Time for the U.S. Economy to Reindustrialize 78 comments
Michael Steinberg
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The Wall Street Journal’s “Tinkering Makes Comeback Amid Crisis” stirred my thoughts on the limits of America’s dependence on a knowledge-based economy. The article focused on engineering students at prestige universities wanting to actually create physical things. Students are migrating from the virtual world of software science to hobby-ing with computer controlled milling machines in their dorm rooms, school workshops and membership machine shop clubs.
The Journal’s “Obama to Warn Asia Against Relying on U.S. Consumers” reports that the President is reiterating his call for the US to get back to making things for itself and the rest of the world. In “Larry Summers and Jeff Immelt Preparing for Post-Consumer Economy” and "US Needs to Convert from a Consumer to an Industrial Economy", I highlighted that companies such as Eaton (ETN), Ingersoll-Rand (IR), Parker Hannifin (PH) and Rockwell Automation (ROK) could be the beneficiaries. Now it appears that both the President and these companies are developing a young following.
While the President will be emphasizing balance during his Asian trip, the underlying message to the world is that the US consumer is finished, spent out, and will never return. The President doesn’t want foreigners to lend us any more of our own money to buy any more of their trinkets. The inherent conflict between the Administration and the Federal Reserve is the sustainability of our economy based on recycled dollars. Obama would rather recycle the Pound, Euro, Yuan and Yen in our favor. Bernanke still believes that the US consumer will save the world.
The previous conventional wisdom was that it is too expensive to make anything in the US, so we must concentrate on the high value-adding knowledge-based economy to be competitive. That proved a failure as each time the Fed pumped up the “economy”, i.e. money supply, it only created asset bubbles – not more industrial capacity or real innovation. True innovation and the real knowledge-based industries evolve in fits and starts; therefore they will never be enough to drive an economy as large as the US.
Now it’s time to take a step out of fantasyland. The US needs a “core” economy that supports all skill levels, personal spending that matches personal income, and an energy policy that matches consumption with its percentage of the world population and its accesses to resources.
Whether the Fed likes it or not, the central bank can no longer play US consumers like a violin. We are already diverting too large a portion of our consumption to energy. So that leaves the availability of work for all skill levels as the central focus.
It is time to end all the rhetoric about the need for better education and fair trade for the US to compete in the world. Both are overused excuses in the same manner as pharmaceutical companies say they must gouge consumers to support research. While the quality of our education varies substantially, the high-end is still extremely competitive. Education and skills are not stubbing our economy. And trade will become fairer as our consumers adjust spending to match their incomes.
So what will force the economy to reindustrialize? I believe it will come when many of the knowledge-based commerce businesses such as banking, finance and accounting become utilities. Yes, the Bank of America (BAC) Electric Co., the Citigroup (C) Electric Co., the JP Morgan (JPM) Electric Co., the Wells Fargo (WFC) Electric Co., and even the Faux Goldman Sachs (GS) Virtual “We are not a retail bank” Electric Co. As services lose their ability to value-add, industrials will pick up the slack and jobs will fill in at all skill levels.
I am not advocating the doom of the knowledge-based technology sector, just a substantial decline in the knowledge-based services sector because of the realization that most services have never been value adding. And non-value adding services could never have been the foundation of a sustainable economy.
I am betting that President Obama’s vision of the US and world economies will be right by default.
Disclosures: Author is long BAC, C and WFC.
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The trade: dollar goes lower so the dow/s&p can still go higher (but be in global growth businesses) because they are really going nowhere in dollar terms
You got sick or hurt ? You were fired.
Called up for military service ? Someone else took your job.
Clean air/safe work conditions ? No problem for your employer if your lungs/ kidneys/ eyes or something else was shot by the time you were forty -- see the first item.
No windows /not enough doors or too small or even barred ? -- You were dead if a fire broke out in the plant.
Yep, oh-those-costly rules and regulations. What purpose did they ever serve ? Those rules and regulations were paid for in blood by hard-working, long suffering UNION people.
But there are so many who did not study the history of the labor movement and have a clue. They did not live it, and their business school glossed over it.
On Nov 15 02:45 PM Tom Armistead wrote:
> Compliance with zoning laws doesn't seem too onerous to me.
>
> Paint the building the required color, plant the right type of trees,
> make the bathroom window the required size, no big deal.
>
> From there if you have a decent business plan and the ability to
> run a business, manage people, control costs, etc., you will do just
> fine.
>
> I am really puzzled by the aliance of libertarian thinkers who just
> don't understand the concept that others have rights, with those
> who persist in flagellating themselves and their country because
> we operate at a competitive disadvantage to a socialist country that
> manipulates its currency in order to sustain an unfair business advantage
> for a state controlled economy.
