Deindustrialisation in United States 12

[GeoSmith]

Deindustrialisation---the shrinkage of industrial jobs

I would like to open a discussion because I read an article today. It is said that America has a huge trade deficit not because it is not exporting enough, but because American consumers are spending too much.

Developed economies' comparative advantage is in knowledge-intensive activities, because thet have so much skilled labour. In developed economues today, telecoms, software, banking and so on can create more wealth than making jeans or trainers in "world factory".

It is also said that under proper training, lay-off people can find a high tech job easily. All developed country, like Japan, German and UK, all manufacturing jobs are declining.

 

[BitTwiddler]

Delphi, the automobile parts maker which was spun off from GM in 1999, will file for bankruptcy on Saturday, October 8, 2005, according to this report:

http://news.yahoo.com/s/nm/20051008...eQuzEus0NUE;_ylu=X3oDMTA3bGI2aDNqBHNlYwM3NDk-

An earlier report mentioned that the company expects to cut wages by more than half to about $10 to $12 an hour. A UAW news release pointed out that any person working at the new wage rate would not be able to buy most models which GM sells.

This reminded me of the famous $5 a day wage which Henry Ford began to pay in 1914. He was credited with expanding the American middle class by paying his workers enough to allow them to buy the cars which they built.

http://www.detnews.com/2003/specialreport/0306/09/f10-186947.htm

It appears that the process which Ford began is about to be reversed. Perhaps future historians will note October 8, 2005, as the day that the decline of the middle class in the USA became irreversible.

"Here lies the American middle class, RIP, 1914-2005"

 

[Laplacian]

Just wait until sky high natural gas prices take their toll. The fuel adjustment charge alone for our plant during the month of September was $1M.

That is going to take a huge bite out of our margin, further accelerating the flow of capital investment overseas where more attrative feedstock is.

Even when all the Gulf production comes back online, it won't be enough to catch up and lower prices. Get ready for some tough times ahead (for some of us) as the global standard of living equalizes.

 

[BitTwiddler]

How much can the US deindustrialize before the entire economy collapses?

My father worked for General Electric in the US (GE) and he owned a small amount of stock in the company. Every year the annual report was mailed to our house, and I usually skimmed through it to see how things were going.

One very odd fact became apparent as the years passed. Almost every year, the rate of growth of the value of the stock exceeded the growth in the US economy by a wide margin. There were many years when the nation grew at 4% or 5% and the stock value went up by over 20%.

I couldn't figure out how this could continue. It seemed logical to me that if any part of the economy (such as GE) grew at a much faster rate than the entire economy, it would eventually run out of new sources of revenue. It would be like a shark in a fish tank in an aquarium - eventually all of the other fish end up in the belly of the shark, and after that the shark has nothing to eat.

I asked my father about this and he said that GE was moving into finance and out of manufacturing. GE started as an industrial company with a finance branch, but today it is more correct to describe it as a financial company that happens to still own a few industrial branches. The tail is wagging the dog.

I wonder now if the entire national economy is going through the same thing. The percentage of the total workforce employed in manufacturing has declined to about 11%. We have a $700 billion trade deficit. The best cars aren't made in America anymore, and the best cars made in America are not manufactured by Ford or GM.

Technical engineering skills are devalued at the same time that financial engineering skills are overvalued. GM is the perfect example of this. They spun off the car parts division six years ago because all of their profits came from their finance division. Why bother making car parts when all of the profit is made by collecting interest on the car loans? If you have a MBA instead of a MS degree, it makes perfect sense.

Now the chickens have come home to roost. GM will be forced to pay billions to save Delphi and keep their auto factories from shutting down. Their financial re-engineering created a structure which was about as sound as the Tacoma Narrows Bridge. Even the MBAs can't make car loans without selling cars, and they can't build cars without car parts.

How long can we continue to use the profits from financial transactions to pay for goods from other countries? If our major corporations all become banks, will the next banking crisis wipe out the Fortune 500? If all of the smart kids go to work as "rocket scientists" on Wall Street, what happens to NASA when all of the actual rocket scientists retire and nobody is left to replace them?

Half a century ago, it was an axiom that what was good for GM was good for America. The truth today is that what is bad for GM is bad for America. If we place too little value on the people who actually build stuff and too much value on the people who shuffle money around, we may wake up one day and realize that America is bankrupt.

Today is Delphi's day of reckoning. When will America's arrive?

