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Reversing Automation
Yesterday I asked what parts of NAFTA people on Ricochet would want to see renegotiated or abrogated. After reading the responses, I’m still not sure whether people here think that free trade is good, but NAFTA disadvantages the United States — that it’s not a level playing field, in other words — or whether we’ve got real support here for mercantilism.
I’m open to the idea that Adam Smith was wrong and free trade doesn’t, in fact, benefit everyone. I’ve been arguing, though, that it’s not trade that’s killed manufacturing jobs. It’s automation.
What if both are true? Here’s an interesting study from Ball State University: The Myth and the Reality of Manufacturing in America. It focuses on the effects of productivity change, domestic demand, and foreign trade on American manufacturing employment.
Although it took a hit during the Great Recession, the trend lines on production are clear: Manufacturing is not in decline in America:
In fact, it’s at record highs.
The increased productivity is largely the consequence of the industrial use of information technology:
In 1998, the inflation-adjusted output per worker was much lower than it is today. This is due to a variety of factors, chief among them being the automation and information technology advances absorbed by these sectors over this time period. The higher output per worker has meant firms could lower their price for goods. Very clear examples of this are the price indices for different types of consumer electronics.
We have people here who argue that free trade is beneficial, but our trade agreements aren’t fair. We also have people who argue that trade itself has cost jobs, or at least, that it hasn’t been obviously beneficial. No matter your stance on that debate, I think you’ll agree that the problem of automation’s effect on employment will remain:
The authors of the study endorse the idea that trade has cost us jobs: “The most scholarly work in this area (Ocemoglu, et. al. 2014) estimates employment losses in the United States due to imports from 1999-2013 in the 2.0 million to 2.4 million range.” But they argue that this only accounts for 13.4 percent of lost jobs.
So here’s my question: If we’re jettisoning free-trade orthodoxy, why not do it in a way that will bring back many jobs, not just 13.4 percent of them, at best? Why not ban the industrial use of information technology? Or at the very least, why not legislate steps that will strengthen rather than weaken unions, given that trade unions probably know better than anyone what’s costing them their jobs? Trade unions predicted the circumstances in which we find ourselves, and they seem to have a point about what would happen if the American working class confronted long-term employment precarity.
Here’s a 1983 survey of labor unions. Only 14 percent of unions advocated technology change; and most were only willing to accept it if its impact on the workforce could be minimized. This is why economists tend to find an inverse relationship between innovation and unionization.
You may say, “Well, obviously we don’t want to suffocate innovation. That would be bad for the economy.” But we have an economy that seems only to benefit urban elites. The Rust Belt made it overwhelmingly clear that it wants its jobs back and doesn’t want to hear one more word about laissez-faire economic theories. Unless Keynes was right all along, a big burst of spending on infrastructure projects won’t in the long term bring back those jobs. (It will be great for patronage and cronyism, however.)
Perhaps innovation — Silicon Valley, in other words — needs to take the hit for a while?
Published in General
Here, here! @iwalton,….All except the part about those economists being distrusted….?
Yesterday I started a new series on this topic: attack of the job-killing robots.
What seems obvious to you contradicts all physical evidence.
“Why not ban the industrial use of information technology?”
What exactly is ‘information technology’ in this context? Would it include CNC (computer numerical control) lathes and milling machines, which use computers to direct the cutting? How about NC (numerical control, circa 1960s), which basically does the same thing but with punched tape as an intermediary between the computer and the tool? Or how about Blanchard’s Copying Lathe (1818), which directs the action of the lathe by following a physical prototype shape to be copied?
History and economics, two nasty facts. You can put that gun down now. ?
The is kind of Claire’s point. If government central planning of the economy to save jobs is now all of the rage on the right, why would targetting trade (which won’t accomplish that) be a target while the real culprit (innovation) is not the target?
If making the United States poorer in order to pretend to save jobs is admirable, why not make us even more poor and actually create jobs?
We’d define it by job loss. If a new technology shuts down a factory, an industry, or a town, we don’t permit it.
Hmmm… This is a refreshing way of looking the question. I’m going to have to do some research and think about that point you’re making there.
True, but it’s the old correlation/causation question. Still, worth looking at.
I hope this discussion goes on for a while so I can take part. Other obligations will probably keep me away for a while, and even if I find a minute here or there this is not a topic for quick and easy answers.
See my ‘proposal’ for restoring a million jobs: The elevator safety and economic opportunity act.
I’ve long maintained that there’s nothing wrong with the US economy that a sustained 6-year conventional bombing campaign against the rest of the industrialized world can’t solve.
I think it obvious here that Claire is being facetious.
