Notebook — From the January 2010 issue
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For decades, America’s economics and business elites have been confidently assuring their countrymen that the alarming decline of the U.S. manufacturing sector was nothing to worry about. Dying industries and mass layoffs represented a great human tragedy, of course, and manufacturing boasted a long, distinguished history, but in the grander scheme of things all that misery and dislocation was for the best. The demise of manufacturing simply heralded the rise of alternatives better suited to modern circumstances—chiefly, the spectacular progress of information technologies and the impressive advances in the psychology and mathematics of finance.
American leaders, the Establishment insisted, should therefore resist sentimental temptations to prop up home-grown industries or prevent their migration abroad. Economic theory reinforced the idea that manufacturing was passé, and Wall Street issued authoritative reports emphasizing that “a strong manufacturing sector is not a requisite for a prosperous economy.” Former Federal Reserve Chairman Alan Greenspan even condescendingly referred to manufacturing as “something we were terrific at fifty years ago,” “essentially a nineteenth- and twentieth-century technology.”
Politicians clearly were convinced. “The progression of an economy such as America’s from agriculture to manufacturing to services,” said Ronald Reagan in 1985, “is a natural change.” It seemed that a Darwinian process was revealing a better basis for a national economy, and especially for a high-income country such as ours: the adroit leveraging of a wide variety of both hard and financial assets, plus the provision of non-financial services like entertainment, transportation, health care, research, and “symbolic” analysis. Industrial policies meant to promote manufacturing therefore were not only misguided but unnatural. The only exceptions, of course, were items needed for the military.
In the early years of this decade, the conventional wisdom about the coming “post-industrial” society and its wonderful service economy reached its pinnacle. Through unprecedented loose money policies and deliberately lax regulation, the managers of our economy sparked a six-year expansion fueled by record financial and housing leverage and debt-fueled household consumption.
Today, the idea of maintaining genuine American prosperity without a vibrant manufacturing sector stands exposed as a fairy tale. In December 2007, our production-light economic expansion officially collapsed into the worst worldwide downturn since the Great Depression. The recessionary forces unleashed by the crash are so powerful that they are keeping private-sector U.S. growth negligible despite trillions of dollars of government bailouts—not to mention interest-free borrowing for the country’s biggest banks and record-low interest rates for the rest of the economy. Indeed, the Federal Reserve considers healthy growth (as opposed to the unsustainable government-created kind it is still fostering) such a remote prospect that it expects to maintain its economic life-support programs indefinitely.
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Context — June 19, 2015, 3:28 pm