Friday, March 04, 2011

Manufacturing's Dismal Decade

by Patrick Buchanan - February 25th, 2011 - Human Events

The U.S. trade deficit in 2010 worsened by 33 percent, rising from $375 billion to $498 billion, the largest percentage increase in a decade. If Obama keeps this up, he may prove as big a disaster for U.S. manufacturing as his predecessor, although these are big shoes to fill.

As he has each February for years, Charles W. McMillion of MBG Information Services has compiled the stats on the industrial decline of his country under our free trade presidents. Here are but a few numbers for the decade from December 2000, the month before George W. Bush took the oath, to December 2010, the end of Obama's second year.

In that decade, America ran a total of $6.1 trillion in trade deficits, more than our entire economic growth. To finance those 10 years of deficits, America had to borrow $1.553 billion every day.

And we wonder why China owns America.

There are some great points in this article. However Buchanan makes the classic mistake of equating trade deficits to being a bad thing in and of itself. Usually a student of history, Buchanan ignores that America grew from a small nation to a huge powerhouse while running trade deficits for most of the last two hundred years.

The issue is no more trade deficits leading to borrowing than it is if an entrepreneur borrows money to grow his business due to cash flow constraints. If the business doesn't grow, borrowing is a really bad idea. If the business grows faster than the money borrowed, it can build a huge enterprise.

Our problem has not been running trade deficits. It has been that we have not reinvested our profits into growth of our nation. Instead we have consumed too much and invested overseas.

A perfect example is a comparison of BMW and GM. While GM was busy exporting jobs to Mexico with its "outsourcing" efforts, BMW was "insourcing" to low cost areas within our borders. BMW learned that there were places in America where they could hire workers who were super productive, built extremely high quality products, and were still low cost.

Why didn't GM do the same thing? GM was a union shop and couldn't. They had to pay the same wages no matter where they built the cars. So they could not move manufacturing to areas with a lower cost of living inside America and reduce labor costs to stay competitive. The end result? GM kept getting smaller and BMW kept getting bigger.

All over America, governments see manufacturing as a cash cow to tax. Our failure to appreciate the value of manufacturing has led to tax policies that drove manufacturing offshore. The IRS rules have to change to promote manufacturing. We must cease driving these jobs overseas.

Combine these two practices, union stupidity and government greed, and the results were predictable. Yet our government, the unions and even the American voter did not predict the consequences. We are paying the price for their refusal to accept reality.

I don't agree with all that Buchanan says. His solutions are not always the right answer. His claim of deficits being a serious problem are not even correct. However you cannot disagree that he has pointed out some key issues that we must start to address. The current stupidity cannot continue. Our nation will not survive if it does.


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