Twenty years ago Edward Luttwak wrote The Endangered American Dream which proposed “how to stop the United States from becoming a Third-World country and how to win the geo-economic struggle for industrial supremacy.” Twenty years is a long time and in retrospect we can see that the book’s optimistic purpose merely covered a deeply pessimistic message. Luttwak was a realist who undoubtedly knew that nobody was going to solve the problem of America’s economic decline. Either nobody wanted to, or nobody could. Some chapters of Luttwak’s book are suggestive of what we’re facing today: “Capitalism Without Capital” and “”Where Have All the High Wages Gone?” Luttwak says there is an ongoing geo-economic arms race. “In geo-economics, as in war,” he explained, “offensive weapons dominate.”
Contrary to the ideas of Ludwig von Mises or Friedrich Hayek, Luttwak does not judge according to economic theory but according to economic realpolitik. The most important offensive weapon in the geo-economic arms race, says Luttwak, is “research and development force-fed with government support and taxpayers’ money….” Then he sites Japan as a prime example. But the “final offensive weapon,” says Luttwak, is “predatory finance.” This includes games with currencies and games with interest rates. “In traditional world politics,” noted Luttwak, “the goals are to secure and extend the physical control of territory, and to gain diplomatic influence over foreign governments. The corresponding geo-economic goal is … the conquest or protection of desirable roles in the world economy.”
Twenty years ago the United States of America’s industrial decline was already underway; and this decline has accelerated in recent years. Readers may want to check out Justin R. Pierce and Peter K Schott’s working paper on “The Surprisingly Swift Decline of U.S. Manufacturing Employment.” According to Pierce and Schott, there is a “link between the sharp drop in U.S. manufacturing employment after 2001 and the … granting of permanent normal trade relations to China in late 2000.”
Then there is the ITIF March 19 2012 report titled “Worse Than the Great Depression: What the Experts Are Missing About American Manufacturing Decline.” According to this report, the decline as a share of total manufacturing jobs from 2000-2010 “exceeded the rate of loss in the Great Depression.” The report goes on to state, “Despite this unprecedented negative performance, most economists, pundits and elected officials remain remarkably blasé about what has transpired. Manufacturing, they argue, has simply become incredibly productive.” But this answer only explains a small portion of what has happened. According to the ITIF report, “U.S. government statistics significantly overstate the change in U.S. manufacturing output, and by definition productivity…. When measured properly, U.S. manufacturing output actually fell 11 percent over the last decade while GDP increased 17 percent, something that has not happened before, at least since WWII.”
Today, of course, we are supposed to believe that the manufacturing sector has been recovering. Among the many news stories boasting of unprecedented job growth in manufacturing, consider CNN’s February headline “Manufacturing jobs dry up,” by Steve Hargreaves who writes, “The much-lauded growth in American manufacturing jobs appears to have stalled.” We learn that the manufacturing industry in the United States “has basically seen zero job growth since the middle of last year.” The ITIF report of March 2012 wisely foresaw this eventuality when it suggested that such expectations of rapid growth in manufacturing jobs may be “false optimism.”
From the Website Economy In Crisis we read of “The Continued Decline of American Manufacturing” by Craig Harrington who says, “The employment trend in manufacturing is overwhelmingly negative and has been for nearly twenty years.” Harrington then adds, “This country does not simply lack manufacturing jobs, it lacks entire industries.” And the situation is getting worse from year to year. But China is not losing jobs, says the ITIF report; merely, the Chinese government stopped counting self-employed manufacturers some years ago and this has given some analysts the false impression of a decline in Chinese manufacturing jobs; so even as American manufacturing continues to take a beating, the Chinese are by no means in the same boat.
To those who say that a decline in American manufacturing does not matter, Luttwak’s book of twenty years’ past and the ITIF report of last year present a challenge. All things being equal, manufacturing jobs pay more than service jobs. But there is something even more fundamental about manufacturing. According to the ITIF report, “the central reason why manufacturing matters is that it is a key enabler of traded sector strength. And … it is impossible to have a vibrant national economy without a globally competitive traded sector. Manufacturing is still the largest traded sector of the United States economy, and it will be for some time. While some argue that the United States can close its trade deficit by boosting exports of services or non-manufactured goods, the facts suggest otherwise.”
Twenty years ago Edward Luttwak feared that a trend had taken hold, and today we can see it has. According to the ITIF report cited above, the decline in U.S. manufacturing is eroding “the confidence of business, workers and consumers.” Twenty years ago Luttwak warned that something must be done. Last year the ITIF report offered a similar warning. But nobody was listening twenty years ago, and nobody is listening even now. The trend is bound to continue because the United States government, in its turn, continues to heap regulations and taxes on businesses.
