The 'Loss' of Manufacturing Jobs Signals Progress

Apparently, technology and trade generate noteworthy fear and strife in today's economy. Indeed, many view tech and trade as a kind of dangerous TNT set to blow up the U.S. economy.

From kitchen tables to campaign trails to TV talking heads, chatter abounds about U.S. jobs being lost to technology and/or cheap labor in foreign nations. It appears to many that technology globalists are nefariously plotting to put us all out of work. Bummer.

Has this happened before? Well, did you know that there were approximately 13.5 million agricultural workers in the U.S. in 1910, and that dropped to less than 10 million in 1950, and today, there are just over 2 million people working in agriculture?

Some might look at this and declare: "Such devastation! More than 11 million jobs - over 80 percent of the industry's employment - have just disappeared. Obviously, U.S. agriculture has been wiped out."

Oh, but wait. It turns out that farm output grew by better than 50 percent from 1910 to 1950. And since 1950, farm output is up by some 180 percent. Farming is now far more productive thanks to investments in all kinds of tools, machinery and technology. Food is much more affordable, and far fewer people go hungry. Hmmm. Go figure.

Ah, but what about manufacturing?

U.S manufacturing employment was on a growth path - though uneven given the ups and downs in the overall economy - up until the late seventies. In mid-1979, manufacturing jobs in the U.S. hit a high of 19.6 million. As of last month, manufacturing employment was down to 12.2 million. That's a loss of 38 percent of the manufacturing sector's jobs.

Clearly, some will assert: "Manufacturing is done. We don't make anything in the U.S. anymore."

Really? Actually, it turns out that manufacturing production has more than doubled since mid-1979. Like farming, private investment in new and improved tools, machinery and technology improves manufacturing productivity and output.

And then there's trade. The U.S. trade picture has changed rather dramatically in recent times. Consider that in 1950, U.S. exports came in at 4.22 percent of GDP, imports registered 3.95 percent, and total trade equaled 8.17 percent of GDP. In 2015, however, exports had jumped to 12.56 percent of GDP, imports to 15.53 percent, and total trade to 28.09 percent of the U.S. economy.

Those who view trade negatively would focus on the big jump in imports, as well as the shift from a trade surplus to a trade deficit. But they ignore some basic economics. For example, the early-nineteenth-century economist, Jean-Baptiste Say, observed that "products are always bought ultimately with products." This is known as "Say's Law," which tells us that in a market economy, one must produce marketable goods or services in order to be able to purchase goods or services, including imports. In essence, growing imports reflect expanding domestic growth.

In the end, investments and innovations in technology drive increased productivity, higher earnings, generate new products and industries, and provide consumers with lower costs and more choices. Similarly, trade expands opportunities for U.S. businesses and workers, and again benefits the consumer.

Now, the naysayers will persist: "But what about those lost jobs and lower earnings?"

Consider that in 2016, the U.S. economy in real terms is more than seven times larger than it was in 1950. And that covers decades of significant technological advancement and expanded international trade. Meanwhile, there were 45 million employed in 1950, and there are more than 145 million working today. For good measure, real per capita personal income has quadrupled over this period. So, technological advancements and expanded trade do not result in the destruction of U.S. jobs and diminished earnings. It's just the opposite.

And guess what? That will not change going forward. The average farm worker in 1900 had little idea about what farming would look like in the future; what new goods, services, technologies and industries would be created; and how much improvement there would be in terms of wealth and quality of life for the average American. Just the same, the average economist, politician or manufacturing worker today has little idea as to what lies ahead. This is all thanks to how economies expand and wealth is created. Economist Joseph Schumpeter called it "creative destruction." The new replaces and surpasses the old. TNT - tech and trade - are central to that process.

Are there problems in the U.S. economy? Of course. Over the past eight-plus years in particular, anti-growth policies in the areas of taxes, regulations, government spending and debt, and monetary policy, along with the U.S. retreating from global leadership in advancing free trade, have inflicted real harm. Such measures have raised costs, created uncertainty and diminished incentives for entrepreneurship and investment. Correct such wrongheaded policies, however, and U.S. entrepreneurs, workers and consumers can continue to reap the enormous benefits from TNT, that is, tech and trade.