Does America suffer from consumption?

MICHAEL MANDEL diagnoses America’s economic ills:

It’s true that consumer spending creates economic activity. But it’s not true that all that economic activity is in the United States. Many of the consumer goods we buy are imported. If you buy a shirt or television, you are stimulating manufacturing jobs in China, or perhaps Mexico. You aren’t doing as much to stimulate jobs at home.

This is true across the economy, but a helpful example is the clothing, or apparel, industry. Since the fourth quarter of 2007, clothing purchases by consumers have increased by about 5% in real terms, according to the latest figures from the Bureau of Economic Analysis. Over roughly the same period, shipments from U.S. apparel factories fell by 31% in real terms, while apparel jobs fell by 26%. The winner: Factories in China and elsewhere making clothes for the U.S. market…

If we want Americans to prosper, we need consumer spending to become less important to the economy, not more. In the end, we need a production economy, not a consumption economy.

Now as it happens, Mr Mandel makes some perfectly reasonable policy recommendations in the linked piece-countercyclical regulatory policy, infrastructure investment, and a reformed corporate tax code. And certainly there is a point to be made that sustained, large American trade deficits are problematic, and that debt-financed consumption is troubling.

But I detest the argumentation above. It’s wrong, and seemingly designed to spur protectionist impulses. Factories in China are winners from the apparel trade, eh? Consider two points. First, apparel manufacturing jobs are low-skill positions, and for Americans to staff them without government support in the form of subsidies or tariffs would necessitate massive wage cuts. Average pay in Chinese cities is perhaps 10% of the American level, and still China is losing textile industry jobs to lower cost competition elsewhere in Southeast Asia. When those jobs move abroad, to places with lower labour costs, that enables Americans to buy those goods more cheaply, which is a good thing. Now, if high-cost American workers struggle to transition into new industries, that’s a problem. But it’s a problem with America’s labour market policies, not with the consumption of goods from abroad.

Mr Mandel doesn’t begin to explain why America ought to want textile factories in the first place, other than as a source of employment. The economics suggest it would be cheaper, easier, and more pleasant for the workers to hire them to sit around and do nothing. Or pay them to go to school or build useful infrastructure. Does he believe that American firms are missing out on some important source of innovation by allowing workers in other countries to man the looms? If so, I wish he’d explain what it is.

For some reason, people find the idea of a production economy intuitively appealing. But production economies need consumers. More than that: consumption is the point of economic activity; why work except to obtain things? We ought to care about American productivity growth, and America ought to make the investments necessary to support productivity growth. Mr Mandel’s policy recommendations show that he understands this. Having focused on that, we no longer need to concern ourselves with the exact source of a consumer product-whether it’s California or Japan or Guangdong, or often enough all three. A misguided focus on the alleged harms of consumption of imported goods encourages a mercantilistic view of the world. When the public holds that view, it’s unlikely to settle for infrastructure investment as a solution. Not when the Chinese are “stealing” jobs.


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