My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.
The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.
In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.
Meanwhile the higher ups wonder ‘what happened to R&D?!’
You can look at how Boeing gutted it's highly skilled Pacific North West operations to move lower skilled, lower paid areas elsewhere and generalize this to a multitude of similar industries.
Prioritizing next quarter’s growth at all costs really did a number on our long-term stability
>The assessment of author David Gelles, in his critical biography of Welch, The Man Who Broke Capitalism, is that “instead of trying to fix American manufacturing, he effectively abandoned it, and would soon start shuttering factories around the country and shipping jobs overseas.” Welch once stated, “Ideally, you’d have every plant you own on a barge to move with currencies and changes in the economy.”
Arguably, the article discusses financialization as a cause.
It's the same in universities, where more and more time and money is spent on "management" (extracting value) and less and less is spent on actually teaching stuff (creating value).
Unsurprisingly, when a (somewhat large) portion of the population in a high productivity society realizes they can just skim off the top without doing any actually useful work, bad things happen.
https://ourworldindata.org/extreme-poverty-in-brief
Even with recent globalization, Americans are still far richer than most people in other countries. I believe those people matter just as much as Americans do.
I’d also argue that it’s perfectly fine for the US and any other nation to think in terms of putting their domestic economy first, regardless of anything else
I work on projects that would get 8-9 figure investments if we were doing this in APEC
Because the US thinks of industry as ‘dirty’ we’ve lost touch with how valuable these jobs can be. In the US the returns would have longer duration and would not be viewed as ‘important’ bc the business isn’t suitable for a FANG exit.
It would be interesting if there was a breakdown by technology sector. Ie manufacturing R&D vs. software development R&D.
You are close to realising the problem. Financialization is a consequence not a cause.
The cause is demographic. Why and how did pension funds grew so much need to own everything and get money?
Spoiler: this happened in steps with Boomers investing in their retirement. Because they were so numerous it flooded everything.
Second Spoiler: they also had (and still have) the political power by sheer number, which warped the regulatory environment.
I think the root problem is political: recognizing that USA's extraordinarily successful mid-century economic model was the result of a compromise by the ruling capitalists to avoid facing a European-style revolution (e.g. Bolshevism) at home.
As the Cold War reached its heights in the early 60s, that delicate equilibrium was destroyed, and the capitalists had a new mandate. State regulation, labor unions went from "necessary evil to avoid revolution" to "evil", and the robber barons could return to their early 20th century form. Thus we got the 70s and endless financialization.
* A tax on financial transactions. This is sometimes called a "Tobin tax". The US financial services sector has doubled in size as a fraction of the economy. It's currently around 12%. That's an overhead cost, and a big one. Could be half that.
* A tax on advertising. The tax deductiblity of advertising as a business expense should be limited. No more than a few percent of the cost of a good or service should be advertising. Domestic US advertising is almost zero sum, anyway, because Americans are spent out. All advertising does is move consumption around a bit.
* Standards for imports. If it plugs into AC power, it has to have UL certification. No more fires from power supplies, including small electric vehicles. Anything medical has to be sample tested after import. Criminalize willful violations. Hold resellers (i.e. Amazon) criminally responsible.
What reason is there to believe that this is an overhead cost?
As I mentioned in another comment, over the past ~10 years or so, US median earnings have grown remarkably fast compared with other large countries: https://news.ycombinator.com/threads?id=0xDEAFBEAD Hard to argue with results.
Taxing financial transactions intuitively seems like the sort of thing which would put a drag on economic growth. And manufacturers need to transact just like any other sort of business; I don't see how taxing transactions encourages manufacturers relative to other firms.
I like the tax on advertising though. I would tweak it so the tax only kicks in once your spending on ads exceeds, say, $10 million per year. That way innovative new products can advertise to customers tax-free. This method also encourages big monopolies to spin-off individual product lines, which could reduce monopoly power.
I would say that eliminating tax deduction for advertising expenses is the wrong way to go about things as well. Adverting is a bona fide business expense, so it makes sense as a deduction. Rather, a direct tax should be levied on advertising, to account for the externalities of us all having to suffer the cacophony. This could even be done state-by-state rather than federally (a la sales tax).
Wholeheartedly agree on the certification. It blows my mind how cavalier people are about plugging Amazon's gensym branded products into mains power - especially given how shoddy even NRTL-tested products seem to be built!
I own a 100 shares of Apple. Tim Cook goes on CNBC and says he’s all in on printers. So I want to sell my Apple shares and buy Microsoft, where Satya Nadella is pushing Cloud and AI.
I’m being a smart investor, moving a small bit of capital allocation intelligently.
Taxing this decision discourages making it—even if only marginally—and makes capital markets dumber and less efficient.
No, you’re being a schmuck.
The market moved on that information well before you saw it on the news, loaded up your web browser, and executed the transaction.
Time and time and time again it has been demonstrated that actively trading is negatively correlated with performance. The more frequent you trade, the statistically worse you do.
