, due to a lower steel price, and the lower prices for those products that make consumers better off.

      Reading Bastiat has already been recommended to you, so I won’t waste time doing it again.

        • Ya, Ron!
          Go look at the old steel mills! While you’re at it, let’s get the pay phone factories back on line along with all the pay phone repairmen since all I can see are lost jobs.

          • Go look at the old steel mills! While you’re at it, let’s get the pay phone factories back on line along with all the pay phone repairmen since all I can see are lost jobs.

            You heartless bastard. Why are you ignoring the phone operators? What will they do for jobs in a world where direct calls are allowed?

          • Once again, the SAME DEFLECTIVE TECHNIQUE used to run your mouth and accuse me of saying something I never did!

            As I said, I’m not in arguing AGAINST robotics, productivity, or anything else. What YOU’VE gotten away from is that you had better have something behind it to REPLACE these older industries or the country is going to have a big problem, and many people believe, with some justification, that this is why this “recovery” is not some dip in the road that’s going to be fixed with something like “entitlement reform” or some other phony rubric.

            It’s happening in front of your eyes, but you fix your gaze steadily on the 19th century.

          • One thing at a time. I can only do so much by myself. I’m still lobbying – as is my hero Obama – for a Constitutional amendment banning the use of ATMs and online banking. I’m really tired of the absurd ease with which I can do all my banking from anywhere on the planet 24/7/365. I’m looking forward to again having to deal with overworked, grumpy tellers in the branch that’s no where near my house, between the hours of 10am and 3pm Mon-Fri, except for the 137 federal holidays observed by all banks.

        • The place is a horror.

          I have no doubt. Much heavy industry in the US became too expensive and uncompetitive due in part to excessive regulation, taxation, and killer unions. There is a tendency to squeeze the golden goose too hard for too long.

          But of course there are other areas that are doing well.

          It’s hard not to notice that you work in the financial sector, the very one reviled for sucking the life out of the US economy. How can you sleep at night knowing you have had a hand in the “auto cannibalization” of the once thriving US?

          A more noble person might have found work as a tree trimmer instead of a bloodsucking mortgage broker. Don’t tell me you put your own personal interests ahead of the interests of your fellow American workers. For shame!

          • “It’s happening in front of your eyes, but you fix your gaze steadily on the 19th century.”

            Huh?

            “What YOU’VE gotten away from is that you had better have something behind it to REPLACE these older industries…”

            What would you suggest, Max? Should we break out the industry genie and have him magically create a new industry? This is a transition that will keep causing many people trouble but there’s nothing you can do about it since progress will continue, with or without you.

          • “But it DOES show who the AEI caters to.”

            More incredible surface-level analysis and, oddly, kind of a nice analogy for the conversation at hand. You see, Max, many of us (like Vangel, Ron and myself) were regular readers of Dr. Perry’s personal blog before AEI took it. I don’t recall seeing your name back then…only now….so….who does AEI cater to? Honestly, I’d never come to AEI before that day. Sometimes what you see may be the opposite of what actually is.

  14. I have been a leader in lean manufacturing for the last 25 years. The culture of team involvement (assembly workers and engineers) is a powerful means of achieving low cost and high quality. Even when the product plan intends to automate production, taking the additional step of debugging the components and sequence in a manual assembly cells provides humbling feedback to even the best engineering team. Trust assembly operators to quickly identify issues and provide powerful recommendations.

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