Governor Relies on Shop Teacher to Argue Macroeconomics; Blockquote Mirth Ensues

Governor Kristi Noem milks her stroll with a Trump under-flunky through Riggs HS shop class for another PR squirt by staging an interview with two Riggs CTE students and their teacher, Tom Rogers.

The boys say reasonable things about the value of home construction and welding. But Noem’s GOED folks draw CTE teacher Rogers away from his portfolio and ask him to talk macroeconomics:

Why does the manufacturing industry matter to our local, state and global economy? Why is it important for you to teach and advocate for careers in manufacturing?

Tom Rogers: Economic growth depends on the manufacturing industry, and both local and global economies rely on the manufacturing industry to drive this world we live in today.

Manufactured goods are necessary for trade. We need goods to trade for foreign goods or the US will continue to rack up a larger trade deficit [Governor’s Office of Economic Development, state propaganda, 2019.09.30].

Uff da! There’s all sorts of economic fact and theory to unpack there!

Economic growth depends on the manufacturing industry—actually, some developing economies are skipping from agriculture over manufacturing straight to service labor:

Our study provides novel evidence of how a stronger expansion of service rather than manufacturing jobs in emerging market and developing economies may affect their ability to catch up with advanced economy income levels. Using data for a large number of countries over the past five decades, we document that some service sectors are very similar to manufacturing in terms of levels, growth rates, and convergence of productivity (output per worker).

Some market service sectors—such as transport, telecommunications, and financial and business services—have higher levels and growth rates of output per worker than manufacturing. Moreover—just as in manufacturing—labor productivity in several service sectors tends to converge to the global frontier: that is, it grows faster where it is relatively low, allowing countries with low initial productivity levels to catch up toward those with higher levels [Bertrand Gruss and Natalija Novta, “The Decline in Manufacturing Jobs: Not Necessarily a Cause for Concern,” IMF Blog, 2018.04.09].

Both local and global economies rely on the manufacturing industry to drive this world—Sure, we have to have some manufacturing, but there’s some evidence that manufacturing is declining in importance to economic development:

Service sector research indicates that all developing economies are experiencing increases in the proportion of service sector jobs, while jobs that “make things” shrink toward some small, but probably irreducible, proportion such as 10 percent. Further, in terms of job quality, those employed in factory jobs generally are less safe, use more energy, and pollute more than those in services. With the decline in real wages in manufacturing, many service jobs compare quite well on this dimension as well, although some of these are tradable [James Haskett, “Are Factory Jobs Important to the Economy?” Harvard Business School: Working Knowledge, 2012.03.28].

After World War 2, manufacturing provided nearly half of American jobs. Now manufacturing provides about 11% of our jobs.

Manufactured goods are necessary for trade—the claim here seems to be that we need to make more stuff (not just services and ideas, but tangible stuff, things foreigners can buy at their local Walmarts) to export to other countries. But U.S. manufacturing depends on imports:

…perhaps contrary to conventional wisdom, imports of manufactured goods are extremely important for the manufacturing sector. Specifically, imports of intermediate materials contribute significantly to the industry’s strong rate of productivity growth. Exports alone do not exert such a positive influence. Thus, any attempts to bolster exports at the expense of imports, including by lowering the value of the dollar, would significantly harm the U.S. manufacturing sector, the nation’s productivity, and ultimately, long-term living standards [Kevin L. Kliesen and John A. Tatom, “U.S. Manufacturing and the Importance of International Trade: It’s Not What You Think,” Federal Reserve Bank of St. Louis Review, Jan/Feb 2013].

We need goods to trade for foreign goods or the US will continue to rack up a larger trade deficit—the assumption here a larger trade deficit is a bad thing, to be avoided by training and deploying more young workers into the manufacturing sector. But is GOED just getting the shop teacher to sit up and bark for Trump? There’s no clear evidence that trade deficits hurt jobs:

If trade deficits hurt American workers,a rising trade deficit should lead to increasing unemployment,while a falling trade deficit should be associated with declining unemployment. However, there is not much of a relationship between unemployment and trade deficits(figure 2). In fact, when trade deficits are higher, unemployment tends to be lower.In the 1960s, our trade surplus was declining, and instead of rising, our unemployment rate was falling. In the mid-1980s, the trade deficit grew while unemployment was high. But from 1987 to 2002, our trade deficit grew while our unemployment rate fell. From 2006 to 2009, the trade deficit fell, and our unemployment rate rose. So only one of these periods supports the trade critics’ position that rising deficits lead to rising unemployment and that falling deficits lead to falling unemployment.

…Although the trade balance (exports minus imports divided by total output) of all manufacturing industries was only 1 percent of GDP in 1980, employment shares and trade balances varied greatly across specific manufacturing industries (table 1). For example, the 1980 share of food production employment was one-half as much as its 1960 employment share despite that industry having a negligible trade deficit. Other (nonautomobile) transportation industries (mainly airplanes) had a strong trade surplus, but its employment share declined by nearly a third. On the other hand, leather and apparel had the highest level of imports but still had its employment share rise. Finally, other industries had large declines in employment and little or no trade deficit. The very weak relationship between an industry’s trade balance and its declining employment share is another indicator of the small effect trade had on manufacturing employment during these years [Stephen J. Rose, “Is Foreign Trade the Cause of Manufacturing Job Losses?” Urban Institute, April 2018].

Trade deficits aren’t inherently bad. They may just mean your country has a strong currency and a growing economy, with lots of people making lots of money with which to buy lots of goods and services. And if you go to econ class (where the Noem Administration, naturally, did not go for an opinion on macroeconomics), you won’t hear trade-deficit bogeymanning… at least not from the A-students:

…every legitimate economist will state that measuring trade policy by the size of the goods deficits, which is all the administration focuses on, is probably not a passing grade in a basic economics class [Michael Froman, speaking at “NAFTA Renegotiation: Renewal or Expiration?” Council on Foreign Relations symposium, 2017.10.16].

Keep on hammering and welding, kids! Being able to build things really is admirable and often profitable. But don’t bank your personal or your national economy on obsolete Trumpist notions of macroeconomics.