General Electric CEO Jeff Immelt’s op-ed in the Financial Times is definitely worth a read. He’s pulling in the same direction as I am: correcting course back away from retail sales, back in the direction of manufacturing and export:
Over the past few decades, many in business and government bet that the US could transform itself from an innovative, export-orientated Âpowerhouse to an economy based on services and consumption – and that we could still expect to prosper. For a time, it looked like a can’t-miss bet.
Then we missed – badly. Trillions of dollars vanished, along with America’s competitive edge. An economic hurricane shook our financial system to its foundation, leaving our middle class hurt, bewildered and looking for cover. General Electric was not perfect through all of this but, throughout our 130-year history, we have adapted and remained competitive.
The challenge ahead is not impossible. The first step is recognising that we cannot simply go back to the way things were. This downturn is not simply another turning of the wheel but a fundamental transformation. We are, essentially, resetting the US economy.
An American renewal must be built on technology. We must make a serious national commitment to improve our manufacturing infrastructure and increase exports. We need to dispel the myth that American consumer spending can lead our recovery. Instead, we need to draw on 230 years of ingenuity to renew the country’s dedication to innovation, new technologies and productivity.
The problem that I see with this is that it’s going to require substantial capital investment and insufficient capital investment by businesses in the United States has been at the heart of our problems for a decade. What’s needed for that are incentives on domestic capital investment, streamlined regulation (remember, unlike much of the rest of the world companies in the U. S. deal with a maze of different governments, each with its own regulations), and, most of all, stability. Stability in the financial sector. Stability in regulation. Stability in the tax structures.
That’s why articles like this worry me:
As the White House begins to ponder whether to reappoint or replace Ben Bernanke when his term expires in January, the Federal Reserve chairman’s standing on Wall Street is on the rise while attacks on him from Congress mount.
Treasury Secretary Timothy Geithner is expected to play a key role in advising President Barack Obama on whether to reappoint Mr. Bernanke. Mr. Geithner has worked closely both with Mr. Bernanke and with the leading alternative for the powerful post — Lawrence Summers, the former Treasury secretary, who is currently the president’s top economic adviser.
Before making a decision later this year, the White House also is expected to look at other economists, including Roger Ferguson and Alan Blinder, former Fed vice chairmen; Janet Yellen, president of the San Francisco Federal Reserve Bank; and Christina Romer, chairman of Mr. Obama’s Council of Economic Advisers.
Manufacturing is not the cure. With automation and technological advancement I’m not surprised that manufacturing employment is down. I’d be willing to bet that just as much is manufactured with a ever shrinking labor pool. That is labor’s share as a productive input, in a global sense, is decreasing. The idea then that we can create more manufacturing jobs is like spitting in the wind, if my hunch is correct.
Not the sole cure but I think it’s part of the cure. You’re right: we’re making as much money or more from manufacturing as ever only with significantly less labor. So, no, I don’t think we should strive for what Germany or China are doing but I do think that the degree of reliance on retail is unhealthy.
I think we need to emphasize manufacturing more, I think we need to emphasize agriculture more. I’m not sure what all else. I think that intellectual property is a losing proposition. There are too many Chinas in which they’re just meaningless words.
Agriculture is another where mechanization and technological advancements have reduce labors share as an input quite dramatically.
I’m just not seeing the argument here. We’ve made it so we can produce just as much as before, but with less human effort and its….bad. Its like saying, “Yeah, sure the backhoe makes digging the ditch easier, but my God, we’ve unemployed 50 men! Keep it up and we’ll ruin the economy. Down with the backhoe!”
Then the root of the financial crisis is the service economy and consumption? I’m not buying it. Bubbles can happen in economies with lots more production than service and lower levels of consumption.
Where do you see opportunities for growth, Steve? Over the period of the last ten years the only real job growth has been in government, healthcare, and education. My view is that we’re enormously over-invested in all three areas to the detriment of the remainder of the economy.
We’re rather clearly over-invested in real estate, auto manufacturing, and the financial sector.
I don’t know, if I did I’d likely try to use that information to make money.
I just don’t see the point of a discussion on “what we should do”. Sounds suspiciously like some sort of 5 year plan or something. If we are over-invested in these things, like auto manufacturing I don’t think you can trust the government to chart a good course…when you stop and look at Government Motors.
Just saying….
I think Mr. Immelt is just creating a story that justifies new subsidies for domestic investing, you know, tax breaks. I say we just get rid of the supports that were put into place to encourage American corporations’ foreign investments.
US families don’t need to more jobs. They need more free time to dig in their vegetable gardens that the Obama’s are encouraging. Reduce unemployment by reducing the hours in the work week. Of course, if we start eating healthy vegetables and getting exercise in our gardens then our over investment in health care will really be exagerated.
I find it an interesting conundrum that more manufacturing means more energy use which largely comes from overseas which means imports will have to increase if we manufacture more. There are many pieces in this puzzle such as manufactured exports will go up only if wages go down. This means that our families savings are even more important since they will need to diversify there income source. Jobs (even two jobs in every household) will never again offer the economic security to our families that it once used to. It would be nice to think that exports go up due to a better qaulity of product but our taxpayer subsidized academic institutions are setting up shop all over the world improving the quality and productivity of foreign workers.
The financial crisis occurred because too much money was removed from the financial institutions. This money was removed based on illusory profits from illusory asset valuations, being transferred out of the institutions in the form of dividends, interest, compensation, foolish lending and leveraging, etc.,.. When the curtain was pulled back and everyone could see the real lower asset valuations, the institutions were then forced to recognize the losses but there was no way to get the money back to the institutions (except for stealing from taxpayers of course).
I think one way to revitalize the economy is offshore drilling. It will provide many jobs while lowering gas and oil prices. I like the 5 year plan by MMS. http://tinyurl.com/mh5p36