Myths That Are Realities: Donald Trump vs CATO and Don Boudreaux

On Cafe Hayek, Don Boudreaux references a CATO posting which in turn references a Wall Street Journal article, that criticizes Donald Trump for stating that we need more manufacturing jobs. The libertarian sentiments held by my friends at CATO and Cafe Hayek, inform them that productivity gains show that we produce just plenty of manufacturing – thank you very much. Wherein Don supports the Cato position that we do not need more manufacturing, and that any perception that we do, is a myth. (Articles are linked below.) But they are mistaken. A polity desires not productivity, but employment, and not simply employment, but competitive, status-enriching employment — and the lower classes in particular find their social enfranchisement in producing these ‘collective goods’ we call competitive production. They cannot achieve status through individualism, so they seek to find it in collective membership: They want to ‘do good.’ For example, a friend of mine in the advertising business, says that all agency guys want to produce ads that lots of people see, so that if they go into a bar or club or social gathering that they can talk about it and ‘get laid’. They use the term doing “Get Laid Ads”.  To some degree, this is kind of ‘fame’ or social status. The mechanic who produces a fine vehicle, or trendy bit of electronics feels the same. The janitorial staff at an elegant landmark feels the same way as long as they are invested in that cultural value system. Human beings flock to opportunities. Economics does not measure opportunities. It measures results. If we could measure opportunities, we would solve the problem of induction in economic theory instead of having to rely upon equilibria for our calculations. But we cannot read men’s minds. So we cannot measure opportunities. Yes, we can measure imbalances.  We can measure asymmetry. But not innovation. Not creativity. That said, whether we can measure it or not, human beings flock behind opportunities until they are exhausted. This is the reason for the boom and bust cycle: People flock to opportunities, and the flocks accumulate people in vast complex networks in order to exploit those opportunities.  The problem with fiat money and current monetary policy is that our attempts at keeping interests rates low block the information system that interest rates provide us with, and allow people to ‘flock’ well past when others who know better see the opportunity as having exhausted itself. This is the problem with monetary policy, rather that simple lending.  We should not provide unbridled liquidity tot he market. We should provide loans with terms, including terms of use. But, back to the topic of status-enhancing work, these cooperative bits of social membership through work are the processes that create social bonds in the post-religious world. They are more effective than services, redistribution and transfer payments at creating a polity .  And in case I haven’t made it clear, we need a cohesive polity in order for people to trust government, and to enable government to act on their behalf. So:

IE: TRUMP IS RIGHT. Productivity gains explain the data, but they do not solve the problem of unemployment and underemployment. It is perfectly possible for us to compete with Chinese skilled labor in manufacturing high quality electronics, because they are relying upon labor not mechanization. It may require tax incentives. It may require loans. And it will most definitely require design and development of machines that are faster and better than human hands at manufacturing.  But that task as well, will create manufacturing jobs. Personally, I’m in the business solving for something else: maintaining the wealth created by the US ownership of the system of international trade, and maintaining western technological leadership.  Because,as a minority, only technology can maintain our institutions, our system of defense, and relative economic status. That’s the lesson of western civilization – rate of adoption of technology. Western civilization is a minority strategy for competitiveness: invest in skill, knowledge and technology and you will keep the east at bay despite our inferior numbers. DEFINITIONS:

1. Productivity: the increase in sales revenue per hour worked.
2. Employment/Unemployment: The percentage of the population employed.
3. Unrealized Employment Productivity : The potential productivity gains that could be realized by allocating capital to unemployed resources. The error of mixing short-term return on capital versus long-term return on capital that is achievable through the competitive advantage obtained by accumulated built capital, accumulated knowledge (tacit knowledge), and accumulated skills (explicit knowledge).

THE MYTHS

1. The first myth is that capital is, or should be, fluid, and that more fluid capital will seek the greatest returns, rather than the maximum shortest returns. It takes a lot of money to create factories, and machinery and returns take longer than profits on consumer speculation.
2. The second myth is that human incentives are monetary, rather than status driven. They are status driven first, and monetary second.
3. The third myth is that economies can ENTIRELY specialize in agrarian, transportation, industrial, service, or research sectors, given the distribution of ability (IQ) in their populations. When instead, they must simply keep as many people employed as productively as possible. While we can attempt to keep the majority of the population living a middle class lifestyle (ie: consuming) we must understand that social classes are largely a function of ability, and that we must not fool ourselves that we must create status enhancing job opportunities for everyone in the spectrum if we want our political enfranchisement to mean anything at all.

References:

From CATO http://www.cato-at-liberty.org/a-wall-street-journal-column-understates-the-size-of-u-s-manufacturing/ A Wall Street Journal Column Understates the Size of U.S. Manufacturing by Alan Reynolds “…the manufacturing share of GDP declined markedly over this period as measured in current dollar value of output.” “In 1950, the manufacturing share of the U.S. economy amounted to 27% of nominal GDP, but by 2007 it had fallen to 12.1%. How did a sector that experienced growth at a faster pace than the overall economy become a smaller part of the overall economy? The answer again is productivity growth.” “Those who imagine “we don’t make anything anymore,” as Donald Trump claims, don’t grasp the magnitude of America’s industrial productivity gains.”

FROM Cafe Hayek Trumped-Up Fiction by DON BOUDREAUX on DECEMBER 2, 2010

Trumped-Up Fiction

“If myths could be buried, this item would be yet another nail in the coffin of the data-less myth that Americans “don’t make things any more.” Alas, one can neither reason nor empirically demonstrate people out of positions that they reached without reason or empirical support.”