Toro's Running of the Bulls Market Blog

Manufacturing Employment in Canada

I highly suggest you read this post on employment in the manufacturing sector in Canada from the excellent Worthwhile Canadian Initiative.

The Price of a Car in Barrels of Oil

Stephen Gordon at the excellent Worthwhile Canadian Initiative makes a great point that the reason why Canada's economy has been tilting away from (auto) manufacturing towards raw materials (in this case energy) is because the relative price of a car has fallen relative to the price of oil.

Industrial Economy Doing Well

But for how long?

Usually, 10 year interest rates breaking to the downside is not good for industrial companies.

Charts from Econoday.

Cynthia Tucker - Astonishing Economic Ignorance

Cynthia Tucker's recent column on the economy is an unfortunate display of economic ignorance. Now, I'm ignorant about a whole host of things, automobiles being a good example.  However, I'm not writing a column on how to fix your carburetor or whatever thingamajigs they put under the hood of a car.

First, she calls globalization a more insidious force than al-Qaeda.

The attacks on the twin towers and the Pentagon were outrageous and shocking, but Osama bin Laden has paid dearly for them. ...

Meanwhile, a more insidious force - globalization - has eaten away at our economic infrastructure.

That's just silly.  Describing the opening of the global trading system that has lifted hundreds of millions out of poverty and the integration of the world economy to terrorists who fly planes into buildings and behead people is beyond ridiculous.

Tucker makes the mistake of equating manufacturing with the economy.

Indeed, farsighted economists have argued that the decline of the nation's manufacturing base poses a greater threat than to America than Islamic jihadists do.

First, what are Tucker's credentials to determine which economists are "farsighted" and which are not?  And what training do economists have to assess the threat of al-Qaeda?

Second, the manufacturing base of the US economy is not declining. 

Manufacturing employment is declining ...

 

... but manufacturing is not.

Tucker demonstrates a common misconception that manufacturing embodies the ideal economic structure.  The same argument was made at the end of the 19th century about agriculture when agriculture was in relative decline. 

What Tucker doesn't understand is that the value-added through manufacturing doesn't occur because we are manufacturing stuff.  Rather, the value created is in the technology embodied in that manufactured good.  There is nothing magical about manufacturing.  What made manufacturing such a powerful force in the American and global economy was that the manufactured good improved peoples lives. And that improvement was because of the application of a new technology.  Manufacturing was the physical output of that new technology.

What drives long-term economic growth is technological advancement (for the most part).  Technology lowers cost curves, which makes things cheaper to buy, which allows people to consume more and increases the standard of living.

In the modern economy of today however, technological advancement is embodied less and less in manufacturing.  Technology is now manifested in digital bits, lightwaves and genomics.  Technological innovation is occurring in places like Silicon Valley, the Research Triangle in North Carolina and in the corridor around Boston, not in the Rust Belt of Pennsylvania and Ohio. 

I don't necessarily disagree with Tucker's underlying premise that the gains from globalization have accrued to the owners of capital - both financial and intellectual - while those who are lack either have experienced lagging gains or even declines.  However, the way to address such problems is not to become insular and protective - policies that have never worked in a mature economy.  Rather, the response is to re-distribute resources to those whose who have not benefited or benefited less, either through increased education spending or increased welfare payments.

Going into the corner and crawling up into a little ball is not the answer.