Michigan Throwing in the Towel

http://www.freep.com/article/20090415/BUSINESS06/904150404

Today it was announced that unemployment in the state of Michigan jumped to 12.6% in March, the worst in the nation.  Bankruptcy is now almost a sure thing for General Motors.  For Chrysler, it’s more than a sure thing.  It might as well have happened yesterday and there will be no reorganization.  They’ll go straight to liquidation.

Against this backdrop comes this report from “Michigan Future, Inc.”, an Ann Arbor based think tank.  (See the above link.)  The following paragraph is of special interest:

“The decline in autos is part of an irreversible new reality that manufacturing is no longer a sustainable source of high-paid jobs,” the report from the Ann Arbor think tank Michigan Future Inc. states. “The world has changed fundamentally. We either adjust to the changes or we will continue to get poorer compared to the nation.”

“Manufacturing is no longer a source of high-paying jobs.”  I guess somebody forgot to tell China, Germany, Japan, South Korea, Taiwan, Ireland and every other nation that has built a high standard of living using manufacturing as its back-bone.  These are all nations where manufacturing workers are very well paid and receive benefits that are as good or better than any in the U.S. 

So what’s the solution proposed by “Michigan Future, Inc.”?  They want Michigan to become a “knowledge-based economy,” employing the following strategy:

• Build a culture that highly values learning, an entrepreneurial spirit and being welcoming to all.

• Create places where talent wants to live by making public investments.

• Increase public investments in higher education.

• Transform teaching and learning so that it’s aligned with the realities of a globalized world.

In other words, we’re going to retrain everyone to do something else.  We’re going to pump them full of the kind of “knowledge” that the global community so desires.  Have you done your knowledge-shopping today? 

Knowledge is useless unless it’s put to work – primarily for making things.  Oh, sure, I suppose we could train more people to be economists, teaching them 18th century economic theories and other “knowledge” that is now a proven failure.  Or we could train more MBAs to run more hedge funds, operate more off-the-books accounting schemes and design more investment vehicles like mortgage-backed assets and credit default swaps. 

But what “Michigan Future, Inc.” probably has in mind is more software developers.  No doubt, we need people to do the coding that makes our computers work.  For example, consider the period at the end of this sentence.  It took some sophisticated programming to make that dot appear on your screen.  But nobody thinks about everything else that was involved.  What about the sprawling, multi-billion dollar, computer-controlled chemical complex that was required to make the acrylo-butadiene-styrene plastic that went into making that particular key on your keyboard?  Or the injection molding plant that shaped that plastic into the key?  Or how about the enormous boiler and steam turbine required to move the electrons from my keyboard to your display? 

Let’s go back to the subject of auto manufacturing.  Low tech stuff, right?  High school dropouts bolting stuff together, right?  Is that what you think?  Think again.  Think about huge factories crammed full of computer-controlled robotic equipment, and the people trained to design, build and maintain those robots.  Think about the engineering skills and computer applications involved in designing the chassis to crush perfectly in a collision, absorbing the impact while protecting the occupants.  Or just think about the bolts themselves:  the heavy equipment involved in mining iron ore, the steel mill required to turn that ore into raw steel wire or bars, the maching equipment required to turn that bar stock into fasteners with hex heads and perfect thread patterns.  Now think about the engineering and manufacturing that went into making all of that equipment.  Doesn’t sound so simple now, does it? 

Manufacturing is an absolutely essential ingredient to a healthy economy and a high standard of living.  The demise of manufacturing in the U.S. goes a long way toward explaining the steady decline in our standard of living.  The only knowledge that’s in short supply in Michigan and the U.S. in general is the knowledge of the role that misguided trade policy has played in exporting our manufacturing jobs to nations that fully appreciate the value of manufacturing. 

 

11 Responses to Michigan Throwing in the Towel

  1. Clyde Bollinger says:

    Pete,
    You failed to mention the highly skilled spatula wielders, dough tossers and delivery persons so many of us have had to become.
    Seriously, I get so absolutely fed up with the standard response from the politicians when confronted with the facts of a new factory closing with the attendant job loss that “we’ll just have to appropriate some more money for job re-training”. My question when I write to them is “What jobs will they be re-trained for?” The glut of capacity you recently described virtually guarantees a surplus of already trained workers for just about anything that could open up in the existing labor market. The new bridges to no where can be built many times over by the already trained and out of work carpenters, steel workers, concrete finishers, etc. with out the need for a single new employee. My youngest son, a bridge building carpenter, last worked in July, ’08. Fortunately, he is single and can pick up odd jobs to make grocery money, it is getting to be quite a drag and the worst is still to come, I’m afraid.

  2. Mark A. Hall says:

    Calm down Pete……..

    I just bought a can of “KNOWLEDGE” the other day. Imagine my surprise when I read the back label and found out that it was “pirated and packaged in China”.

