Manufacturing and the Bubble

Atrios passes on an interesting contention:

Last night at a roundtable for our nations’s elite, that is to say, “bloggers,” Richard Trumka, AFL-CIO President, implied, though did not say outright, that one consequence of the real estate bubble was that manufacturing and other types of businesses were finding it difficult to obtain credit at favorable terms. As I said, this seemed to be the gist of what he was saying though I’m not 100% sure that was his point. So I’m curious! How much was credit being funneled away from all other sectors in the economy?

I’m not sure that’s right. But what I think is pretty clear is that foreign purchase of over-valued real estate-related financial products was intimately tied to the high price of the dollar and the large size of the American trade deficit. All this meant less manufacturing. The alternative to the real estate boom was a cheaper dollar, less construction, fewer imports, more exports, less construction employment and more manufacturing employment.

That said, it is worth learning the lesson of this chart:

Despite what people sometimes say, until the recession hit it’s not actually the case that America was becoming a country where “we don’t make things.” More goods were being made abroad, but more goods were also being made here. Beyond the ups-and-downs of the trade cycle, manufacturing employment is being undermined by increasing productivity in the manufacturing sector. That’s good — more stuff to go around — but it means that the manufacturing share of employment will tend to decline over the long run no matter what happens with the price of the dollar.


The short term fluctuations around the trend are, however, really big. Imports, exports, and currency values matter a lot. A so-called “weak dollar” means manufacturing jobs and an economy brought back into balance.