However, the difference between machine productivity improvements today and in the 19th century is that in the US we are nearing maximum per capita consumption of physical goods. We just don’t want much more than we have now. Sure that consumption is distributed unevenly among the populace, but a majority of people in the US at this point physically cannot increase their consumption of physical goods by 8 times in their lifetimes any more (3% per capita growth rate over a 72 year average lifetime). Keynes was right that consumption drives the economy, the problem with Keynes today is that the marginal utility of consumption (particularly physical consumption) has reached saturation. Most of the increase in consumption in the US has moved to the digital world, where the marginal cost of production make productivity skyrocket even while it generates only small increases in the physical world GDP.
And look, let’s be frank: We’ve got a low-cost shortcut, now. The nuclear winter will also offset the warming climate.
Wanting your job back from [Insert hostile/net loss trading parner] is one thing. Wanting a job back that doesn’t exist is something totally different. You could find yourself like Obama, quixotically jousting with ATM machines and blaming them for job loss.
The vast group of voters will need to adapt too. One should ask why didn’t/isn’t that change happening organically?
I love this!
Meanwhile, back in reality, an orange-haired reality TV just routed the scion of an incipient political dynasty, despite her backing by just about everyone in the present American regime, including her own party establishment, the media, the government, and much of the other party’s political establishment.
He just happened to notice reality, unlike the people of the present political establishment, who keep on keeping on telling us nothing is wrong and we’ve never had it so good.
Your key problem, I think, is that reality Trumps- see what I did there?- your opinions about history and economics- and the electorate has a different opinion about all that. Hence- you know.
Also, history tells me that tariffs were a significant policy tool for the US government for most of its history- the most successful portion, in my view- which necessarily implies a different view of economics by the both the Founders and their successors.
Since the country has abandoned all that to adopt the free trade policy of the Confederate States of America, we’ve ended up with a government that glorifies a sort of Confederate outcome- myriad Americans are destitute, reliant on handouts, while the rich grow ever-richer.
I see a problem here. Different trade policies are one tool to address it.
A tool I hope Trump will actually use.
Perhaps, but I don’t think we’ve yet tapped out demand. That said, yes, you’re right; I didn’t mention the demand side of this because I didn’t want the question to be too complicated. As for being facetious, not really. It’s pretty clear that we’ll have political instability until people who were once employed in manufacturing get what they want. Unless everything I know about economics is entirely wrong, the jobs won’t come back as a result of undoing or improving trade agreements. The only way to make those manufacturing jobs come back is through some form of command economy.
Compare Volkswagen’s and GM’s recent crises. VW was deep in the red and threatening to move manufacturing out of Germany. The union (IG Metall) agreed to massive layoffs (20,000), approved the most automated car plant in the world in exchange for a majority of seats on the management council to control future changes. VW is now profitable.
When GM went into bankruptcy, the UAW called in political chits from a corrupt administration to prevent reorganization. They refused needed layoffs, they received 51% of the stock, taxpayers ate $15 billion on bogus GM stock purchases and bondholders got screwed. (The execs got their bonuses.) GM is now largely unprepared to compete globally.
When NAFTA was passed, Mexico’s domestic content laws were grandfathered so new cars still needed to be made in Mexico (VW, Nissan, Ford were there and doing well). US parts makers were far more productive than Mexico then. Mexico has since handled it well. The workforce (which was untrained and very unreliable 25 years ago) is now pretty good and business conditions are favorable.
If the UAW had the same foresight as IG Metall (or the US had elected a better President), the US auto industry would have much less to fear. Overall, German auto workers crank out more cars and get paid twice as much per hour as their US counterparts and make twice as much per hour than US autoworkers on average. Yet Germany does not whine about ‘cheap labor’ in the USA.
It really goes back to pre-WW2, when they were bombing eachother. We were in the depth of a recession due to New Deal regulation and trade war. When a real war broke out in Europe, that effectively nullified the trade war. European shifting to military production made them less competitive worldwide in all goods, thus benefitting our producers of competing goods. Furthermore, whereas the Europeans had been barring US goods from their civilian markets in the mid 1930s, they were happy to buy those or similar goods for their military use in the late 1930s.
Both Canada and Mexico have already expressed an interest in reviewing agreements. What Trump wants with NAFTA is review and discussion. People can be trained for new automated processes – plants don’t entirely run themselves. There are many industries that can offer jobs in small towns across America. If there are no jobs, no opportunity, how do you pay for healthcare that just doubled? How do you live? We can look at charts and graphs all day, but they don’t reflect suffering. An example:
https://www.bostonglobe.com/news/politics/2016/09/01/retirement/sIRT23m4MHGkEwXaP8YB9H/story.html
What do other countries do? I run into a Latino workforce all the time – they are willing to learn and work. A discussion with a Latino tile manager said and I quote, “I don’t have time for Facebook and checking my phone all day – learn to use your hands – make something.” They are building America, and that’s why we are flooded with illegal immigrants. When you have a culture of dependence on government, no incentive or follow up, it becomes the norm. My sister in social services, they send people to job interviews, but they don’t go, yet still get full benefits! There’s no shame – no repercussion – just paperwork, so the state can receive federal funds.
