Monday, March 19, 2012

A good sentence and a bad sentence

From this Steve Chapman post on Obama and Santorum on manufacturing.

Good sentence: "But if nostalgia were a sound guide to economic policy, we should be building Studebakers and rotary telephones."

Bad sentence (immediately following the good sentence): "Neither Santorum nor Obama seems to grasp the realities of manufacturing in 21st-century America."

This is almost certainly not true. The point is, they grasp the political realities of 21st century America. I favorably cited Christina Romer's article criticizing special focuses on manufacturing, and I still agree with that. But we also probably shouldn't overstate how atrocious manufacturing-boosting really is in practice. The distortions from whatever the plan on doing probably are minimal (they're not going to reverse the tide of reduced manufacturing employment and increasing manufacturing productivity), which is precisely why they think it's a worthwhile tradeoff for the political benefits.

And there are two areas where promoting manufacturing does make sense:

1. If it's a new technology or a technology which itself is the victim of distortions (due to externalities or what have you) that may be worth promoting. I'm not talking about full-on protectionism, but a tax credit or loan guarantee isn't all that bad of an idea in this case, and

2. As a matter of local policy in low-wage areas of the country that can actually successfully compete for manufacturing work. A lot of these new hire tax credits that I've been looking at in places like Georgia and South Carolina target certain industries including, of course, manufacturing. If I had the state governor would I advocate opening that up to all industries and not playing favorites with manufacturing? Sure I would. But it's not the worst thing in the world to target it - I can't imagine it does all that much harm, and Southern states especially - with their wage distribution - have demonstrated an ability to attract and maintain manufacturing work with and without government support.

Playing favorites with manufacturing almost always doesn't make sense. But as long as Obama and Santorum aren't submitting a "Great Leap Forward" five year plan to Congress, we shouldn't exaggerate the costs either.

1 comment:

  1. It's true it probably isn't a huge waste.

    But, part of the reason for the decline of manufacturing jobs is the progress of automation. That's certainly true in electronics where I work.

    The problem I see in this as a long-term job-creation scheme is that automation will continue to make jobs redundant. So, though the state governments may succeed in attracting manufacturing but not in creating that many jobs in the long-term.

    At least, that's what happened with lots of efforts to boost manufacturing in the UK.


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