 

[wes616]

An interesting article from MACHINE DESIGN MAGAZINE

The end of upward mobility

In the small community where I grew up, Tommy Goodwin was the town drunk. When he would stagger past our house, my mother would direct my attention to him and say: "Look at Tommy Goodwin. He is a bum. You'll end up being a bum just like Tommy Goodwin if you don't get good grades in school and learn a trade. You don't want to be a bum, do you?"

My mother really knew how to motivate people. I didn't want to be a bum. I didn't want to stagger around town like Tommy Goodwin. So I got good grades in school, learned a trade, and ended up in a societal niche, which, although not exactly exalted, ranks me a bit higher than a bum.

With that as prologue, we will now turn our attention to the standard of living which people enjoy and, specifically, as to whether or not your children will end up being bums. Recently, societal observers have noticed that today's youth, as well as many middle-aged people and even those nearing retirement, do not have the high standard of living their parents enjoyed. That brings to mind another sage observation, this one made by a friend and neighbor. He once said: "The story of my family is a tragedy. I was born into a financially comfortable household, but my children weren't."

His story hit home because it pretty much summed up my own situation. While my three kids were growing up, I had a real struggle even coming close to giving them the same financial advantages I enjoyed through high school and college. Today, this phenomenon is even more widespread than ever. And when stories about it appear in newspapers, there is always an undercurrent of blame that ultimately settles on our economic system, tax structure, or avaricious corporations. However, no part of the blame ever settles where some of it belongs, namely, on permissive parents.

When my wife and I were struggling to manage a financially strapped household, we never told our kids that their sole purpose in life was to be happy. Instead, we were disciplinarians. We told our kids they had to be good students, graduate from college, get decent jobs, and be financially responsible. My wife and I knew that if our kids did that, they would probably end up being happy. By the same token, if they didn't do that, nothing would make them happy. While we were preaching the mantra of delayed gratification and personal responsibility, many of the young parents in our social circle weren't. Their line to their children was: "Do whatever you want, dear. Just so it makes you happy."

I would cringe when I heard that. Just as my wife and I thought, the advice turned out be bad. Being happy for these kids meant instant gratification and flipflopping through life without much focus or effort. They took soft courses in college, they dropped out, or often they didn't even enroll. A lot of them ended up with no skills, floated from job to job, or had extended periods of unemployment. And surprise of surprises, they also ended up not having the standard of living their parents enjoyed.

Today, when journalists notice that the offspring of middle-class parents don't necessarily do well, they write columns that focus on causes outside the family. They bemoan the end of an economy that once provided relentless upward mobility. But the blame is never within the individual. The articles ignore the fact that much of the fault lies with the "be happy" thing. It is the wrong thing to tell kids when they are supposed to be charting a course into adulthood. My advice to young people is that it is not important whether or not you are happy when you are 15. It is important that you are happy when you are 30.

-- Ronald Khol, Editor


Wes C.
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There are no engineers in the hottest parts of hell, because the existence of a 'hottest part' implies a temperature difference, and any marginally competent engineer would immediately use this to run a heat engine and make some other part of hell comfortably cool. This is obviously impossible.

 

[Jabberwocky]

I think you nailed it Laplacian (nice nick btw)

We live on a finite planet with finite resources, and the scales can only tip so far in one direction before swinging back towards even. The US side of the coin is decreased prosperity, but the money has to go somewhere. Every job outsourced is a job created somewhere else. Who is to say that the foreigners who "took our jobs" don't deserve them equally?

I see the global standard of living equalizing eventually, even if that means we're all universally "poor."

 

[Slugger926]

"I see the global standard of living equalizing eventually, even if that means we're all universally "poor." "

This has happened many times throughout history. When it does happen, the extremely rich has started wars among themselves to elliminate the excess population. For the most part, the rich enjoyed the same amount of power after the war as before with a much happier and smaller population.

I hope history doesn't repeat this for many years.

 

[wes616]

Last year I head a fanstatic lecture by Andy Ogden (the director of the Graduate Industrial Design Program at Art Center College of Design). It was on regarding the idea that with golbalization the poorest countries standard of living will rise. Since there is (as jabberwocky stated) a finite amount of resources (financial) that means that the richest countries in the world ( the US) standard of living would HAVE to go down. Not to the point we are all POOR. But a more balanced economic (global) level. This balance will require us to become (worldwide) more mobile. Expect that in our lifetimes to work in another country )doing what we do here now) in order to provide a standard of living ACCEPTABLE to our families.

