05 January 2012

Celebrating the Decline of Manufacturing

The image above comes from Mark Perry, a professor of economics and finance at the University of Michigan, who writes on his Carpe Diem blog:
We hear all the time from Donald Trump and others about the "decline of U.S. manufacturing," about how nothing is made here any more, and how everything that used to be made here is now made in China and other low wage countries. An underlying assumption of most of those claims is that if the manufacturing base is shrinking in the U.S. (the "hollowing out of U.S. manufacturing"), that there is an offsetting manufacturing gain that is captured elsewhere in the world, as manufacturing output supposedly shifts from the U.S. to other countries, with world manufacturing remaining constant.

In reality, the chart above shows that the decline in U.S. manufacturing as share of GDP between 1970 and 2010 is really a global phenomenon as the entire world becomes increasingly a service-based economy.
His bottom line:
[T]he declining manufacturing/GDP ratio reflects declining prices for manufacturing goods, which is a sign of economic progress, not regress. The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16% of total world output (including the U.S.) compared to 1970, when it was almost twice as high at almost 27%. And for that progress, we should celebrate, not complain about the "decline of manufacturing."
His logic seems compelling, no?