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Stuart Hayashi vs. Peter Schiff on US manufacturing

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brian0918

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Peter Schiff has made the argument repeatedly that the US doesn't manufacture anything, and that we need to start manufacturing more. Fellow Oist Stuart Hayashi argues that we in fact are manufacturing more:

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This is why Peter Schiff is wrong to say that the United States is falling behind in its manufacturing, and for saying the USA doesn't manufacture anything anymore.

It's true that the number of U.S. manufacturing jobs has been decreasing, but that's because of advances in automation. It doesn't follow that just because the number of U.S. manufacturing jobs is decreasing, that U.S. manufacturing output correspondingly decreases. In 1900, more than 70 percent of the U.S. population worked on farms. Today, only 3 percent of the U.S. population works on farms. But in that span of time, agricultural output has increased both per-capita and in total. The same goes for manufacturing output and exports.

In absolute terms, the number for the USA's manufacturing Industrial Production Index was 23.7 in 1960 A.D. and 112.9 in 2007 A.D.1

One could reply that it's true that manufacturing output has increased in absolute terms in the past four decades, but so has the U.S. population, and that manufacturing output per capita has shrunk.

But that's wrong. We can take the Industrial Production Index numbers for the years 1960 and 2007, and then divide them respectively by the U.S. populations from those same years. There were 180.671 million Americans in 1960 and 300.913 Americans in 2007.2

The manufacturing IPI number, per American, from 1960 was 1.31178 x 10^-7. For 2007, the figure was 3.75912 x 10^-7. That means that U.S. manufacturing output has increased per capita.

So, per person, the USA manufactures more utility, goods, and services today than it did in 1960.

I used the Consumer Price Index (CPI)3 to find that the United States earned $142.734 billion (in 2008 U.S. dollars) from manufactured goods exports in 1960, while it earned $1.291 trillion (in 2008 U.S. dollars) from exporting manufactured products in 2008.4

That means that the United States incurred $790.02 (in 2008 U.S. dollars) per person from its manufactured exports in 1960, and incurred $4,253.43 (in 2008 U.S. dollars) per person from its manufactured exports in 2008. So in terms of purchasing power, the USA still earns more money, per capita, from its exports today than it did in 1960. It's true that the trade deficit has increased by a significant margin over those same 48 years, but that cannot be properly attributed to any decline in either U.S. manufacturing output or in U.S. manufacturing exports.

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That's a great compilation of information. While I've never known with any amount of certainty, I've mostly accepted the argument that the United States is producing less, on face value. This was primarily from a reason you identified: equating the number of manufacturing jobs to production.

When Peter Schiff says that the U.S. needs to start manufacturing more, what does he mean; why does he say this, or what is his purpose? I don't follow Schiff at all and have only ever read one article of his. Is it his position that the country needs to manufacture more for the growth of employment?

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This has been discussed previously here.

Personally, I don't read or listen to folks like Schiff who use hyperbole so routinely. It is too distracting. It is fun to see him when he is on a panel arguing against clueless Keynesian/conventional folk; but, otherwise, it is buyer beware.

Edited by softwareNerd
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I think we can agree with much of Schiff's message, e.g. that govt stimulus creates manufacturing in areas where the market would not necessarily have created manufacturing, and that the market may inevitably shut those sectors down on the road to true recovery. Until I see him elaborate on what he means by the need for more manufacturing, I will withhold judgment, since it's not vital to his argument. I have too often seen the govt numbers turn out to be manipulated or otherwise inaccurate, so while Stuart's argument is compelling, I must wait to see the strength of the counterarguments, if any.

Edited by brian0918
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I think we can agree with much of Schiff's message, e.g. that govt stimulus creates manufacturing in areas where the market would not necessarily have created manufacturing, and that the market may inevitably shut those sectors down on the road to true recovery. Until I see him elaborate on what he means by the need for more manufacturing, I will withhold judgment, since it's not vital to his argument. I have too often seen the govt numbers turn out to be manipulated or otherwise inaccurate, so while Stuart's argument is compelling, I must wait to see the strength of the counterarguments, if any.

This not really an area for argument but for fact. I suggested to one of the Schiff supporters that they get a copy of Thomas Register where they live and look up the manufacturers. Go see what is happening. The Chamber of Commerce and other organizations could help. The people on this forum arguing for Schiff talked about what they could think of, which is not providing the evidence.

A very large percentage of U.S. exports are manufactured goods, with a large percentage of that being capital goods, which is one of America's fortes. Many of Schiff's arguments are, as noted by sNurd, exaggerations, e.g., the only example of a service job that he provided in his book was the burger flipper. He seems to jump to conclusions. I reviewed both his books and did a commentary on both.

There are several places in his books that he says that we need more manufacturing. One place he says that we need more manufacturing for export, which I still can't figure out. Each spot was an excellent opportunity to at least give some idea of why he wrote what he did, but there was nothing. This unwillingness or inability to offer explanations or evidence seems to be Schiff's standard approach. It was frustrating. It is one reason that I doubt that he understands Objectivism and what reason means. Since he hasn't offered support for his positions yet, brian, I wouldn't hold my breath. On the other hand, if you see something from him that does explain these positions, be sure and share them.

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