Readers will have seen this chart before, but I’m going to keep posting it until I hear people stop saying that America somehow “doesn’t make things” anymore or that all our manufacturing has gone to China. I’m convinced this is a fairly pernicious myth.
Here’s Ezra Klein talking to Chris Dodd:
Ezra Klein: The final question here, and I don’t want this to sound like cheap populism because it isn’t, but a lot of the current level profits in Wall Street come from this complexity, this over the counter, bilateral trading. There’s just a lot more money in trading products that only you understand. We saw before the crisis that Wall Street profits were a bit below 40 percent of all domestic profits, and now they’re back up there again. Should we worry about that systemically? Is a country where 40 percent of our profits are in the financial sector, is that a healthy economy and is it even possible to regulate a sector where there is such enormous reward for risk?Chris Dodd: I don’t like the equation. I don’t believe you ought to be giving up manufacturing and the kind of job creations that go on with producing things. Putting aside the debate on what should happen to the financial sector, I worry about a country that is innovative enough to produce plasma televisions, but not smart enough to figure out how to make them here. The other piece here is accountability afterwards. This becomes the responsibility of Congress, in every administration you’ve got to be overseeing what the regulators do. You’ve got to be bringing them up. The fact is, we put the Vice President of the Fed and tell him or her, “You’re responsible for systemic risk. That’s your job.” So that person comes up for the vice chairmanship of the Federal Reserve Board, your job is, you’re getting called up because you’re the point person on the Fed board now for systemic risk. There’s someone I can grab by the lapels in the future and say, “What are you doing? What’s going on out there? What’s happening out there?”
The profits question is a provocative and interesting one. But the idea that we’re a country that’s been “giving up on manufacturing” is nuts. Here’s the industrial production index:
Industrial output declines during recessions, and the current recession was big and thus associated with a big decline. But the secular trend is clearly and strongly upwards. During the 1990s tech boom, manufacturing went up. During the 2000s housing boom, manufacturing. Industrial output has increased during every economic expansion on record and gives every sign that it will further increase during the now-ongoing expansion. Whatever ails America, it’s not a lack of industrial output.