Tag: Concrete Economics

Must-read: Justin Fox: “About That U.S. Manufacturing Renaissance…”

Posted on by Brad DeLong

Must-Read: Justin Fox: About That U.S. Manufacturing Renaissance…: “After a brutal period of downsizing and reorganizing…

…the U.S. manufacturing sector has become the most competitive in the world. Output per worker is higher than in any other major manufacturing country. Labor costs per unit of output are lower than in Brazil, Canada and Germany, and only slightly higher than in China. What’s more, writes Gregory Daco of Oxford Economics in the new report from which the above facts are taken, ‘the U.S. is ‘gifted’ with a stable regulatory framework, a flexible labor market, low energy costs and access to a large domestic market.’

So that’s great! Time for a manufacturing renaissance, right?… But… there are few signs of it actually happening yet. Yes, there are the almost 900,000 manufacturing jobs added in the U.S. since early 2010. But it’s important to see that for what it is–a modest rebound after a spectacular collapse…. Why isn’t reshoring taking off? Daco, of Oxford Economics, stressed that such shifts don’t happen overnight. ‘It takes quite a bit of time for a company to modify its supply chain,’ he said in a phone conversation. He also noted that ‘nearshoring’ to Mexico, where unit labor costs are still substantially lower than in the U.S., remains popular….

The countries of South and Southeast Asia… have labor forces that run into the hundreds of millions of workers, so the gradual shift of certain industries to other Asian low-cost countries is likely to continue…. Clothing- and furniture-making, for example, are unlikely to return to the U.S. in a big way. But in capital-goods manufacturing, labor costs matter less than technology and the existence of a local ecosystem of suppliers, consultants and skilled workers that can take a while to put together. In their rush to offshore, then, U.S. manufacturers may have permanently destroyed their ability to make certain products here. As Gary P. Pisano and Willy C. Shih wrote in a 2009 Harvard Business Review article:

In making their decisions to outsource, executives were heeding the advice du jour of business gurus and Wall Street: Focus on your core competencies, off-load your low-value-added activities, and redeploy the savings to innovation, the true source of your competitive advantage. But in reality, the outsourcing has not stopped with low-value tasks like simple assembly or circuit-board stuffing. Sophisticated engineering and manufacturing capabilities that underpin innovation in a wide range of products have been rapidly leaving too. As a result, the U.S. has lost or is in the process of losing the knowledge, skilled people, and supplier infrastructure needed to manufacture many of the cutting-edge products it invented.

This loss of capability could be what we’re seeing evidence of in the trade data. If so, a true U.S. manufacturing renaissance may be a long time coming.

Speaker’s Notes for: Concrete Economics @ SXSW!

Posted on by Brad DeLong

Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3:

Stephen S. Cohen, J. Bradford DeLong: Concrete Economics: The Hamilton Approach to Economic Growth and Policy] (Allston, MA: Harvard Business Review Press:1422189813) http://amzn.to/22ds5TK

The Book:

  • Small book
  • Readable book
  • Important book (we think)

The Thesis:

  • America’s political-economic governance from 1787-1975 or so was extraordinarily successful
  • America’s political-economic governance since 1975 or so not so
  • What changed?
  • America’s political-economic governance took an ideological turn about 1975

Hold It!: Wasn’t America Governed by Political-Economic Ideologies Before 1975?

  • No
  • There were strong ideologies:
    • Jefferson’s agrarian ideology
    • Madison’s (early) small-government ideology
    • Calhoun’s Herrenvolk ideology
    • Lochnerites–the claim the Constitution imposed Herbert Spencer’s Social Statics
  • But they all lost in the great political-economic scrum
    • Hamilton overcame Jefferson
    • Even Madison and certainly Madison’s successors overcame Madison
    • Lincoln overcame Calhoun
    • Teddy and Franklin Roosevelt overcame Herbert Spencer and the Lochnerites

What, Then, Did Govern America from 1787-1975?