Anyone can learn a skill, provide for their family. Both Latino housekeeping teams I use own homes and employ families. It’s a mindset. We can build things here and bring back opportunity.
What government planning is needed if some guy in Mexico wants to sell me something and I want to buy it?
Yes they do. US tariff on EU cars is 2.5%. EU tariff on US cars is 10%. They whine if you try to get rid of that 10% tariff.
I trust that this is a debate point and not a position you ascribe to.
To me, prosperity is a side benefit. The important trait to foster is freedom. With freedom comes, most often, prosperity. But that is not the goal. At least not to me.
Tariffs are like price-controls. Prices are indicators of underlying economic realities. Changing the prices does not change those realities.
Rather than trying to ‘control’ trade (except for vigorous legal enforcement against others who attempt to ‘control’ trade by inhibiting our exports), government should plan to cushion, adapt and otherwise deal with the predictable consequences of trade using the tax income from the economic benefits of that trade.
High end American manufacturing is doing very well. Stamping out metal or plastics is not coming back and for the most part, Americans would no longer take those jobs at their actual market value now anyway.
Claire,
The problem isn’t preserving particular jobs. The problem is the supply of new jobs. When you run Trade Policy (Ignoring Foreign Government Cartels Targeting Industries), International Monetary Policy (high dollar), Tax Policy (Corporate Rate way above the World Average), Regulatory Policy (Environmental Policies that first of all are unnecessary and second of all go unenforced in the rest of World) all in a fashion that destroys your supply of new good jobs then those who are losing the old good jobs are bound to revolt. It is amazing to me that it took this long. Many of the jobs lost that we are just discussing now are so old they were victims of the high dollar policies from the Marshall Plan that Reagan finally got rid of in the 1980s. I was a process control salesman in the Middle West (rust belt) from 1977 to 1981 so I might have a little experience with automation and unions too.
I will try to write a post about my view of free trade. I don’t have the time at the moment but I’ve already made a few notes and you may find it interesting.
Regards,
Jim
I won’t agree with that either. The only way to make manufacturing jobs to rise again is to decrease regulations for labor, taxes, and the like. If the government gets out of the way, small businesses can hire people.
The problem with the command economy you suggest is that it will only benefit large corporations and it will force people into doing what they and the government approve of. It will foster protectionism and discourage innovation, which is where real improvements come.
While I certainly encourage everyone to read David Foster and chicagoboyz.net regularly, I think your comment is missing something important.
The political problem for the present regime relevant to the topic at hand is how to maintain public support as the era of job-eliminating technological advances persists.
The regime appears to have chosen to pretend nothing is wrong, backed by rather extensive propaganda against alternatives and supplemented by vast subsidies of favored groups, facilitated by the ability of the US government to create vast amounts of the global reserve currency.
It seems obvious that this is simply not sustainable for the long term.
So what do we do about it?
One possibility, I suppose, is that we adopt a make-work policy, and rule out job losses by fiat. This will not work.
I suggest we stop pretending the US rules the world, and that a job created in China is as much in American interests as one created in the United States. That is, we abandon the globalism of the present regime and return to the sane and nationalist policy that the country had for most of its early existence.
Not only did that work better, but it also created a political foundation for an actual limited government, because the public wasn’t reduced to agitating for charity from the government.
What government planning is needed when that guy in Mexico has to pay a tariff when he wants to sell you something in another country?
You do realize this has no bearing on economic reality, right?
It has never been “repudiated.” What has happened is that productivity increases from technology have reduced certain jobs, but that technology has also created new industries and new employment opportunities. Which is why we no longer have 90% of the U.S. workforce engaged in plowing fields with a mule.
One of the problems we face now is that the new technologies either are not creating new labor intensive industries, or the industries being created require skills that our schools are not teaching. Of course, there are other problems too and, fortunately, many of them are easier to solve. For example, skilled tradesmen are much in demand, while our leftist central planners are pushing for everyone to go to college and are eroding apprenticeship programs that could be training people for good, middle-class jobs.
One thing for which we always need to be on the lookout is some version of the Keynesian solution to unemployment – put people to work digging holes and filling them up again. Restricting imports generally falls into that category. Yes, it is important for Americans to have jobs. But if those jobs are not actually productive, if they don’t add anything to the economy, then we are just playing three card monte in a back alley.
More than if you just let me buy it from him.