It was Manufacturing: Stupid.

Posted by on November 13, 2016 3:36 pm
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Categories: Col 2 General Links Economy The Nation

Picture of a shuttered steel plantLEE’S SUMMIT, NOVEMBER 13, 2016 – To paraphrase William Jefferson “Bill” Clinton: It’s the economy, stupid.  In 1980 Ronald Reagan was elected president; he turned around the economy from the devastation of the Johnson, Nixon, Ford, Carter cycle of presidencies.  Manufacturing in Detroit, in Ohio, in Pennsylvania, in Wisconsin, in New York drove the economy back from the malaise of the Carter years.

Carter was the culmination of improper focus by presidents who misunderstood the true power of the United States.  The Industrial Revolution’s paradigm shift from the agrarian society of the 17th and 18th centuries changed the way true wealth is created.  The industrial revolution allowed mere mortals to have a good idea, work incredibly hard, and generate wealth for themselves and everyone around them.

If you don’t understand what I’m talking about, let me use the simplest example that comes to mind.  The movement of goods in the 19th century changed dramatically with the advent of the steam locomotive and the railroad.  Goods from Texas and California could be in New York in mere weeks, instead of months; and for pennies on the dollar.

Early in the 20th century Henry Ford had an idea: The production line.  He became legendary and wealthy because of his idea.  It wasn’t easy, he had troubles, and in the end he succeeded.  The affordable car, bus and truck was available.  Not only did he create his own wealth, but the trucks moved goods from the major cities serviced by the railroad, to smaller towns and provided jobs.  New suppliers to the larger manufacturers sprung up all over the country, fostering innovation.  Innovation begot profitable ideas, and they begot more wealth.

From this new industrial revolution, a strong foundation for the middle class was set.  Whether Black, White, Latino, or Asian, innovation had no genetic or gender bias.  It let everyone with ideas, courage, and conviction work hard and grow in wealth and in community stature.

In 1988 it all started to change.  America’s truest strength was its unmatched industrial manufacturing base.  Steel made here.  Cars made here.  Space exploration, made here.  It was the natural expression of a wealthy country, an upwardly mobile society that supported the hopes and dreams of generations since the civil war.

As the Bush, Clinton, Bush, Obama cycle started:  America, lead by the United States, had to regress towards the mean (the average).  To accomplish that, the manufacturing base of the Northeast, Midwest, and the south had to be broken.  But the question is: How do you get everyone behind reducing our wealth out of our own volition?  The pied piper was required, and lower cost manufacturing became the tool, and the lower cost of goods sold the way to sell it.

In the 1960’s the foundation of the idea came into view.  Japan was the cheapest manufacturer in the world.  In the 1970’s Japan’s quality was so good, it was not only lower cost, but better quality – what if we can do that again?

In 1988 we started to talk about what was eventually called NAFTA – the North America Free Trade Agreement.  I remember thinking – this is awesome!  Oh, how naive.

Ross Perot talked about the “Giant sucking sound of jobs moving to Mexico” and many laughed:  I voted for him.  He was right.   Jobs were only the symptom though.  The problem, the fundamental issue was that the Manufacturing base was going to move, and it left behind only service jobs.

Bill Clinton passed NAFTA but the reality is that it started with George Bush.  The dismantling of the engine of wealth had started.  But, the problem is that Mexico is not large enough to absorb the entirety of our Manufacturing base.

Wait a moment.  Richard Milhous Nixon had reached out to China – going against the efforts since 1948 to isolate China and support Taiwan.  China was slowly changing from 1972 to 1992 when they made an explosive change:  they tested capitalist ideas in Guangdong province – specifically in Shenzhen.  They allowed manufacturing to take over a small fishing village of some 250,000 inhabitants.  They put a virtual fence around it, and limited access.  Today that little fishing village has 17 million people, is one of the industrial centers of China and the world, and it is growing.  How, you ask?  Manufacturing is leading the way to wealth creation.

But I get ahead of myself.

