Economic Security: We Must Save American Manufacturing

Issue Brief

Many Americans find economics boring. For such people, Republican economics in the era of Bush and Reagan has been a godsend. The Republican economic model basically says, “deregulate everything, and then stand back so the market can work its magic.” If you subscribe to this school of thought, policymaking is a breeze — there’s no need to worry about savings rates, foreign subsidies or the content of growth, you just let market forces spontaneously generate the optimum outcome.

However, proponents of this government-is-the-problem approach have never explained why it failed to work during the first 100,000 years that homo sapiens walked the planet. You know — back when the jungle and the marketplace were the same thing. Unless you are that other right-wing oddity, a creationist, this puzzle is hard to solve. Market forces were unconstrained in the wilderness, and yet it took hundreds of generations for civilization to emerge. So maybe progress requires something more than market forces.

After enduring two depression-skirting economic downturns in a single decade, it isn’t hard to figure out what that something is: a government that channels the energy of the marketplace in the right direction. A government that understands, unlike one Reagan-era economist, that it matters a lot whether you export computer chips or potato chips. A government that grasps economic growth generated by making world-class products is more sustainable than growth generated by having lots of lawyers.

Which brings me to the subject of American manufacturing. This week, the nation’s political elite is debating whether to bail out the last three U.S. auto makers, who are facing ruin due to the collapse of the Republican economic model. Some economists, mainly conservatives, are opposing a bailout. These are the same people who have presided over the decline of the U.S. shipbuilding, electronics and steel industries. Now they want the market to work its magic in autos, which means no more GM or Ford.

Enough is enough. People who oppose government aid to the auto industry are not thinking clearly. Over the last eight years, the U.S. share of global economic output has fallen from 31% to 27%. During that same period, our merchandise trade deficit has doubled to a staggering $800 billion. Both of these trends are driven in large part by the erosion of domestic manufacturing, and autos are the biggest component of our manufacturing sector.

When Ronald Reagan took office in 1981, manufacturing was nearly 25% of the economy, compared with 12% today. Meanwhile, finance has grown from 12% to 20%, in no small part because excess Asian dollars accumulated from selling goods in America were being recycled into credit for marginal home-buyers. All that easy credit contributed to today’s economic meltdown, an indirect consequence of the fact that today a third of our manufactured goods come from overseas versus a tenth in the 1970s.

There are other consequences too, including the breakup of families in places like Detroit and St. Louis, where manufacturing jobs have disappeared at a rapid clip (about 40,000 jobs per month nationwide during the eight years George W. Bush has been president). This has to stop. We are destroying the foundation of our economy, not to mention the arsenal of democracy. If America loses what’s left of its auto industry, or its aerospace industry, or its chemical industry, our superpower status will ebb away too. Until Republicans get that, they don’t deserve to govern again.