The Miracle Of The US Manufacturing Sector

Mark Perry Carpe Diem December 23, 2011

Professor Mark J. Perry's Blog for Economics and Finance

Following up on the "Magic and Miracle of the Marketplace" post below, the chart above shows that the decline in prices over time has taken place for almost all manufactured goods, not just for electronics. As a percent of consumer expenditures, the combined share of spending on food, cars, clothing and household furnishings (furniture, appliances, etc.) has fallen over time from close to 50% in the late 1940s to close to 16% in 2010. This decline in spending over time on manufactured goods, measured as a share of all consumer spending, is really a testament to the remarkable productivity of the manufacturing sector, which leads to declining prices relative to income and services, and increases our standard of living dramatically over time.

but if you took this chart and subtracted out the lower costs goods that came from China, India, etc... what would the chart look like?there is a fascinating article at Forbes on how Germany pays their auto workers 67.14 and hour but has robust worldwide sales of their cars... which are competitively priced....http://www.forbes.com/sites/frederickallen/2011/12/21/germany-builds-twice-as-many-cars-as-the-u-s-while-paying-its-auto-workers-twice-as-much/

It's hard to believe Americans lived in small houses and drove around in Ramblers, Impalas, Darts, and other gas guzzlers, while spewing out enormous pollution.Also, along with higher living standards, working conditions improved, although some people today want to hire a Mexican for $5 an hour to wash windows on skyscrapers without a safety cord.

Bruce Hall in the prior post said: "The $0.30 per gallon of gas in 1964 is equivalent to $2.19 ... no comparison."U.S. per capita real GDP was around $20,000 in 1964 compared to around $47,000 today.http://research.stlouisfed.org/fred2/series/USARGDPC?rid=204

And those manufacturers goods are better made too. If you are old enough, you remember black-and-white TVs with tubes that went baloney. You can remember families discussing a new TV purchase for a quite a while at the dinner, then shopping multiple venues, etc. It was a big event. You can remember radiators that overheated, tires that popped often and dashboards that were lethal in a light collision. I bought a TV recently for $200. Wow-wee, and it is color with remote. Really, lunch with a blonde with big boobs costs me $65. It is hard to say which produces more inane conversation. When I move, I likely will leave the perfectly good TV on the curb, or sell it through Craigslist for $25. The next guy will have a great color TV for the next 10 years. Larry G. does raise an interesting question. How does Germany pay its workers so well? It is an exporting powerhouse. If Morgan is right, and we have drastically undercounted inflation in the USA, then the Euros have higher living standards than we do---and six weeks off a year, and national health insurance. What gives?

What is even more amazing is that the quality of clothes and cars has risen greatly over this period (which is a benefit above and beyond what this chart captures). A $20,000 car today is way better, in every measurable way, than even the Rolls Royces of the 1950s. Food consumed has declined in quality, but that is due to the ignorance of the average American, not any economic factor.

The flip side of this is that people alive today have no idea what hardship really is. Despite the 'poor economy', almost everyone today is wealthy by the standards of 1948.That is why the public is not demanding more from government. Most Americans today don't know what hardship is, and those who did, are now either dead or 80 years old.

" almost everyone today is wealthy by the standards of 1948."more than that... most Americans are wealthy compared to most people in the world.Our unemployment benefits would be a king's ransom in more than half the world.

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It's difficult or impossible to measure quality changes, although it may be easier to estimate a decrease in quality than an increase in quality.The BLS takes a conservative approach.I stated before:In 1985, the original basic price of a Ford F-350 was $12,000. In 2011, the basic price of a Ford F-350 is $36,000. In 1985, $12,000 was equal to $24,000 in today's dollars, while per capita real income rose from roughly $30,000 in 1985 to roughly $45,000 in 2007 (i.e. increased $15,000 after inflation). So, all the quality improvements of a Ford F-350 over the past 25 years was free. Moreover, interest rates are much lower today than in 1985.

"but if you took this chart and subtracted out the lower costs goods that came from China, India, etc... what would the chart look like?"Why would you want to so that? What's the point?

"but if you took this chart and subtracted out the lower costs goods that came from China, India, etc... what would the chart look like?"...What would it matter? If you're that concerned by displaced workers tell me then how many of those people have you personally taken into your domilcile, fed out of your pantry, and gave them clothes from your closet...

"...Impalas, Darts, and other gas guzzlers, while spewing out enormous pollution"...I'd just about kill for the chance to drive in one of those '68 Imaplas or '69 Darts all the while polluting like a massive 1000 acre tire fire...

Larry says: "but if you took this chart and subtracted out the lower costs goods that came from China, India, etc... what would the chart look like?"I think, it's important to note offshoring low-end manufacturing freed-up limited resources for more high-end manufacturing and emerging industries, which resulted in higher paying jobs, lower interest rates, and lower inflation.Living standards can rise indefinitely. It's a question of how quickly or slowly we want to move into new economic revolutions.

reading the narrative closely..." decline in prices over time has taken place on all manufactured goods not just electronics..."but the title says "the miracle of the US manufacturing sector".in terms lower prices and productivity.if something is manufactured less expensively by lower cost labor then that is not the same as labor costs that did not change but productivity improved.in the former the result might be more jobs but lower paying jobs.in the latter, increased productivity should mean less need for the same level of labor.so there are two things that can lower price of goods - higher productivity and/or/both lower labor costs.if a shirt is lower in price because it is now made in India for 1/4 the labor costs then the lower price that results in more discretionary money to spend on other things.. may not be spent for American-produced goods - even if better productivity if the prices of the same goods overseas is lower due to lower labor costs.the things that we manufacture that do not get as easily offshored are "U.S. Manufacturing" of goods that required skilled labor rather than commodity unskilled or low skilled labor.Any goods that can be produced with unskilled labor is going to the lowest world bidder.the manufacturing that we retain are the goods that cannot be made with low skilled labor.

The Miracle Of The US Manufacturing Sector

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