Also in the late 1980’s and early 1990’s, and of little note, China applied to be a member of the World Trade Organization.  Jobs and manufacturing that had moved from the US to Mexico, now wanted even lower costs.  We the consumer – thinking America was invincible wanted to pay less for our goods.  Lower cost goods was good for America, after all the growth of the 1980’s was starting to slow down; but if the goods were cheaper it was OK.

Jobs were sent to China.

Chinese businessmen are recognized throughout Asia and Southeast Asia as being very shrewd players.  They understand the power of exchange rates.  They know how to invest low, and sell high.  They understand the nuance of every deal.  This is not because they are brilliant alone.  It has to do with the fact that they had a horrible system at home so they had little room for error.  So, if you can’t afford to fail, the weak are removed from the board, and only the strong and savvy players get to stay.

China worked the WTO and their currency market and they found a way to accept more of the US’s manufacturing jobs.  In exchange, they provided even lower costs; a bit of a quality problem, but that is OK, they’ll figure it out in the end.

The result, the US has even less manufacturing jobs.  The argument at home is that the US was a “post manufacturing” economy – what a hunk of bull excrement.  Post manufacturing or service oriented economy has zero (0) ability to export, it has zero (0) ability to create true wealth, and it has zero (0) potential for sustainability.

Millions of people were left out of the workforce.

But wait you say: We had a 5% unemployment in the late 1960’s and today in 2016 we have a 5% unemployment rate – so what garbage am I selling here.  Dig a bit and you’ll know what I mean.

The United States measures the unemployment rate by taking note of the people who collect unemployment insurance.  But, what happens when you are no longer eligible to collect unemployment?  Do you still count as part of the Unemployed?  Are you a part of the workforce?

No, you are no longer part of the workforce; and, you are no longer unemployed since you are no longer a part of the workforce.  So, Bingo!  Millions of Americans are outside of the workforce – the Forgotten millions.

We lost our Manufacturing in exchange for the temporary benefit of lower cost goods.

We lost jobs, and we don’t like to admit it, so we change the way we measure the loss of jobs.

We don’t like that people can’t get insurance, since we don’t have the manufacturing jobs that provided it; so congress forces Obamacare on everyone.

We don’t like that we have so much poverty, so we talk about the evils of wealth and the need to have “income redistribution”.

At the foundation of income redistribution is the acceptance that wealth in the United States is a zero-sum game.  What’s a zero-sum game?  If I win, you lose.  If you win, I lose.  That’s the foundation of a zero-sum game.  If I want to have more money, I must take it away from you.  How?  Tax the wealth, and provide tax deferment for low income.  I take from the rich, give to the poor.

The industrial revolution, the manufacturing explosiveness of the 20th century, changed the game from a zero-sum game to a growth for all system.  The post NAFTA, post China, post Free Trade mandates system restored the zero-sum game to the United States.

The funniest thing is that China gets it. They understand that through manufacturing they can grow their economy and they manipulate every lever at their disposal to encourage grown of their manufacturing base.

The Globalist mindset of bringing America back to the average (Regression towards the mean I spoke of earlier) has succeeded beyond the dreams of the most progressive amongst them.  Look at the post presidency friendship between the Bush family and the Clintons and while many would say that Obama is not part of it; I believe that is not true.  Obama was the pinnacle of the effort to move as far towards the mean as possible.

Donald J. Trump’s victory was driven by everyone who at the basest instincts understood that enough is enough.  No more sending our manufacturing outside the US.  No more sending innovation elsewhere.  The Trans Pacific Partnership is dead on arrival.  NAFTA must be reconsidered.

Protectionism is wrong; Period.

However, manufacturing in the United States must be restored; if we’re to have a resurgence of Gross Domestic Product, and to the wealth generation of the United States.

Trump is a start – a necessary condition.

Trump is insufficient.  It took 4 presidencies to get us here (Bush, Clinton, Bush and Obama), it won’t be turned around in one presidency.

We need to understand the cause, to develop the proper corrective action.

Respectfully Submitted
The Lee’s Summit Conservative.