Monday, January 31, 2011

Chart of the Day

From George Mason University's Veronique de Rugy:
Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975 -- a sure sign of economic progress.

source: Mercatus


(via Instapundit)


suek said...

With efficiency like this, pretty soon we'll have everything we need with virtually no one employed...

Is this good, or is this bad?

If we are no longer employing people to _make_ stuff, then we either have to pay people to sell stuff, or people are going to have to be in the service industries, or ...

IT stuff. Does producing software count as "manufacturing"?

Is a secretary considered in the service business? she's not manufacturing...or is it manufacturing if she's secretary to a manufacturing magnate, but service if she's secretary to a Taco Bell magnate???


MaxedOutMama said...

The graph is correct, but there are underlying details that aren't included.

For one thing, total manufacturing output follows the final product, but much more of the components are manufactured overseas and then assembled here. For example, huge chunks of jets are composed of parts made overseas, and very complicated assemblies done overseas, and then shipped and finally assembled in the US. But the entire jet is basically counted as "output".

So the "productivity" measurement is not what it would seem to be.

Also, many consumer products are now produced elsewhere (most clothing, appliances, gadgets). Furniture.

OBloodyHell said...

MoM, Sue, you BOTH need to spend a lot more time paying attention over at Carpe Diem. Both your concerns have been addressed there.

First, allow me to give you the link to CD that debunks MoM's reasonable-sounding concern --

Apple iPhone: Designed in U.S., Assembled in China

Here's the main blurb for a teaser:

Turn over your iPhone and you'll see that it's "assembled in China." But that doesn’t mean that most of the profits or revenue go there. In fact, only about $6.54 (a little more than than 1%) of the full $600 retail price of an iPhone goes to China and more than 60% goes directly to Apple and other American companies and then indirectly to American workers (see chart above), according to a recent "teardown report" by iSuppli that was featured in a New York Times article yesterday.

There's a lot more detail there than that, but it shows the flaws in the presumption that something being "manufactured" somewhere means that the lions share of the money also went there.

Here's another piece about the iPod Shuffle

But therein lies the issue with Sue's failure to understand:

The reason it's not done *here* is because there's no damned money in it.


OBloodyHell said...

...(continued from above)...

Back in the 60s and 70s, economists spoke of a "post-industrial" economy... The meaning of "post-xxxx" in this context is, "something following 'xxxx', but we don't know what it is just yet."

The question was, once a nation/society has fully industrialized, what comes next? What follows? Where will things develop after that?

We did not know in the 60s and 70s, though it was rather clear that we had accomplished the task of becoming fully industrialized.

Well, now we know.

The "Third Economy" -- the one which follows the Agricultural and the Industrial economies is called an "IP & Services" economy -- all new substantial economic growth derives from two arenas:
1) IP, especially Digitized IP.
There is tremendous wealth being derived from IP -- patents, copyrights, and so forth. A lot of it flows "sideways" into the economy, via things like piracy, but the society itself still benefits from the IP -- A pirated copy of Adobe Photoshop, for example, doesn't automatically provide revenue directly to Adobe -- but it does still allow someone to do something easier and better than they could without it (hence a societal benefit). Further, it provides an indirect benefit to Adobe, in that a business may hire the pirate as an employee, and the business likely WILL buy a legitimate copy of the software. Further, in quantity, this activity does benefit Adobe somewhat -- their software's cache as the "go-to" software for a specific purpose substantially increases their market share.

In other words, I charge that we likely vastly underestimate the actual wealth we produce, and that it is this "dark wealth" which has kept society from collapsing far worse than most of the vaguely reputable models (particularly that of the Austrians) say it should have already done.

2) Services.
As our society develops, as we become wealthier and wealthier, we, as individuals, begin to apply the principle of comparative advantage to our day-to-day activities. Instead of doing 'x', we are far more likely to farm it out -- to pay someone else to be the expert at "activity 'x'", which we need done. We hire lawn agencies. We hire maid services. We go out to restaurants and bring home fast food ("hire cooks"). Each of us specializes in something we do better than most others -- hopefully something we enjoy as well.

At this point, I'd say that there's probably a strong measure of ineffectiveness in the system because the mechanisms for "assigning" these tasks are fairly poor, being partly developed from older industrial-base processes, but as time passes our capacity to identify who would do 'x' best of any group will improve substantially and become the norm rather than the exception.

MaxedOutMama said...

Except the measurement of money doesn't say anything about percent of actual production, OBH.

Companies shift production because it is cheaper to do so. The post and graph contrast manufacturing output with manufacturing jobs.

The US has quite a bit of manufacturing, but it has tended to export all the labor-heavy jobs.

We also have an increasing investment in robotics, which eliminate "line" type workers, but of course also generate high-skill jobs and related service jobs.

Going back to the iPhone, almost none of it is made in the US. Almost all the final assembly is currently done by Foxconn.

Here's at article from 2007 about Who makes the iPhone.

You haven't rebutted what I said, OBH, because you can't. Even most products "made" in the US are really majority made elsewhere. That fact distorts the US manufacturing output numbers.

We do not even have any optics manufacturers left in the US. It's that bad. We don't even make our own ammo.

MaxedOutMama said...