  • Pragmatism
    • Hamilton’s state-led push for commerce, industry, finance
    • A very heavy governmental role in westward expansion–very bad for the Amerindians, very good for the settlers and the settler economy
    • Lincoln and his successors’ push for the acquisition of capital–farm capital via homesteads, human capital via education, plus corporate capital
    • Teddy Roosevelt’s Progressive curbing of overweening Gilded-Age power
  • All of these were ruthlessly pragmatic: looking not at ideology as a guide but at the world, and what seemed likely to work to increase popular wealth

But the New Deal! FDR Was Ideological!

  • No
  • FDR’s New Deal was the antithesis of ideology
  • FDR tried everything
    • Corporatism
    • Keynesianism
    • Agricultural subsidies
    • Antitrust
    • Social insurance
    • Unionism
    • And he reinforced what seemed to work
    • The New Deal policies that survived became an ideology, but they started out as the most ruthless pragmatism
  • And Eisenhower:
    • Highways, automobiles, suburbs, massive federal support for technology
    • But also fear of the military-industrial complex and a strong desire neither to break inherited things from the New Deal the worked
    • Eisenhowerism was, as Daniel Bell wrote, an attempt to institutionalize the permanent end of ideology

So What Has Gone Wrong in the Past 40 Years?

  • Belief that the inflation and oil shocks of the 1970s demonstrated that Eisenhowerism was tapped out
  • And the fault laid to insufficient love of the free market (and excessive big government)
  • Hence the big push for:
    • Spending two Pentagons on excess wealth for our overclass in an attempt to give them “incentive”
    • Spending a Pentagon on excess health care administration and excess unnecessary and harmful treatment
    • Deregulation and financialization leading to a Pentagon’s worth of waste in over-financialization
      • Is corporate control better? Is risk-bearing more advanced?
      • Plus two additional Pentagons’ worth of waste in permanent damage from the financial crisis
    • The only rich capital-inflow economy in history
      • A really rich country should be exporting capital
      • And leveraging its innovative, intellectual, and human-capital expertise over ever-growing communities of engineering and entrepreneurial practice
        • To some degree, we have been doing the second
      • But we have been letting “the market” greatly reduce the scale
  • From the middle-class perspective, 8 Pentagons worth of waste over the past 40 years–all of them driven by ideology (and interest)

What to Do Next?

  • All such books are supposed to end with: MY PLAN
  • We refuse: such “my plans” are never convincing
  • What we do seek to convince you of is this:
    • The world is a complicated place
    • The world surprises you–and the more bound you are to your ideology, the more you will be surprised
    • Feedback and pragmatism are better than ideological oversimplifications
    • Arguments against policies of the form “this breaks ideological principle X” should have much less purchase than we give them

Today That Principle Leads to a Total Rejection of the Republican Party and All of Its Works

  • But that fact is a judgment on the Republican Party as it is currently constituted
  • And whatever parties we have in 30 years will be equally vulnerable to ideological viruses–as vulnerable as were jefferson, Madison, Calhoun, the Lochnerites, and more recently the Bushites, Cruzites, Rubites, Gingrichites, and even the Kasichites.
  • We need to defeat them and be pragmatic–with Hamilton, the later Madison and company, Lincoln, Teddy and Franklin, and Ike…

Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3

Posted on by Brad DeLong

I guess that is it: Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3:

Stephen S. Cohen, J. Bradford DeLong: Concrete Economics: The Hamilton Approach to Economic Growth and Policy] (Allston, MA: Harvard Business Review Press:1422189813) http://amzn.to/22ds5TK

Must-read: Justin Fox: “The U.S. Could Use a New Economic Strategy”

Posted on by Brad DeLong

Must-Read: Some very nice thoughts about our Concrete Economics from the extremely-sharp Justin Fox:

Justin Fox: The U.S. Could Use a New Economic Strategy: “In his four-plus years as the country’s first treasury secretary…

…Alexander Hamilton crafted an economic strategy that helped the U.S. rise from agrarian former colony to global economic power… [write] Stephen S. Cohen and J. Bradford DeLong write in their brand-new book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy…. No U.S. leader since has articulated and then put in place an all-encompassing economic plan in quite the way Hamilton did. But the country has always followed some sort of economic strategy, even if it has seldom been clearly defined…. It is at least possible that this last era has come to an end…. It’s not at all clear, though, what’s going to replace it.

