Becker and Posner Debate U.S Manufacturing Industrial Policy

Gary Becker is not optimistic about the growth of the U.S manufacturing sector.  Here is my response to Becker’s post. He would not offer this sector a strategic “Big Push”.  Here is a direct quote.

“President Obama, in his State of the Union address, advocated special tax breaks and support for the manufacturing sector. I do not see any more convincing case for subsidies to manufacturing than there was for the special treatment of agriculture during the long decline in farm employment. Most of the arguments made in support of privileges for manufacturing could be made for services and other sectors of the economy.  For example, although certain manufacturing industries have had high rates of productivity advance, so too has mining, such as through the development of fracking techniques. The most important technological advance of the past several decades has been the computer and the Internet, for these gave birth to email, word processing, apps, online sales, and social networks like Facebook and Twitter.

Instead of singling out manufacturing for special privileges, the government should get behind certain general policies. High on the list would be raising the rate of growth of the American economy, for this will tend to create jobs in most sectors of the economy. More government support may be justified for basic research in science and other areas that would also benefit all sectors, not just manufacturing. Local and state governments, along perhaps with the federal governments, could try to reduce the dismally high dropout rates from American high schools. Dropouts have trouble finding good jobs even in the best of times, and they suffer the most during recessions.”

Author: Matthew E. Kahn

Professor of Economics at UCLA.

19 thoughts on “Becker and Posner Debate U.S Manufacturing Industrial Policy”

  1. Raising the growth rate of the economy isn’t a policy. It is, ideally, the outcome of a policy.

  2. Manufacturing is not going to provide the percentage of high paying jobs it once did, and it will get smaller everywhere over time due to more automation and efficiency. I worked in electronics manufacturing for about 28 years, as a technician. When I started, long tables of mostly elderly ladies and unskilled younger people stuffing and soldering parts into circuit boards. The technicians troubleshot the bad boards individually using expensive equipment. Then came the robots, and most of the parts stuffers were gone in the space of 2 yrs. or so, where I worked. Computerized diagnostic machines analyzed, and even repaired the bad modules, so a lot fewer techs were needed. Lots of clerks and paperwork had to be done, and forms filled out by hand. Then the PC whittled down those jobs almost overnight. All this was done in fierce competition with Japan, and later everywhere.
    i know it’s often a mistake to project a trend into the future. Things can change, but I don’t see it in the short term. I think the Chinese will be as aggressive about automation as everyone else.
    It ain’t coming back. Just rebuild/rethink the country for a while.

  3. I think there are good reasons for believing that manufacturing capability is a sine qua non, in the long run, for high-value-added exports, and, therefore, favorable terms of trade. Where I live in Los Angeles, one of our local industries remains fashion design, which depends for its existence on local apparel manufacturing. The manufacturing is not glamorous and doesn’t, itself, provide particularly good jobs, though it is possible to produce clothing locally at a cost that is not much different from importing it from Asia. The higher-value activity — fashion design — and the designs and design services are exported, even if clothing is mostly not — depends vitally on the ability to get things made, locally. If the manufacturing sector ever disappears, it will take out the design business.

  4. Becker’s singling out the “special treatment” of agriculture is an important tell, in Chicago’s propaganda for economic ignorance. The second iteration of the New Deal’s Agricultural Adjustment Act (AAA) — the first was declared unconstitutional — long derided by free-market economists and other ignoramuses, was, in fact, one of the most successful examples of “industrial policy” ever enacted. Starting around 1935, yield per acre for a wide variety of agricultural commodity crops began to rise steadily, as the policy regime stabilized markets and prices, enabling farmers to invest rationally and steadily in the new technologies of farming. This rise in yields accelerated into the 1940s and 1950s, become a second agricultural revolution, allowing the U.S. to more than feed a growing industrial and urban population.

    In the economist’s simple-minded, allocative-efficiency only view, an industry is profitable and attracts additional resources, or is unprofitable and sheds them. Agriculture, beginning in 1920s, confronted a problem not imagined by the free-market fantasists: farms needed to shed resources, andto invest heavily in techniques, which would increase productivity and result in intensified shedding of resources. In the 1920s, the result of these contradictory pressures was wild fluctuations in prices and returns, and widespread bankruptcy, and a large part of the population sinking into desperate poverty, developments that contributed to the Great Depression. The AAA stabilized the farm economy and allowed a complex system of programs, ranging from rural electrification to agricultural extension to the land-grant college system, to take hold and push this sector of the economy forward at a steady, rapid pace.

    The economy is something we do. chicago’s endorsement of laissez-faire stupid has no merit.

    1. However, perhaps now, not paying industrial combines to make corn makes sense. Do we really want a monoculture supported by government over that vast a land area?

      1. The program we have now with relation to corn has more to do with Nixon’s Ag sec, Earl Butz, than FDR and Henry Wallace.

  5. Hi, Bruce,
    “The manufacturing is not glamorous and doesn’t, itself, provide particularly good jobs,”…
    ’nuff said. robots do the fun stuff. we sew sneakers.

    1. Until robots get better at sewing.

      Basically, unless you’re doing something creative, in the middle run you’re going to be out of a job due to automation. (People doing creative work will be automated out of a job later…)

    2. Actually, we really do a lot of the fun stuff ourselves. Look at the manufacturing hobbies we have:

      * Needlework: Sewing, knitting, crochet, embroidery, quilting.
      * Woodwork: Cabinetry, furniture and toy making.
      * Metalwork: Knifemaking, jewelry making.
      * Lapidary: Stone cutting, polishing and gem faceting.

