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Countries in Financial Recession Graphic

No Structural Change in the Economy: Are You Kidding

Image: Countries in Recession as of 2009. Red indicates countries officially or unofficially in recession.

There is a booming cottage industry among neoclassical economists to explain the Great Recession and unprecedented lagging US economic recovery as simply a function of the business cycle. The view is that this is just a deep down cycle and if we are patient all will be well. They believe this of course because the very nature of neoclassical economics cannot acknowledge structural change in economies.

The latest addition to this group-think comes from neoclassical economists Edward P. Lazear and James R. Spletzer in a non-peer reviewed article in the NBER Journal titled The United States Labor Market: Status Quo or A New Normal?. They argue that “[T]he current recession does not appear fundamentally different from prior ones, except that it is worse.”

And their logic behind such a claim? They claim that the relative decline in U.S. manufacturing jobs has been under way for a half century. Wow, this is truly stunning. U.S. manufacturing employment declined by just 2 percent in the 1990s, but as ITIF has pointed out, it fell by

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Manufacturing Plant with American Flag

“The Atlantic” Story of American Manufacturing Renaissance? Think Again

The cover story of this month’s The Atlantic is titled “Comeback: Why the Future of Industry is In America.” The lead article by Charles Fishman argues that the outsourcing wave is largely over and now U.S. companies, exemplified by GE’s appliance division doing more work in the U.S., are seeing the light and moving work back to the U.S. Given the decimation of  U.S. manufacturing over the last decade,  I sincerely hope Fishman is right.

But I fear he is not. If he’s right, one would expect to see the results show up in the trade statistics. But according the Bureau of Economic Analysis, the quarterly trade deficit in goods is 22 percent higher than it was in the first quarter of 2010. But maybe appliances are the exception and are indeed coming back. Not so. In fact, the trade deficit in appliances (Household and kitchen appliances and other household goods) has grown even faster, up over one-third (34 percent) over the same period. Hardly evidence of a mass return of manufacturing to American shores.

To be sure Chinese wages are rising somewhat, their undervalued currency is up a

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It’s National Manufacturing Day!

Today, October 5, is National Manufacturing Day. The day is being marked with events around the country highlighting the importance of manufacturing to the U.S. economy and celebrating innovations in fields ranging from aerospace and automobiles to nanotechnology and medical devices.

Manufacturing remains a vital component of America’s economy. However, as Neil Irwin wrote Monday in the Washington Post in “The manufacturing recovery that wasn’t,” despite claims that U.S. manufacturing sectors have recovered and put the United States on track to regain its status as a global industrial powerhouse, the reality is that U.S. manufacturing recovery—just like broader U.S. economic recovery—has a long way to go. As Irwin points out, while “the U.S. manufacturing sector isn’t collapsing, it’s definitely flat-lining.” Industrial production by U.S. manufacturers fell in June, July, and August at a 1.4 percent annual rate and the factory sector added an average of 5,000 jobs nationally each month this summer compared to 19,000 per month during those months in 2011.

In other words, American manufacturing has a long way to go to recover from the 5.7 million jobs it lost and 11 percent decline in output

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Manufacturing Job Loss by State

ITIF Disputes Boston Consulting Group (BCG) Report that U.S. Set for Industrial Revival

A BCG report out today claims the United States is on course to regain its status as a global industrial powerhouse, arguing that several forces—including lower U.S. energy costs, rising labor costs in competitor nations, and idle port capacity—will empower the United States to boost goods exports by up to $130 billion by 2012, creating 5 million jobs in the process. But as ITIF explains in Worse Than the Great Depression: What Experts Are Missing About American Manufacturing Decline, in the last decade the United States lost one-third of its manufacturing jobs (5.7 million—a rate of loss worse than during the Great Depression) and 11 percent of its manufacturing output due to structural weaknesses that won’t simply be rectified by market adjustments.

Chinese manufacturing wage costs are still a small fraction of the United States’, and the hollowing out of the U.S. industrial base over the past decade has meant that the United States simply cannot manufacture a range of high-tech products (from LCD screens to electrophoretic displays to polycrystalline solar panels), explaining why the United States still runs a trade deficit in advanced technology products approaching $100 billion

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Manufacturing in America – A Story of Global Competition

Originally posted on The Atlantic’s Ideas Roundtable.

As the GE Working in America data visualization depicts, in 1960, manufacturing was the U.S. economy’s largest-employing sector, but today, it has fallen to sixth. What explains this historic decline in manufacturing jobs?

What’s interesting is that from 1960 to 1982, manufacturing remained America’s largest employer, and as late as 2000 the third-largest employer. It wasn’t until the decade of the 2000s that the precipitous decline in U.S. manufacturing employment occurred. Most analysts attribute this decline to productivity gains, arguing that as manufacturing becomes more productive, fewer workers are needed to produce the same level of output. But U.S. manufacturing productivity grew at roughly the same rate in the 1990s (53 percent) as it did in the 2000s (66 percent), yet in the former decade the country lost just 2 percent of its manufacturing jobs, whereas in the latter decade, one-third of U.S. manufacturing jobs were lost.