    Maybe we need to import some Chinese Academics to our universities to help enlighten some of us to the power of MANUFACTURING.

  3. mtnmike says:

    Pete and Clyde,

    While I know that Pete is a great supporter of Obama, I can’t see his current America’s talk as being anything other than the preemptive exercises that occur just before ushering in free trade with additional densely populated low wage foreign nations.

    We live in a global world where manufacturing goes to the lowest bidder regardless of harm to Middle America. In such a world, Middle America has simply outgrown their usefulness to the powers who Mr. Obama represents. That should be apparent by now.

    The problems that America faces go much deeper than the minutiae that is being discussed in the main. Many states will follow Michigan’s lead. Our economy reached zenith around 1970 and has since that year been based on growth of debt, not growth of the real economy. Anything that can’t go on forever; doesn’t.

    The outflow of American industry following William Jefferson Clinton’s signing of NAFTA and the WTO in the back to back years of 1994 and 1995 was a mathematical certainty.

    “All attempts to reduce the deficit, balance the budget or pay off the national debt are futile. The deficit and the national debt represent the subsidy the government has paid in its attempt to keep growth and unemployment at the level of social tolerance.” Robert Hickerson — March, 1995

  4. Clyde Bollinger says:

    MtnMike,
    I did not support candidate Obama nor do I support President Obama. In his defense, I will say that he has an enormous problem, a pitifully limited array of tools, even less preparetory experience, an apparent ingorance of history and a woefully lacking list of advisors. This is especially true of his economic advisors. Given all of this, he may be doing as well as could have been expected. The only difference I can see between the present program and the New Deal is the scale of spending. The New Deal was a disaster that was only rescued by the ramped up demand generated by World War II. Hopefully we don’t have another World War on the horizon, but the realistic expectation without that sort of change is bankruptcy. Our currency has the real prospect of becoming worthless over this insane spending, money printing and borrowing spree. Add the business destroying prospect of ‘cap and trade’ and today’s Larry Summers report on the Latin road trip that we should not expect trade changes. That means no meaningful job changes.
    Buckle up.

  5. Clyde,

    The situation that Pete described in Michigan will soon be that of Indiana, Illinois, Ohio, California, etc. The base circumstances that created our current mess have not changed, therefore the minute the stimulus is withdrawn, the economy will begin to retreat to natural sustainable levels.

    I enjoyed both of your comments. Obama, like Bush, is pursuing the wrong path. This is not 1929 and we can’t hope to grow our way out of a problem that growth created.

    I certainly agree that the current method of recovery is based on the 1932 policies of the New Deal. The problem is of course that this is not 1929 and no amount of monetary coaxing will revive our borrow and spend economy of yesteryear.

    The physical system has reached maturity and there is precious little that mortal man can do about that unfortunate reality.

    Obama is attempting to revive a model that is mathematically impossible. As you stated; buckle up.

    • Pete Murphy says:

      I’ve been out all day, so I guess I’m jumping back into this party a little late. Nice to see a self-sustaining discussion going, though.

      First of all, Mark, thanks for stopping by. I loved your comment. Maybe we could take some lessons from the Chinese (and, for that matter, the Japanese, Germans, Koreans, et al) about the value of manufacturing. We look forward to hearing more from you!

      Mike, regarding your comment that “We live in a global world where manufacturing goes to the lowest bidder … ,” you probably already know what I’m going to say. My whole mission is to get people to understand that population density is the real driving force behind the trade deficit. No doubt, low wages play a role, especially early in a trade relationship, transferring our jobs to the low wage country. However, that doesn’t explain why, in per capita terms, we have some of our largest trade deficits in manufactured goods with high-wage countries like Japan, Germany, Korea, Switzerland, Malaysia, etc. (Remember: China is well down on the list in per capita terms and, in spite of the fact that their wages are on the rise, the trade deficit with them continues to get worse.) When dealing with low wage countries who are less densely populated, like Brazil for example, we may start out with a trade deficit, but it quickly self-corrects as they become more wealthy. But in places like Japan and Germany, it never does. If we were to implement a tariff system that was indexed to population density and explained the logic to the rest of the world, it would completely disarm the critics who say that we’re just unwilling to “compete.”

