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Sunday, January 26, 2014

'Steve Rattner’s Manufacturing Muddle'

Jared Bernstein:

Steve Rattner’s Manufacturing Muddle: ...Steve Rattner makes some good points about the state of US manufacturing ... but the argument is confusing and unconvincing due to a pretty egregious omission.

The good points are generally about the weak wage trends ... though here’s where the major omission comes in... If our manufacturing wages are so low relative to both their past levels and some of our advanced economy competitors (he mentions Germany), why are we not more globally competitive in the sector? ...

The key omission in Steve’s analysis is ... exchange rates. Dean Baker was all over this...

Rattner never once mentions the value of the dollar. This happens to be huge. [Data show]…that manufacturing employment first began to fall in the late 1990s, even as the economy was booming, after the dollar soared due to the botched bailout from the East Asian financial crisis. The run-up in the dollar had the equivalent effect of placing a 30 percent tariff on our exports and giving a 30 percent subsidy for imports. Under these circumstances, it is hardly surprising that manufacturing employment fell and the trade deficit soared.

...[I]t would be foolish to pin one’s hope for a full employment recovery on any one sector. ... The important question is: what distortionary factors are holding the sector back from achieving its potential? More technically, why does the US have both low growth in unit labor costs in manufacturing (compensation relative to productivity growth) relative to our competitors and persistent, large deficits in manufactured goods? ...

In this regard, it’s simply not credible to pontificate on manufacturing’s decline without acknowledging the role of the dollar, exchange rate manipulation, and our persistent trade deficits in manufactured goods. ...

    Posted by on Sunday, January 26, 2014 at 09:14 AM in Economics | Permalink  Comments (18)


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