It was very interesting.

Wes C.
------------------------------
There are no engineers in the hottest parts of hell, because the existence of a 'hottest part' implies a temperature difference, and any marginally competent engineer would immediately use this to run a heat engine and make some other part of hell comfortably cool. This is obviously impossible.

 

[DRC1]

I see this as the most importat question facing our country. 20 years ago Ronald regan anouced we were transforming from a manufacturing economy to a more "mature" service economy. The political pundits of the day praised this and extoled the virtues of how we could move from middle class manufacturing to much higher wage work in the service economy, as if we could each be each others stock brokers. Everyone went to college wether they knew why or not. Not going became a mark of failure. However fewer and fewer Americans took technical subjects. I remember in grad school very few American grad students.
So what has happened is manufacturing which was 22% of the economy is now 12% or less. Government has grown to be the largest part of the economy, and the service industy has grown, but the manufacturing nations such as China are discovering this banking investing thing isn't so hard are developing there own support services.
Basically we have become a nation of consumers propelled by the dwindling momentum of a previous generation and a huge mountain of debt to foriegn investment. The foriegn investment provides a market for foriegn products. At some point the inerest rates will rise and what follows will not be pretty. The best way out will be to reidustrialize. Although American manufacturing is dwindling, it is not because of the American worker. Although highly paid, they are still among the most productive in the world. It is corperate and government cultures limit the growth of manufacturing. This trend needs to be reversed. The economy is not just about job growth, but what type of growth. We need to reindustrialize now.

 

[BigH]

If you look at the American "buyer" - what are many of the imported items we are buying? Electronics, stereos, tvs, minicams, etc. NONE of which are made in US or Canada (except for niche and very high end stuff). I'd love to see an American made tv again - I'd even buy it if the cost were a bit higher. Amazing it is now Japan that is even outsourcing consumer products to Malaysia, China, Thailand.

 

[JTreglio]

Deindustrialization began during the Reagan era. The minimum wage was kept low, real interest rates rose to historically-high levels due to massive budget deficits, unemployment remained high for twelve years or so, producing a strong underclass in the inner cities. As a result, while the economy grew, the rich got richer and the poor got poorer, reducing the number of people who could afford American-made products. High interest rates kept companies from upgrading aging manufacturing plants. Poverty levels rose continuously. Clinton reversed the trend -- dropping unemployment from 7% to 4%, turning the budget deficit to a budget surplus, raising the minimum wage. The industrial sector grew faster than the service sector for the first time in over a decade. The poverty level fell for eight straight years. Real income levels of workers increased. Bush II reversed the Clinton policies, went back to the Reagan policies, cutting taxes on the wealthy and increasing government spending while holding the minimum wage down and unemployment up. The poor are getting poorer -- the poverty level has risen every year he's been in office -- and real wages are falling. He's the only President ever with a net loss of jobs during one full term. In addition, his tax policies have favored outsourcing of jobs. As a result, manufacturing is down with the exception of the defense manufacturing industry, which employs fewer people per dollar spent than any other industry.

Jim Treglio
Molecular Metallurgy, Inc.

 

[GregLocock]

How are you measuring poverty? Often it is defined as a relative measure based on median income, in which case it is a rather silly moving target.


Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[wes616]

Greg, these Statistics are put out by the US Government, Bureau of Statistics (I believe, or maybe it's the GAO). A bunch of guys that get their PhD's in Math and create formula upon formula to determine everything from who is living in poverty, to how much a cup of rice has cost since the days of Jesus.

Wes C.
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Make a dent in the Universe... do something great...

 

[GregLocock]

Sure. I put it to you that parroting statistics about poverty, without defining poverty, is not much proof of anything. The usual definition in Australia is roughly an income less than 25% of the median (I think). So pretty much that guarantees the poor will always be with us, cos when most people in the country have got 8 helicopters and 16 swimming pools, there will always be some poor guy with only one of each.





Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[wes616]

I remember reading about this a long time ago (so please correct me if I am wrong) but when you calculate the median income, you throw out the top 5% and the bottom 5%.

Wes C.
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Make a dent in the Universe... do something great...

 

[epoisses]

It must be hilarious for economists to read this, just like it would be hilarious for engineers to read economists discussing and launching theories on how the heck that bridge just won't collapse.