If loss of manufacturing jobs from productivity gains (while real) is not the primary culprit, something else must be. And that something else has been absolute declines in U.S. manufacturing output–itself a reflection of faltering

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Advanced Manufacturing Convention in Massachusetts

Voters are Ahead of Washington on Manufacturing

A new poll suggests there might be hope for American manufacturing – if democracy actually works. The poll said 89 percent of Americans think we need a national manufacturing strategy – 89 percent! Two-thirds of respondents said China’s trade policies hurt U.S. employment and 62 two percent said Washington needs to do something about it. Those were some of the results of a bipartisan survey released this week by the Alliance for American Manufacturing. ITIF has championed the need for a national manufacturing strategy for quite a while and spearheaded an effort to bring labor, business and economic thinkers together to adopt a Charter for Revitalizing American Manufacturing. But sometimes it seems hardly anyone in Washington is listening.

Pundits and policymakers across the political spectrum keep arguing that we’re still a manufacturing powerhouse and that we’ve simply become more productive and shifted to higher-end products. Factories are roaring back from the recession. Besides, who cares?  Manufacturing was yesterday’s economy and the services sector is where the action is now, they argue. No need for special treatment for manufacturing. Fortunately, it appears voters are ahead of the elites on this

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Morrill Act First Page

The Morrill Act at 150 Years: We Need a New Morrill Act for the 21st Century

One hundred and fifty years ago this month, President Abraham Lincoln signed the Morrill Act, sponsored by Vermont Congressman Justin Morrill. Officially titled “An Act Donating Public Lands to the Several States and Territories which may provide Colleges for the Benefit of Agriculture and the Mechanic Arts,” the Morrill Act provided each state with 30,000 acres of Federal land for each member in their Congressional delegation. The land was then sold by the states and the proceeds used to fund public colleges that focused on agriculture and the mechanical arts. Sixty-nine colleges were funded by these land grants, including Cornell University, the Massachusetts Institute of Technology, and the University of Wisconsin at Madison. These colleges played a key role in enabling the United States to later lead in the mechanization of agriculture and the industrialization of the economy.

But today, the challenge is even greater as America is competing against a wide array of nations seeking to win the race for global innovation advantage, including in manufacturing. A new Morrill Act for the 21st Century, can be part of the solution. But this one should be focused on revitalizing U.S.

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Lamonica at the ARPAE Summitt

PolyPlus Battery Commercialization Boosts American Manufacturing

Last week, the U.S. Department of Energy (DOE) announced that it was awarding PolyPlus a grant for nearly $9 million to develop advanced manufacturing capabilities for its next-generation lithium batteries. Specifically, the grant is supporting a pilot project in collaboration with Johnson Controls and Corning Inc. to manufacture PolyPlus’s innovative electrode, which is used in its lithium-air, lithium-water, and lithium-sulfur batteries. The development is significant for two reasons.  First, if successful, PolyPlus is taking a big step forward in producing – at scale – its advanced lithium batteries, which could be one of the first to market. Second, the project is another example of the important role manufacturing plays in the development of innovative, new technologies and the important role government policy can play to support it.

As ITIF has noted, PolyPlus previously received funding from the Advanced Research Projects Agency-Energy (ARPA-E) and has validated that investment by making particularly impressive progress in its development of its advanced lithium batteries. This includes a lithium-water battery that’s non-rechargeable, but has a record setting energy density and lifetime, making it perfect for underwater robotics and marine sensing.  More important to

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Obama speaks at Alcoa

Time to Turn NNMI from Concept to Reality

Why do we need a National Network for Manufacturing Innovation (NNMI), a $1 billion initiative the Obama Administration has proposed to facilitate public-private collaboration to enhance manufacturing competitiveness?  Why not just reduce the tax and regulatory burden on companies and let free enterprise work its magic?

That question was the basis of some skepticism of NNMI voiced by members of the House Science, Space and Technology Subcommittee on Technology and Innovation at a public hearing today. As one Member put it, why not do it the “old-fashioned” way?

Well, in a way this is the old-fashioned way.  When it came to innovations such as the Internet, “fracking” in the energy sector, advances in biotechnology that have extended our lives, and other breakthroughs, the government played a modest role in undertaking initial costs and risks of R&D or in harnessing the nation’s talent and resources in ways the private sector could not or would not do. This has been true since land grant colleges were created in the 19th century and helped make America the world’s breadbasket. That’s one reason why NNMI makes sense.

That’s not say that

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Trading Myths

So, I want to do something new here that I haven’t done before: offer criticisms of a McKinsey Global Institute report. This is new for me because I have great respect for MGI’s work, including the work of colleagues Lenny Mendonca and James Manyika. But after reading their recent report, “Trading Myths: Addressing Misconceptions about Trade, Jobs, and Competitiveness,” I felt compelled to offer some thoughts on where they got it wrong.

First, their overall mission is not misguided. They point out important realities such as the developed world as a group being able to compete with the developing world when it comes to manufacturing; that services exports are growing in importance, that not all manufacturing jobs have been lost due to off shoring, and the pulling back from global trade engagement would be a mistake. I agree.

But even though I agree with these overall themes, the problem is that too many people will likely read the McKinsey report and come to exactly the wrong conclusion, especially about the United States. For it is one thing to compare a large group of developing countries, but the reality

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