A sign of a coming Obama failure

I hope I’m wrong, but an almost sure sign of a coming Obama failure to restart the economy and create jobs arrived in my e-mail late last week. It was a note with new contact information for Ron Bloom who is resigning as the designated White House Manufacturing Czar.

Bloom who was the real moving force behind the administration’s rescue of the U.S. automakers as well as measures to jumpstart U.S.-based battery and other green technology production has labored mightily for nearly three years. His note mentioned the toll of the endless White House work load on his family. This certainly has been significant and surely is a legitimate concern. But it is also true that Bloom was never given good access to the president and was constantly obstructed by the top White House economic advisers. That he is leaving now suggests to me that he sees little chance of the administration doing much to revitalize manufacturing in the United States. Unfortunately, that also means little chance of a strong economic recovery that will create the millions of new jobs necessary to get America back to full employment and rising wages and living standards.

The logic of this has been dramatically spelled out by Nobel prize-winning economist Michael Spence in a recent article in Foreign Affairs. In discussing the impact of globalization on income and employment, he notes that of the 27 million U.S. jobs created between 1990 and 2008, 98 percent were in the non-tradable sectors of the economy, and especially in government and the health care industry which together accounted for nearly forty of those newly created jobs. The third major area of job growth was home construction which is, of course, also non-tradable. Spence emphasizes further that because of the on-going restructuring of the global supply chain, "the range of employment opportunities available in the tradable sector is declining, which is limiting choices for U.S. workers in the middle-income bracket." Worse, government, health care, construction, and financial services employment are all highly unlikely to continue growing in the future as they have in the past. Indeed, they must all be down-sized relative to the rest of the economy. But it they can’t continue growing as in the past and the United States continues its poor performance in the tradable sectors, the reality is going to be high unemployment for as far as the eye can see.

So salvation must come from the tradable sector, and because two thirds of that sector is in goods producing industries, it will be virtually impossible to achieve salvation without a U.S. manufacturing renaissance. Yet, Bloom’s note is a harbinger that such a renaissance is not being seriously considered. Why not?

In a just published interview with MIT’s Technology Review, former Intel CEO and Chairman Andy Grove gives an important part of the answer. He begins by refuting the popular notion that increased efficiency and productivity have reduced employment in the computer and other high tech industries. Grove notes that although nearly two million jobs have been lost in the computer industry in the United States over the past thirty years, the bulk of the jobs still exist. They just don’t exist in the United States. To the argument that the jobs have been moved off-shore because it’s less expensive to manufacture in Asia and Latin America than in the United States, Grove replies with a challenge: "try to find an analysis that says how much cheaper. You can probably get whatever answer you want depending on the assumptions you make."

The real problem he says is that "everybody knows that manufacturing in the U.S. is dead. If you believe that and act on it, then it will become true. I think venture investments are influence by the ‘everybody knows’ factor before the first spread sheet is run. And if you don’t get the money to scale manufacturing here, you won’t do it. And if you don’t do it, your suppliers won’t move to the United States either." He could have added that the jobs also won’t come to America.

Some of President Obama’s top advisers have been known to say that America really doesn’t need manufacturing and indeed that it would be contrary to America’s best interests to promote it. To save the U.S. economy and his job, Obama needs to create a lot of jobs for others and to do that he needs to understand that many of his advisers are suffering from the "everybody knows" disease and that he needs to ignore them and pay attention to the likes of Grove and Bloom.