There's an important debate going on within the Democratic Party: whether or not the future of the American economy lies in manufacturing.
The decline of American manufacturing sounds tedious, but it contains all of the central issues and tensions of the modern economy. To understand our future, first we must understand what's been happening to American manufacturers, as they were the engine of U.S. economic growth and equality throughout the 20th century. Recently, the Great Recession has accelerated several macroeconomic trends and laid bare the issues the US has yet to confront. That trend initially included the collapse of manufacturing, already at its lowest level in decades before 2007 accelerated its decline.
There are two central issues: whether we can return to the blue-collar, manufacturing centric, American economy of the past and whether we should. The President, in his most recent budget proposal and on the stump, has defended policy solutions that support and encourage growth in American manufacturing. This envisions an American future that looks a lot like the 20th century American past. Obama correctly intends on making fairness the central theme of his reelection, drawing distinctions between himself and his Republican rivals on his support for the auto bailout. On its face, Obama's pursuit of manufacturing growth seems apt, as Reuters reports that U.S. manufacturing grew by 50,000 jobs in January, the largest growth in over a year.
The decrease in unionization, driven by the collapse of manufacturing, has been a huge contributor to the US' anomalously high income inequality. That alone makes pursuing more blue collar jobs compelling. However, there are reasons to be skeptical of this unrestrained nostalgia. Leaving aside the question of whether we can retrieve outsourced manufacturing jobs, economists have been questioning whether we should. Echoing Christina Romer, Obama's influential Chairwoman of the Council for Economic Advisors, Walter Russell Mead explores whether the 20th century manufacturing economy is overrated and whether policymakers should chart a different trajectory for the new century.
The main problem Mead has with the manufacturing economy was its emphasis on consumption rather than production. Mead coins this economic theory the blue model, in reference to the centrality of blue-collar workers, and envisions Homer Simpson as its embodiment. The blue model, which lasted throughout the 20th century, saw the growth of an American middle-class driven in large part by the steady and relatively high-paying jobs in the manufacturing sector. While operating under the blue-model, the US dramatically changed the structure of its education system, relying increasingly on highly skilled workers. Mead sees this as driving several meaningful problems. He takes particular issue with young adulthood:
In the absence of any meaningful connection to the world of work and production, many young people today develop identities through consumption and leisure activities alone. You are less what you do and make than what you buy and have: what music you listen to, what clothes you wear, what games you play, where you hang out and so forth. These are stunted, disempowering identities for the most part and tend to prolong adolescence in unhelpful ways. They contribute to some very stupid decisions and self-defeating attitudes. Young people often spend a quarter century primarily as critics of a life they know very little about: as consumers they feel powerful and secure, but production frightens and confuses them.Mead argues that this period of young adulthood, in which learning is emphasized over doing, makes people less able to contextualize what they learn and less able to participate meaningful in society. This period of learning is characterized by Mead as a period of unnecessary and extravagant consumption. Instead of defining themselves meaningfully by work, young adults define themselves by what they consume. Mead also draws the line between this passive consumption and a decrease in political participation. As the state grew it allowed a greater period of isolation from work through its pursuit of universal, and prolonged, education. The result is that just as the state became more powerful, and voting therefore more important, voters disengaged. Why? Instead of being active and involved, citizens were passive and consumptive.
This challenges a central premise of mine, that equality always makes a society happier. This theory is predicated on seeing the period known as the Great Compression, which lasted roughly from 1940 to 1970 and contained the highest level of recorded American equality, as the happiest in American history. The happiest countries tend to be the most equal (See: Denmark, Sweden, Norway, Finland, Germany, France). But, Mead rightly throws wrenches into the reductionism of this theory. Inequality may be correlated with unhappiness, but there are other factors at work. Mead argues that the Great Compression was driven by a shift from a savings economy to a spending economy. The rise of credit, which stimulated the economy particularly for overpriced goods provided by American manufacturers, made society more equal and more happy. Having a washing machine, car, and refrigerator improved the average American household. But, this model was inherently unsustainable. A line of credit doesn't last forever. It's predicated on debt and consumption, rather than production. Mead criticizes the society of consumption as "rich in stuff but poor in soul."
So, although the collapse of the blue model of development has ripped up "the social fabric identified with progress and stability," Mead believes that the future could be brighter. Mead's analysis provides a welcome corrective to the nostalgia of liberal economists, who rightly see the collapse of unions and manufacturing as dangerous and damaging. The US needs a new model for its economy. Mead hopes that this model will combine production and consumption. This entails another shift like the one that happened in the mid-20th century. Credit is not the answer to a stronger long-term American economy.
The question remains: How can the US economy continue to support a vibrant middle-class?
One piece of recent economic news gives a clue as to where jobs are moving. A recent survey shows that there is a shortage of skilled workers in the manufacturing sector. An article in the Wall Street Journal quotes Ed Hughes, the CEO of a community college, as having correctly identified the trend:
"In the 1980s, U.S. manufacturing was "80% brawn and 20% brains, " but now it's "10% brawn and 90% brains." This new trend, widely known as "advanced manufacturing," leans heavily on computation and software, sensing, networking and automation, and the use of emerging capabilities from the physical and biological sciences.Manufacturing has moved beyond the blue model without consulting anyone. Now, policymakers must try to identify the new model and adjust our expectations according. Providing tax benefits to traditional manufacturers won't stymy the decline of American manufacturing in a meaningful way. Providing education to workers to fill jobs in higher-skilled job has potential to increase income equality.
This presents a challenge has emerged for the middle-class: become producers rather than consumers, whether by choice or by necessity. This has the potential to not only preserve the middle-class, but improve it. Thinking more and spending less is a better model than mindless consumption.
The task of economists and policymakers is even more daunting: figure out where the economy is going. Mead's analysis provides useful food for thought as we consider what model for government should pursue. This requires adjusting the expectation that the economy will behave like it did during the 20th century and finding a new path that represents sustainable prosperity that will make our economy more equitable.