PS: Your original figure is really just the labor costs which have little to do with manufacturing costs. Most of the cost is component cost.

Try this for reality:
Parts about $188. None of it from the US. The <$7 figure is from final assembly costs at Foxconn. iSuppli Foxconn

Foxconn underbid to get the work! I think they are currently taking a loss but that Apple is going to up payments sooner or later.

suek said... I'm simple minded. Everything old is new again, so they say. Don't remember where I was reading it...something about Dicken's "A Christmas Story", I think. The mention was made that the Cravitz' family would have bought their Christmas goose already roasted because private homes - other than the wealthy, perhaps - didn't have ovens. They would be roasted by ??? (bakers? that's not clear to me). So here we are, some 200+ years forward, and much cooking is also not done at home.

So...what happens to the middle class? What you're saying, it seems to me, is that either you will be part of the technologically capable group, or the service group. The college or the non-college educated. At present, not all people are capable of doing college level work - so either they will become the lower class, or we have to dumb down colleges so no one is especially technologically capable, and we import Chinese and Indians to develop stuff.

What happens if countries we trade with, whose laborers make the stuff we "assemble" decides to cut us off? Is it wise to specialize so completely?

It seems to me that we're going to lose our middle class... I suspect that's a very bad thing.

Carpe Diem, eh. I'm aware of it, but I thought that was primarily a legal type site...I'll check it out.

Carl said...

I mostly agree with OBH. The term "import" is mis-defined and not based on the actual value of the input factors involved--especially services and IP. And, contrary to M_O_M's claim, to be considered U.S. manufactured, an article must both be manufactured in the United States, AND include over half domestic components (i.e., components mined, produced, or manufactured in the U.S.). 48 C.F.R. Section 25.003 (domestic end product). So, much of the problem is reliance on imperfect statistics.

Yes, Sue, we have high unemployment now. But we had years of record employment while domestic manufacturing employment was declining. We don't need, or want, to revert to the economy of the 1950s to grow. The fact that American workers are moving up the value chain should provoke optimism, not pessimism.

OBloodyHell said...

> I'm simple minded.

No, that's a derogatory term. You ARE being "simplistic", which is not really carefully considering the subject, I think. A fully correctable flaw. ;-P

> the service group.

Again, here, your view is rather simplistic. You see "services" as "MacD's Jobs". Menial, unskilled labor.

What do you think a wedding planner is? An interior decorator? A rock-band-for-hire (the majority of the musicians in this country are cover musicians who work part-time doing gigs on the weekends and for parties and such).

In other words -- "services" is ANYTHING someone else pays you specifically to do because of your knowledge of the subject or activity. If someone is an ex-college football player and hires himself out tutoring Pop Warner kids, that's a service job, and it's not menial.

In true fact, we are quite possibly going to see a resurgence of artisan and craftsman work.

I honestly suspect we'll see fewer and fewer "really rich bastards" and a lot more of a leveled playing field if we keep the laws off of the subject matter long enough that the pimps and middlemen can't rig their cut into the structure.

I believe there's a lot less "big money" in an IP&SE than in the predecessor economies. An IP&SE, I believe, does not lend itself so much to a hierarchical structure (unlike the predecessors) as much as a networked one. In both the IP and Service elements of the economy, information flows are of key importance, and hierarchies are subject to massive bottleneck problems where one individual causes a blockage in the flow of key information into the hands of the individual able to make the most of it. Networks are less subject to blockages.

And yes, I'll state up front that I'm far from sure about how all sorts of aspects of this economy are going to work. I can see some of the "big picture" but I'll state that the guy who really figures out how it works is going to be a front runner for a Nobel in Economics.

OBloodyHell said...

Oh, and, though you may well not have considered it yet, you'll probably whack your forehead and go "Duh! Doh! Duh! Doh!" when you do:
What does Carl do?


OBloodyHell said...

> You haven't rebutted what I said, OBH, because you can't.

MoM, I haven't even attempted to rebut what you said, that's what you're missing.

I'm trying to get across to you that it's irrelevant, that you're barking up the wrong tree. You're akin to those massed protesters at the WTO meetings, ignoring the REAL chicanery -- the important stuff -- going on across town at the WIPO meetings... where utter abortions like the DMCA get created and pushed.

Mom, in 1880, there were 17.4 MILLION Americans who were "gainfully employed" (Source). Of those, fully 7.7 million were Agricultural in nature. 45% of the US population were involved in Agriculture.

Nowadays, "there are only about 960,000 persons claiming farming as their principal occupation", according to the EPA -- that's out of 138,641,000 employed!!! Seven tenths of a percent!! GASP!?!?

Whatever shall we do? Clearly, we MUST do something about this massive loss of farm employment!?!?

...Or not.

Mostly not, actually.

Pretty damned close to nothing at all, in fact.

And the situation in Manufacturing is much the same as in Agriculture in 1880 -- Robotics is to manufacturing what mechanization was to agriculture -- eventually, only a small fraction of the populace will be employed in it.

If you want to see the Future of Manufacturing, I suggest you watch the generally entertaining Speilberg movie, Minority Report. There's a scene in it where an automobile is being made. THAT is the future of manufacturing.

And, as a furtherance of thinking about this matter, I strongly recommend:
The Nation That Lost Its Jobs, But Got Them Back