>
> It is really too wierd, the answer is fairly simple, let the Chinese
> work 60 hour weeks with no benefits and no rights, they can sell
> the resulting glut of cheap products to each other. In this country,
> we could import some CNC machine tools and other means of production,
> train people to run them, and go back to the way things used to be,
> with the advantage of increased productivity from using updated means
> of production.
On Nov 16 06:49 AM Don-n-ABQ wrote:
> Who is "Mr. Armstrong"?
Of course the Chinese just naturally do the right thing without any regulations or interfernece. I saw a photo of a shoeworker, he was gluing a sole onto a sneaker. But it was being done safely: he was wearing a dust mask. Not much use against vapors, but it looked like somebody cared what people thought.
On Nov 16 10:36 AM Bob 123 wrote:
> Tom, there's no point arguing with these right-wingers who do not
> understand how it used to be not so long ago.
>
> You got sick or hurt ? You were fired.
>
> Called up for military service ? Someone else took your job.
>
> Clean air/safe work conditions ? No problem for your employer if
> your lungs/ kidneys/ eyes or something else was shot by the time
> you were forty -- see the first item.
>
> No windows /not enough doors or too small or even barred ? -- You
> were dead if a fire broke out in the plant.
>
> Yep, oh-those-costly rules and regulations. What purpose did they
> ever serve ? Those rules and regulations were paid for in blood by
> hard-working, long suffering UNION people.
> But there are so many who did not study the history of the labor
> movement and have a clue. They did not live it, and their business
> school glossed over it.
good comment about where do you get large pressure vessels.
they are not made in the u.s.a.
i used to work in the coal-gasification industry (process conducted under about 1000 psig pressure). there was one factory in japan that made the size of equipment that was needed for our project.
> jack
around 1956 avery fisher was building high-end audio equipment in long island city. i still have my integrated tuner/preamp.
then they sold the brand to a japanese firm & you could buy 'fisher' stuff in department stores but it was all junk.
so gresham's law applies to more than just money.
> jack
On Nov 15 09:13 AM Dan in mpls wrote:
\ The government
> has not laid off a single worker in this opening salvo of what will
> be a Great Recession. Government employees are waltzing through
> this thing unphased and strengthened. Their every missed dance step
> is on the neck of some schmuck who has an idea and a dream.
On Nov 15 01:29 PM Windsun33 wrote:
> Didn't Lenin say something like that also? Or are you advocating
> hiring and firing based on how many children you have?
A better approach is bankruptcy reorganization of our dead, overbearing, overreaching globalization junkies (at whose core finds the companies indicated here) and resurrection of national banking along lines Alexander Hamilton developed. Then, we can get on with the job of a massive build-out of 4th generation nuclear power facilities and a transformation from a hydro-carbon-based economy to a hydrogen-based economy, financing this at rates of interest the private sector simply cannot compete with.
My mother is a lifelong Democrat, usually, and was night supervisor at a nursing home. She marveled how inspectors would come in, make them change a window one year, change it back the next.
I had a rental property, built 1890, after many inspections suddenly had to change the original bathroom window to put a much smaller one. One that wouldn't allow escape.
Not necessarily big deals in themselves except that the legal system and the bloated government and regulatory systems are dysfunctional, destructive and unevenly applied. There are more than enough straws on the camel's back. This is tyranny.
On Nov 15 10:51 AM Gary A wrote:
> Well if the dollar is devalued enough we can have factories move
> here. Is that the plan? Problem is that assets are rising too fast
> if that happens, and it will still be too expensive to do business
> with 6 dollar gas. Maybe rail will be the only transport and maybe
> that is why Buffett decided to buy his big railroad.
>
> If the plan is 6 dollar gas and a work force willing to work for
> minimum wage in a factory, the politicians who allow it will all
> be gone and continually voted out.
Good old-fashioned, fundamental economics instead of "the market is a perfect, self regulating entity" drumbeat.
John Consentino
The president doesn't think about this at all. If it's not on the teleprompter it's not in the presidents mind. The president has never had a real job in his life. He has no idea of what it means to produce. If anything, I suspect the president wants exactly what is described here - please foreigners keep lending us money so I can be the dispenser of goody's.
I don't know what the answers are any more than any one else, but to imagine that anything meaningful is going to come from the state is a sign that we still have a long way to go through this process.
> jack
The main step would be to eliminate all taxation of corporate profits. Then tax income and profits from the sale of the shares at regular income tax rates, but not if the money is reinvested. This would fund business growth. The rate of investment would climb.
Second, eliminate the minimum wage law.
Third, stabilize the money supply.
Fourth, remove restrictions on the development of energy. Make businesses liable for pollution: court action. Let juries decide. Shut down the Department of Energy.