      Regarding Obama, I too am very disappointed that he hasn’t taken a more visible leadership role in attacking the trade deficit. I say “visible” because I’m allowing for the possibility that, in spite of public declarations disavowing protectionism, that there are behind-the-scenes efforts underway to reduce the deficit. For whatever reason, the trade deficit has declined dramatically in the past few months. Of course, the falling price of and demand for oil is a big factor, as is the decline in imports due to the recession. (Trashing the economy is not a very smart way to eliminate a trade deficit.) But what was surprising was last month’s increase in U.S. exports, in spite of the fact that the economy of the rest of world is tanking even faster than ours. This could be evidence that the rest of the world has gotten the message that they’d better start buying more American products if they don’t want the U.S. to start relying more on protectionist measures. Or it could be nothing more than the U.S. boosting foreign aid. (You may have noticed that both of the American-flagged container ships that were attacked by pirates recently, as reported in the media, were carrying aid to African nations. I suspect that such aid represents a big portion of American exports, as opposed to products that are actually bought and paid for.) If the trade deficit keeps dropping, then I’ll probably give Obama a “pass” on trade policy. But I just don’t see how it can happen without some kind of protectionist measures.

      Of course, the other factor playing a role in the kind of ever-worsening unemployment that Clyde observes is the steady growth in our population, adding to the labor force at the same time that over-crowding is incrementally nibbling away at per capita consumption. Of course, no politician has an understanding (yet) of this economic relationship. But environmentalists have clearly gotten an upper hand with this administration, as evidenced by Obama’s cap-and-trade plan and the EPA’s announcement that greenhouse gases constitute a threat to human health. Regardless of how you feel about global warming, you have to admit that such actions will hasten the day when overpopulation becomes an issue, as plenty of people understand that a growing population only makes it that much more difficult (if not impossible) to achieve the goals of reducing CO2 emissions and our dependence on foreign oil. When that day comes and our leaders begin to craft plans to stabilize (or even reduce?) our population, they’ll unwittingly be doing the economy a huge favor as well. So I see this whole global warming issue doing us a favor. Frankly, I don’t worry much about higher taxes on fuels, as taxes have to be collected one way or the other. It doesn’t really matter how you do it. If higher fuel taxes are offset by lower income taxes, I’m all for it. The big losers will be the oil exporters.

      Finally, let’s not let this debate turn into a Democrat vs. Republican thing. Neither party has been worth a damn when it comes to trade and immigration. I’ll come down on the side of anybody, Democrat or Republican, who gets it right on these issues. I supported Obama because he said he’d address the trade deficit. I’d like to see more action faster, but I’m not yet ready to declare him a failure after less than three months, especially when the trade deficit is dropping like a rock. Let’s see what happens when the recession levels off – if it does.

  6. Clyde Bollinger says:

    Mike,
    I’ve enjoyed your comments on Pete’s blog and appreciate your depth of understanding. What disturbs me as much as anything else, is that there seems to be so little concern for the basic causes of the country’s problems and even less of an effort to suggest corrective measures.
    Pete has devoted a significant portion of his last several years to making the problem crystal clear as well as detailing the solution. Only a handfull seem to be paying attention, and we don’t appear to have much influence. I certainly beat on my congressional reps., but I have no idea if it has any effect.

  7. Clyde Bollinger says:

    Pete,
    I’m probably the most outspoken conservative who has posted on your blog and I’ll attempt to keep it civil. Agreed, both parties are in the pits. My most partisan bias is in my concern for preserving the Constitution. I’d vote for the devil himself rather than for an avowed Progressive such as H. Clinton, since destruction of the Constitution is at the root of the Progressive platform. I’d far prefer more Supreme Court Justices like Scalia, Thomas, Roberts or Aloto than those like Ginsburg or Souter.
    I believed, for a long time, that the Republican party favored smaller government, lower taxes, personal responsibility and respect for the law. With more than half of the population on the dole, the pandering has just about wiped out any differences other than the apointment of judges.

  8. Pete,

    I want to be clear that I do not condone manufacturing going to the lowest bidder, I was only stating a fact. I’m absolutely opposed to globalization as it exists today.

    Also, I wasn’t trying to make a Democrat or Republican thing of it, Bill Clinton did sign both documents that were the beginning of the end for Middle America and manufacturing. Would Bush have signed those agreements? In a New York minute.

    I’m working on a show stopper series and I will send it to you when I’m finished for your opinion. Keep up the good writing. Mike

    • Pete Murphy says:

      No problem, guys. Perhaps I got a little defensive about the Obama thing. I’m independent and go both ways in elections. In the same election in which I voted for Obama, I also voted for my incumbent Republican congressman because of his strong stand against immigration reform. I don’t like to see “bashing” of either party because, like I said, neither has a stellar record in doing what’s right. (I guess that means we should be equal opportunity bashers of both parties!) I don’t want new visitors to the blog to draw the conclusion that they may not be welcome or “fit in” here if the site seems to them to be a Democratic or Republican site, because it’s neither. I’m just trying to spread new ideas and I’d be thrilled if candidates from either or both parties embraced them.

  9. […] today. Michigan leads the country at 12.9%, the national rate being 8.9%. March’s rates were 12.6% for Michigan compared to 8.5% nationwide. Imagine where we’d be without the stimulus. But wait; it appears […]

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