DeLong… and Cohen… simply recommend that discussion of economic policy focus on the concrete–what works…. Still, it’s not easy to figure out what the U.S. should do next. Nations playing catch-up… have concrete examples…. But the U.S. of 2016 is the biggest economy on the planet…. In the latest World Economic Forum global competitiveness rankings, for example, it trailed only Switzerland and Singapore. There is surely much we can learn… but… the U.S. remains largely sui generis. I’m almost certain that more infrastructure investment would be a smart part of any new U.S. economic strategy. But I’m not so sure what should be built and where, or what else…. Got any suggestions?…

I would say that our book has two big lessons to teach. The first is that, in America, economic policy has been successful when it has been pragmatic. Hamilton is our first example. But “Hamiltonianism” is not the right economic policy configuration for the ages. The United States did not stay with Hamilton’s policy configuration. The post-Civil War Gilded Age’s focus on homesteading, truly massive infrastructure subsidies, and mass immigration had little to do with Hamilton’s debt, finance, bank, tariff, and manufacturing focus. The Progressive Era had different concerns and policies. As did the other Roosevelt’s New Deal. As did Eisenhower. And our recent age–which Justin Fox calls “financialization”, but which we might as well call “neoliberalism” (it’s what everyone else calls it)—has been broadly unsuccessful not because it has deviated from Hamiltonianism but because it has been ideological.

Must-read: Justin Fox: “The U.S. Could Use a New Economic Strategy”

Posted on by Brad DeLong

Must-Read: Justin Fox: The U.S. Could Use a New Economic Strategy: “In his four-plus years as the country’s first treasury secretary…

…Alexander Hamilton crafted an economic strategy that helped the U.S. rise from agrarian former colony to global economic power… [write] Stephen S. Cohen and J. Bradford DeLong write in their brand-new book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy…. No U.S. leader since has articulated and then put in place an all-encompassing economic plan in quite the way Hamilton did. But the country has always followed some sort of economic strategy, even if it has seldom been clearly defined… a succession of strategies–culled from Cohen and DeLong’s book, but given titles by me–that went something like this: The era of free stuff…. The era of intervention…. The era of investment…. The era of financialization…. It is at least possible that this last era has come to an end, with the beginning of financial re-regulation in the U.S. and a halt to the long upward trend in global trade that accompanied the rise of the East Asian export economies. It’s not at all clear, though, what’s going to replace it.

DeLong… and Cohen… don’t offer a plan. They simply recommend that discussion of economic policy focus on the concrete–what works–rather than theory and ideology. How’s that been going lately? Donald Trump’s economic platform, however muddled and unrealistic, is at least a break from the narrow ideological orthodoxy on economics that has held the national Republican Party in thrall for the past couple decades. On the Democratic side, Bernie Sanders and Elizabeth Warren have offered a challenge to the financial-sector-friendly approach that the party’s mainstream settled on in the 1990s. Some in that mainstream have been reconsidering their stance as well…. The economics profession’s turn away from theory and toward empirical work, which I wrote about in January, will presumably offer pragmatically inclined policy makers more material to work with in the coming years.

Still, it’s not easy to figure out what the U.S. should do next. Nations playing catch-up… have concrete examples…. But the U.S. of 2016 is the biggest economy on the planet…. In the latest World Economic Forum global competitiveness rankings, for example, it trailed only Switzerland and Singapore. There is surely much we can learn… but… the U.S. remains largely sui generis.

I’m almost certain that more infrastructure investment would be a smart part of any new U.S. economic strategy. But I’m not so sure what should be built and where, or what else…. Got any suggestions?…

For an explanation of this, I recommend ‘Cabinet Battle #1’ from the musical ‘Hamilton.’