Abstract: I look for explanations for the phenomenon of widespread, strong, and persistent disagreements about political issues. The best explanation is provided by the hypothesis that most people are irrational about politics and not, for example, that political issues are particularly difficult or that we lack sufficient evidence for resolving them. I discuss how this irrationality works and why people are especially irrational about politics.

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Contrary to the conventional view, manufacturing in the U. S. has been growing in the past two decades despite the decline in manufacturing jobs. The latest data show that the United States is still the largest manufacturer in the world. In 2008, U.S. manufacturing output was $1.8 trillion, compared to $1.4 trillion in China[1]. This means that the United States is producing goods with higher value, such as airplanes and medical equipment.

In addition, most jobs the United States lost to China are low-skilled jobs. By outsourcing those low-skilled jobs to China, Americans have actually become more competitive in high-skilled jobs such as management, innovation, and marketing. The low-skilled jobs also serve China well as Chinese rural migrants have opportunities to move up in life and gain some skills.

The Wall Street Journal’s December 1 “Ahead of the Tape” column, by Kelly Evans, says “manufacturing is a relatively small part of the economy; It employs about 9% of the work force and accounts for about the same percentage of GDP.” Actually, manufacturing accounts for about 12 percent of nominal GDP.  But that, too, is misleading.  

Chicago Fed economist William Strauss explains why neither U.S. manufacturing’s share of employment nor its share of GDP captures the actual strength of manufacturing:

Between 1950 and 2007 (prior to the severe recession), manufacturing output was just over 600% higher while over the same period growth in real GDP of the U.S. was only a slightly lesser 560%. Yet, the manufacturing share of GDP declined markedly over this period as measured in current dollar value of output. In 1950, the manufacturing share of the U.S. economy amounted to 27% of nominal GDP, but by 2007 it had fallen to 12.1%. How did a sector that experienced growth at a faster pace than the overall economy become a smaller part of the overall economy? The answer again is productivity growth. The greater efficiency of the manufacturing sector afforded either a slower price increase or an outright decline in the prices of this sector’s goods. As one example, inflation (as measured by the Consumer Price Index) averaged 3.7% between 1980 and 2009, while at the same time the rise in prices for new vehicles averaged 1.7%. So while the number (and quality) of manufactured goods had been rising over time, their relative value compared with the output of other sectors did not keep pace. This allowed manufactured goods to be less costly to consumers and led to the manufacturing sector’s declining share of GDP.

Those who imagine “we don’t make anything anymore,” as Donald Trump claims, don’t grasp the magnitude of America’s industrial productivity gains.

In reality, the U.S. is by far the world’s largest manufacturer, with China trailing by 22 percent according to U.N. data for 2008 and arguably much more when we’re not in recession.

Does the perception of American manufacturing differ from reality?

As we reported last week, research firm Global Insight recently updated its numbers, and predicted that in 2009 the US would lose its position as the world’s top manufacturer for the first time in more than 100 years, moving forward the 2013 date the firm had predicted just last spring as the year for that switch. (See For First Time in More than 100 Years, US Set to Lose Place as Largest Manufacturer in the World.)

But the US-based National Association of Manufacturers says those numbers are all wrong.

“I and members of the National Association of Manufacturers strongly disagree with this prediction,” says John Engler, president of NAM.

Engler says the Global Insight numbers are inconsistent with data from the World Bank and other sources. Better adjusting for prices seems to be a key factor, which Engler says better reflects the true quantity of output.

Based on that data, Engler says “The US remains by far the world’s largest manufacturer, producing nearly one-fourth of the world’s industrial output. Based on the highly respected World Bank database, our analysis also shows that we will produce twice as much this year as the fourth placed economy, China.” The European Union and Japan rank second and third in this analysis.

He adds that even in current measures of manufacturing denominated in dollars (which inflate China’s position because of the rising yuan and other factors), China will produce only about 60% as much as the US in 2008.

Engler further says that even if China continues its rapid economic growth of about 10% per year, it will take until 2020 at the earliest for China to catch the US.

“Given the constraints China is beginning to face, its ability to maintain that torrid growth is highly questionable,” Engler added. Any slowdown in China’s growth could push the date China becomes number 1 well out into the future.

(Manufacturing Article - Continued Below)

You have to help the rest of the world get energy at a reasonable price to get anywhere. It’s great to have the rich world, because we’re there to think about long-term problems and fund the R&D. But we get sloppy, because we’re rich. For example, despite often-heard claims to the contrary, ethanol has nothing to do with reducing CO2; it’s just a form of farm subsidy.

"A tenant of the Austrian school is that their ideas are based in logic, not observations"

Seigniorage derived from notes is more indirect, being the difference between interest earned on securities acquired in exchange for bank notes and the costs of producing and distributing those notes.

euvoluntary exchange is an important concept. So, I want to say truly voluntary--or euvoluntary--exchange is always just.BATNAs. Sounds like the kind of thing cut open by Luke Skywalker. Spell it. B-a-t-n-a. It's an acronym. Best Alternative to a Negotiated Agreement. A transaction is not euvoluntary if the disparity in BATNAs is too great.

Calculations Are Not So Simple
All listed companies are required to report EPS in their financial statements. But calculating EPS is not quite as simple as dividing earnings by the number of shares on issue at the balance date. If the number of shares on issue has changed during the year, you need to account for how much of the year they were on issue and calculate the weighted average number of shares on issue during the year.

Awesome econ Blog by Mark J. Perry.

Robin Hanson of GMU talks with EconTalk host Russ Roberts about the idea of a technological singularity--a sudden, large increase in the rate of growth due to technological change. Hanson argues that it is plausible that a change in technology could lead to world output doubling every two weeks rather than every 15 years, as it does currently. Hanson suggests a likely route to such a change is to port the human brain into a computer-based emulation. Such a breakthrough in artificial intelligence would lead to an extraordinary increase in productivity creating enormous wealth and radically changing the returns to capital and labor. The conversation looks at the feasibility of the process and the intuition behind the conclusions. Hanson argues for the virtues of such a world.

Bet on ideas happening in the future.

We think of it as a kind of Lego system, but actually if you look carefully at any argument in any subject, you'll see that in fact it's built around an idea. If you've got the idea, in my opinion, you can forget about the details and reconstruct the argument. But, when you study a subject from a formal point of view, no one tells you what the ideas are. I think there is something about creativity which is self-validating. You don't have to ask why. You just have to observe your own reaction to that situation. And I think if learning is at basis a form of creativity then everyone is creative. And not just a form of amassing facts. If it's not a Lego but actually a creative experience. If there is no creative insight when a student is learning something, if there is no "Aha" experience, then it isn't true learning.

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