Myths of manufacturing

Recently Hale "Bonddad" Stewart, who normally writes informative posts about finance, let loose with a string of myths about manufacturing (both at Huffington Post and Daily Kos) that really got my blood boiling. Nothing like boiling blood to get those fingers moving, I always say! So I thought I would address various myths, most of which Bonddad managed to touch on. Also, I figure that some clarifications might be in order for those that read both my post on the necessity of manufacturing and Ryan Avent's spirited challenge.

Bonddad's myths: a strong U.S. manufacturing base will be bad for trade, is an artifact of World War II, is not necessary for high-tech industries or a thriving middle class, depends on low-cost labor, and ultimately, is not possible.

First, Bonddad puts forth the idea that a rebuilt manufacturing base would require an end to trade. In fact, without a renewed manufacturing base, U.S. trade could collapse. The best way to ensure a robust trading partner is to make sure that that partner has a vibrant manufacturing base -- which is why China, Europe, and Japan have booming export economies. As I argued in my earlier post, we can't trade services for all of our manufactured goods, and in fact 80 percent of interregional trade is goods trade, only 20 percent in services. We can import manufactured goods now because other countries are still accepting more than $700 billion dollars a year in return for goods.

Second, Bonddad seems to think that American post-WWII manufacturing dominance was a result of the destruction of our competitors during the war. Yes, right after World War II, the U.S. economy was 50 percent of the entire world's GNP. But even before WWII and at the height of the Great Depression, the U.S. alone accounted for over 40 percent of the world's industrial output. Much of the 20th century was, as Time's founder Henry Luce once put it, the "American Century," at least for manufacturing.

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