Anyway. I don't know much about economics but I don't believe that global equalisation theory saying as poor countries get richer, rich countries necessarily get poorer. If richness is expressed as the price of a fixed item (say a cup of rice or a big mac if you insist) as a percentage of one's total income, people will get richer as the added value of their work or status increases in ratio of the added value of a cup of rice produced. (By the way this means that the only way for a rice producer to get richer is to produce more and more efficiently/cheaply than he used to do). This happens if their income increases or the price of the item decreases. I bought a table model circular saw the other day for 99 Euro. I don't remember ever having seen one so cheap even taking inflation into account. Made in China, obviously. Am I now poor since the Chinese have started producing these things at a price of a couple 25 kg bags of rice? Heck no, I am becoming rich! I can very easily afford a circular saw now, I can buy 5 or 10 if I feel like within a month and still have dinner and pay the rent.
Even the french circular saw makers who are now unemployed can buy them. As soon as they found a new job even if it pays a bit less than the circular saw factory, a chinese circular saw will cost them much less in ratio of their income than a french saw.

 

[SomptingGuy]

One way to look at wealth is that money is simply an intermediate in the process of bartering. If what you really want isn't ready yet, take money instead and wait until it is. This means that wealth can be measured in terms of serviceable goods (those that aren't broken, discarded, or otherwise valueless). Thus the concept of "conservation of wealth" nedd not be true. Increasing wealth in one place does not require decreasing wealth elsewhere. So long as the World makes goods quicker than it burns them, total wealth will increase. Every bit of work done in making something adds net wealth to the world.

 

[wes616]

The data presented here are from the Current Population Survey (CPS), 2005 Annual Social and Economic Supplement (ASEC), the source of official poverty estimates. The CPS ASEC is a sample survey of approximately 100,000 household nationwide. These data reflect conditions in calendar year 2004.

* The official poverty rate in 2004 was 12.7 percent, up from 12.5 percent 2003.

* In 2004, 37.0 million people were in poverty, up 1.1 million from 2003.

* Poverty rates remained unchanged for Blacks (24.7 percent) and Hispanics (21.9 percent), rose for non-Hispanic Whites (8.6 percent in 2004, up from 8.2 percent in 2003) and decreased for Asians (9.8 percent in 2004, down from 11.8 percent in 2003).

* The poverty rate in 2004 (12.7 percent) was 9.7 percentage points lower than in 1959, the first year for which poverty estimates are available (Figure 3). From the most recent trough in 2000 both the number and rate have risen for four consecutive years, from 31.6 million and 11.3 percent in 2000, to 37.0 million and 12.7 percent in 2004 respectively.

* For children under 18 years old, both the 2004 poverty rate (17.8 percent) and the number in poverty (13.0 million) remained unchanged from 2003. The poverty rate for children under 18 remained higher than that of 18-to-64-year olds (11.3 percent) and that of people aged 65 and over (9.8 percent).

* Both the poverty rate and number in poverty increased for people 18 to 64 years old (11.3 percent and 20.5 million in 2004, up from 10.8 percent and 19.4 million in 2003).

* The poverty rate decreased for seniors aged 65 and over was 9.8 percent in 2004, down from 10.2 percent in 2003, while the number in poverty in 2004 (3.5 million) was unchanged.

Poverty incomes in the US

1 person 9,645

2 persons 12,334

3 person 15,067

www.census.gov

So for those of you who don't live in the US, to give you an idea... I currently make just shy of the 1 person poverty mark per month... (and it would be a stretch for me to by a modest 2 bedroom home in the neighborhood I live in, where 2 bedroom 1 bath homes are selling for between 500,000 and 650,000)

Wes C.
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Make a dent in the Universe... do something great...

 

[epoisses]

Honestly Wes, this does not give me an idea at all since I have no idea how poverty is defined here. Also, these data refer only to 2004 versus 2003, that's quite a short term especially given the fact that these are far from quiet and stable times for the American economy. All causes and effects are comingled in these data, I have no clue on what conclusion to draw from this.

I don't know - I just refuse to get all pessimist. These doom scenarios remind me the millennium bug that turned out to be no issue. France is in the same difficulties if not much worse than the US, but hell I have a good job and if I lose it I will find another one even if I have to go to China.

 

[CarolinaPE]

Wes C.,

Move. You must live in Calee-fornee-uhh (say it like Ahhnold). I watched a show the other night and these folks were selling a dump in CA for 700K. The old adage of "they pay you more there so it makes up for it" is hogwash too.