21 January 2011

Why So Serious?

If there is one issue that pops up again and again in my conversations about economics with interested noneconomists, it is manufacturing.
There's a genuine concern about the state of manufacturing in the United States, and I am not sure of the reason why. It could be that there is an inchoate sense that manufacturing is dying here, given that so many of our popular-consumption goods seem to be made overseas. Then there is the issue of the trade deficit, which is generally reported on in the mainstream media in a manner that is irresponsible, uninformed, or both.

While manufacturing output, as Mr. Westley notes elsewhere in the post, is on the rise, the issue that some Americans may have (myself included), is that manufacturing jobs are down relative to service jobs.  While there is nothing inherently inferior about either type of job, some nagging questions remain.

First, is it really possible to build a strong economy on services?  My instinct is that service jobs are correlative factors, not causal factors.  By this I mean that no economy can expect to grow by emphasizing service jobs, but an economy that has a large number of service jobs is likely very wealthy.  In essence, service jobs demonstrate economic maturity; they don’t cause it.

Second, are intangible goods really wealth?  I know that value is subjective, but this doesn’t mean that wealth is subjective.  Wealth can be relative, for sure; but it seems that wealth, by its nature, is objective.  If you have fifty bushels of corn, you have fifty bushels of corn, no doubt about it.  Yes, measurements are axiomatic in nature, but they are also comparable.  Services can’t be measured in any meaningful way and thus cannot be compared.  As such, it seems strange to consider services a component of wealth.

Third, aren’t services inherently marginal consumer items?  Or, for clarity, if the market collapses tomorrow, aren’t service workers going to be the hardest-hit by this turn of events?  It would seem to be the case, since one doesn’t need the services of, say, a computer repair technician if one doesn’t have a computer.  As best as I can figure, most service jobs can only exist if agricultural or manufacturing jobs exist first.

Finally, would it be wise to pursue a tax/regulation that puts manufacturing on at least equal ground with services?  Regulation, particularly environmental regulation, imposes high costs on manufacturing that are more easily avoided overseas.  This distortion seems suspicious to me, because it doesn’t make sense to have a nation that is trying to avoid producing things, particularly if other nations decide that they want to have trade wars with the US.

Understand that I’m not opposed to free trade.  I’m not exactly its greatest supporter, either, but that’s mostly due to having a much greater interest in tax policy.  Most of the time, I can’t be bothered with this issue.

However, free trade doesn’t exist in a vacuum, and it seems that the government is trying to destroy manufacturing, which seems misguided to me.  At the very least, it should be the market that figures out the appropriate balance between service jobs and manufacturing jobs.  Also, I’m not suggesting that the government interfere in the market, either.  My goal would be to have the government remove as many market distortions as possible.  Maybe then we’ll see what the best balance of labor is.

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