Innovation/Global Risk

Yes, Christina, You DO Have to MAKE Stuff!

By Shlomo  Maital   


    Writing in the Global New York Times, Berkeley economist Christina Romer (until recently,  head of President Obama’s Council of Economic Advisors), claims that concern about America losing its manufacturing industries is wrong.  She says consumers value haircuts as much as hair dryers, and that casino chips and computer chips are, well, just the same for economists.   When one of America’s top economists gets things massively wrong, the discipline of economics loses legitimacy – if any of it remains. 

    Responding to Romer, Clyde Prestowitz (Reagan’s chief trade negotiator) refutes her claims in his Foreign Policy blog. Here is the essence:

  • The reason for the decline of the number of U.S. science and engineering graduates, is that “as a result of the decline of manufacturing, there are no jobs for these graduates.”  Is America prepared to abandon its world-class science? If not, it needs manufacturing.
  • Every $1 of final demand in manufacturing generates $1.41 in additional (indirect) intermediate demand, for goods and services that support the manufacturing.  No other industry comes close ($1 retail generates $0.58 in indirect demand). 
  • “Semiconductor industries in Japan, Korea and Taiwan have been heavily subsidized and protected and have taken a large part of the world’s production away from the U.S.”  It is legitimate and logical for the U.S. to take steps to offset this unfair tilted playing  field.  Jobs making computer chips are indeed higher-paying ones than jobs manipulating casino chips. 

   Of course, a modern advanced nation needs advanced services. But it also needs to make stuff – advanced manufacturing.  These two are not enemies. They are friends.  Why portray them otherwise?  When one of America’s most influential economists gets it so wrong, probably because her entire professional career has been spent inside an office, poring over numbers and words, what possible value can the discipline of economics bring to America, its struggling middle class and its jobless?