      I know people who spend inordinate amounts of resources on these hobbies, and produce some mind-boggling things. If you want a really well-cut gemstone (other than diamonds, which require really specialized equipment and techniques), you are way better off finding someone here making what you’re after. If you want a quilt made from fabric swatches inherited from your grandmother, you have to find someone local to do it. As a side-benefit, you’ll have a unique piece.

      Robots will be a long time taking over the (semi-)custom niche manufacturing markets. At the production rates of colored stones in India and Bangkok they’d jump to computers in an instant if they could. Instead they cut crap by hand with primitive equipment.

  6. The flip side of “picking winners” — as the glibertarians would have it — is artfully picking “losers”.

    The best industrial policy the U.S. could adopt would be a determined effort to destroy the greater part of our financial services sector. Nationalize the biggest banks and break them up into diverse local and regional line-of-business entities. Reduce employment in financial services by 2/3s and compensation by 4/5s.

    1. What?! With all the effort and expense government has gone to to make them big in the first place?

      1. Yeah, and why would you have to nationalize them to do that? Just change FDIC so that it only covers small banks, and it’s accomplished.

        And, as Charles points out, the growth in the size of corporations, including in the financial sector, has been a result of deliberate federal policy, sustained over periods of Republican AND Democratic control. Our masters are control freaks, and the more the economy concentrates into larger institutions, the easier it becomes to assert control over.

        Near the beginning of this mess, Paulson called the heads of the 9 largest financial institutions into a room, and threatened them with regulatory destruction if they didn’t cooperate in accepting TARP funds they didn’t think they needed, and submit to the controls that came with them.

        Would that have been feasible if he’d had to rent the Superdome to hold the meeting? No…

        And, wage controls? Just another way of asserting control over the private sector, once the government controls who can get paid what, they issue all the orders.

  7. For me it isn’t really so much about the jobs but about the wealth. Not to go wholly Germanic and cameralist, I think one of the main arguments for manufacturing should be that it’s one of the primary ways in which we can actually create new things that didn’t exist before, at least in the non-human realm. Without going wholly physiocratic, agriculture is another. Extractive industry is a third. Much other economic activity just reshuffles existing wealth, at base. That isn’t a bad thing in itself, but one result is that it then becomes easy to confuse the reshuffling of existing wealth for creation of new wealth. This is something the financial-services point of view is especially prone to, but imho it isn’t addressed effectively in much of economics, and certainly Becker seems not to care about distinguishing between existing and newly-created wealth. If GDP includes transfers and new activity without distinguishing between them, it only further confuses the issue in ways that an extremely rich society won’t want to care about until something like, say, a balance of payments problem makes it unavoidable.

  8. JMG,
    Good big picture. If I was young now I wouldn’t get into debt, have kids, or go into debt for school. I know some young people who work as skilled labor (electricians, carpenters) who make O.K. money, and much of it under the table. they completely hate the “establishment” in ways that make the 60’s hippies look moderate. they want to start their own economy and society. The teahadists blame it all on people outside the tribe, but much of the youth don’t have their selective memories of “real Amerika” from back in the day.
    We live in interesting times.

    1. The question of apathy is one I struggle with as a teacher. Granted, I teach a demographic that is at-risk, highly dysfunctional, and prone to dropping out. Most of their defiance comes out of underdeveloped cognitive or emotional skills. But some are rebellious out of sheer independent-thinking. They no doubt see academic success and “striving” as a part of an unthinking, uncritical obedience to illigegitimate authority. They have a pretty good point, to a degree.

      In a less conscious way, even those with less developed cognitive or emotional skills intuit a different kind of obedience, which they resent. This, I imagine they feel, is about a feeling of powerlessness in a larger social framework that they aren’t capable of following.

      So the one group, quite capable of following the established framework (in theory), is deeply suspicious of it, and thus rejects its rules. The second, incapable (or at least so they feel, and subsequently behave)of following it, either academically or emotionally, is also deeply suspicious, and rejects it similarly. It is difficult to argue to the latter that they can succeed when they have grown up around so much failure, and when the identities they have often taken on as a form of social rebellion have reinforced society’s notion that they are destined to fail.

      The former tend to come from much higher levels of human and societal capital, and will likely end up much better off. Some, for instance, will go on to great success in the trades, or even find their way up from city college to university. Many of these types are often some of the greatest thinkers, naturally being creative or artistic types. I’m biased, of course, but as a sort of high-performing, yet post high-school rogue, I deeply value my formative experiences outside the confines of traditional university walls. But beyond an experiential sense, I wonder if there is some truth to the notion of college prep types as a group lacking some level of critical thinking skills, in the sense that critical thinking -especially in the almost psychedelic expansiveness of the adolescent mind – often almost requires, begs a similar attitudinal, behavioral disposition.

      If I could boil my prescription for education reform into one word, it would be differentiation. These two groups require two very different interventions. Low-capital groups need specific, targetted intervention. “Misfit” types need independence and room for their critical thinking skills to flourish, an environment in which authority can be safely questioned while retaining rigorous and expansive curriculum.

      Regardless of economic conditions that await them after graduation, I believe education can provide a framework for human development that is both rich and flexible enough to engender intrinsic motivation in students. They ought to feel empowered not as mere implements in the workforce, but as optimistic citizens free to take on the world, however difficult times might seem.

  9. I’m not sure exactly what the right thing to do here is. But I do know that it makes a difference whether we’re making computer chips or potato chips.

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