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RightChange: Manufacturing Industry Is Worse Than We Thought

The Obama administration is flat out wrong for touting success in the manufacturing industry. He has been a champion for the manufacturing industry, saying that it is an industry that is on the rebound and on the road to recovery. In fact, he is using these fudged numbers to ask Congress for more money to create more green energy manufacturing jobs. A new report shows that unfortunately, this industry has been in decline for 10 years and is currently in worse shape than we thought.

The manufacturing industry has experienced devastating job losses since 2000. Economists from both sides of the political aisle have given the explanation that it meant that manufacturing companies had become more efficient and as a result, needed fewer people. They believed higher productivity meant stronger industry. This new report shows that is definitely not the case. In fact, it’s much weaker.

From the Washington Post:

“But a handful of economists are challenging that explanation, chipping away at the long-offered assurances that the state of U.S. manufacturing is not as bad as employment numbers make it look.

Instead, they say, it’s significantly worse.

What caused the job losses, in their view, is less the efficiency of U.S. factories than the failure of those factories to hold their own amid global competition and rising imports. The apparent productivity gains reflected in the official U.S. statistics have been miscalculated and misrepresented, they say, a position that has been at least partially validated by recent research.

“I bought into this idea for a long time that it was superior labor productivity that caused most manufacturing job losses,” said Rob Atkinson of the Information Technology and Innovation Foundation, a nonpartisan think tank. “Then I began to dig into the numbers.”

The numbers that the government reports are misleading and do not truly capture the true productivity in the United States:

“These numbers have been tossed about to say, ‘Look how productive U.S. factories have been,’ ” said Susan Houseman, senior economist at the W.E. Upjohn Institute, co-author with three Federal Reserve economists of a paper that raises questions about the accuracy of the productivity numbers. “The reality is a lot more complex and not as flattering.”

For starters, the reported productivity gains may be overstated because the statistics the government collects do not adequately reflect the changes that have come with globalization, as Houseman and Federal Reserve colleagues Christopher Kurz, Paul Lengermann and Benjamin Mandel have shown.

Calculating labor productivity depends on determining the value of U.S. manufacturing output and dividing it by the number of manufacturing-worker hours.

But in a time when factories increasingly have turned to outsourcing, it can be difficult to determine what is U.S. manufacturing output and what should be properly counted as output from a foreign factory.

Critically, Houseman and others have shown that the price savings that U.S. factories have realized from outsourcing have incorrectly shown up as gains in U.S. output and productivity.

This bias may have accounted for as much as half of the growth of U.S. manufacturing output from 1997 to 2007, excluding computers and electronics manufacturing, Houseman and her co-authors have estimated.”

The Washington Post gives an example of these misleading calculations:

“For example, suppose a U.S. factory decides to offshore the production of a part for which it used to pay $1. With the switch to an overseas supplier, it might pay 50 cents for the part. If U.S. statistics do not capture this drop in price, the savings by the U.S. factory can show up as a gain in output and productivity.”

This shows you how much companies rely on productivity from overseas. This is because there is no incentive for companies to do business with the United States. President Obama has failed to create a business friendly environment in America. He wants higher taxes and more regulations. This cripples the manufacturing industry and this latest report proves such.

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