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Sunday, February 05, 2012

Romer: Do Manufacturers Need Special Treatment?

Christina Romer says the case for promoting manufacturing is less than fully convincing:

Do Manufacturers Need Special Treatment?, by Christina Romer, Commentary, NY Times: Everyone seems to be talking about a crisis in manufacturing. Workers, business leaders and politicians lament the decline of this traditionally central part of the American economy. President Obama, in his State of the Union address, singled out manufacturing for special tax breaks and support. Many go further, by urging trade restrictions or direct government investment in promising industries.
A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce “real things” than services. American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.
The economic rationales for a policy aimed specifically at shoring up manufacturing largely fall into three categories. None are completely convincing: Market Failures ..., Jobs ..., Income Distribution ...
As an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made...

[I probably should have noted that I said something similar in my last column, i.e. "Manufacturing ... is not the only path to a better future. We need a strategy that creates the conditions for new, innovative firms of all sorts rather than focusing too much on any one area."]

    Posted by on Sunday, February 5, 2012 at 12:15 AM in Economics, Income Distribution, Market Failure, Unemployment | Permalink  Comments (114)


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