Besides being empirically true, it makes intuitive sense. Every time you trade you’re engaging with a counter party on the other side of the transaction. With overwhelming likelihood, that counterparty has disproportionately greater (and timelier) access to information and market analysis than you. So every time you trade, you do so at a steep disadvantage.
Invest in the market. Buy and hold. Sell to finance your retirement. Save the gambling for your Vegas fund, not your life savings.
Or it encourages making longer term investment decisions rather than trading like a jittery cocaine addict (which by no small amount of irony a nonnegligible number of traders are already.)
It’s criminal how the people who trade stocks for a living get away with paying less taxes as a percentage than their janitors.
This is a tax on the middle class. Plenty of countries have stamp taxes on trades, for example. The wealthy structure to avoid a books-and-records trade. The average person can’t do that and so pays.
If you’re upset about the size of finance, just tax that directly.
This is only true when productivity between firms is constant. Advertising helps direct consumption toward more productive firms.
1) Improve the [government sponsored] Manufacturing Institutes
2) [federally] Back R&D for manufacturing technologies
3) Provide scale-up financing [by the government]
4) Use government procurement power to promote new manufacturing technologies
5) Direct production support [to sectors deemed critical]
6) Provide both “top-down” [gov picks a tech and supports development of it] and “bottom-up” [broad incentives like IRA] support
7) Build a manufacturing focus into existing industrial policy programs
8) Map and fill gaps in supply chains
9) Fix workforce education [by refocusing on legitimate vocational tracks]
10) Put someone in charge [of coordinating agencies, budgets, and efforts]
This is all effectively trying to copy large segments of the China playbook, but in my opinion it misses some rather important points. Namely, protectionism and implicit incentives. On the first point, you can't really compete with China when it is actively hostile to foreign companies and de facto encourages outright theft of knowledge and expertise in exchange for access to its market. As long as we have a significant portion of people yelling about "trade wars don't solve anything" any time someone proposes leveling the playing field, competition is a nonstarter.
On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR? It's hard to see where the skilled labor and private investment side of the equation is supposed to come from when the incentives are so mismatched - you almost have to find a way to decrease incentives in the currently lucrative pools first.
https://en.wikipedia.org/wiki/Triffin_dilemma
This is going to be hella difficult to unwind, especially given the current state of macro awareness in the US: if I had a penny for every time someone in an export industry panicked over the possibility of a declining dollar, even though this would be in their best interest, I'd have too many to carry. Arguably worse, we have an otherwise respectable top 10 list that doesn't include macro anywhere, which is like teleporting onto the Titanic only to hear that the conversation is all about how to best duct-tape the doors. Sigh.
2 of the most valuable companies started in the last 20 years in the US are SpaceX and Tesla. You can still build a huge amount of value with non-SaaS margins.
I think part of the problem here is how structurally unfit VCs are to fund such companies (ie investment horizon and fund lifecycle is 5-7 yrs). THat’s where scale-up financing by the government can make a huge impact.
My point is, if you want manufacturing to return, we need American FoxConns, and that means literally 2% margins [1]. We can't rebuild onshore manufacturing with overhyped companies alone.
[1] https://www.foxconn.com/en-us/investor-relations/financial-i...
I oversee a portfolio of industrial products that no VC would touch. Now, some long view PE groups do things like this - the margins can be great, growth can be fast.
Make unions stronger and kill off all of Wall Street finance shenanigans that's purely devoted to creating money out of thin air or skimming (especially HFT). That house of cards is going to crash hard anyway, so best tear it down in a controlled fashion than risk yet another 2008-style uncontrolled implosion.
Do you have any favored proposals for preventing "finance shenanigans"? Given the amount of money involved, I expect any government-driven reformation will be corrupted to serve private interests.
People deciding to kill things in domains they haven’t the vaguest conception about is how we wound up in this situation. (Killing HFTs would be a major boon to Wall Street. You’re mandating an increase in transaction costs.)
Creating money out of thin air has literally been the primary economic function of banks since the Renaissance. You have some people willing to provide useful goods and services, but there aren't enough standardized IOUs to pay them, so you issue new standardized IOUs.
Society is so damn lucky that techbros are politically irrelevant.
Ooh, this one's easy. Make software companies give back some of the money they make data-brokering and administering platforms where the vast majority of the advertiser-attracting content is provided, for free, by users. That's where the margin is coming from: users being scammed out of the true value of their contributions. Tax or regulation, pick your poison.
Someone brought up Tesla and SpaceX in another reply. The Tesla whose market share growth was driven largely by EV tax incentives, of course. The SpaceX that built heavily on gifted NASA research and expertise, of course.
is it a scam? Or are the users willingly trade their data for features?
> The SpaceX that built heavily on gifted NASA research and expertise
i think you're discounting their own hardwork. NASA research is available to any other company - it isn't an exclusive transfer.
> ... smart people in the US can make 2-3X as much in software or finance as they can in manufacturing...
Sounds like the price of manufactured goods is unsustainably low. Prices will need to go up or a new source of cheap labour be found outside the US.
It isn't that hard, really. They had a massive population in relative destitute poverty that was willing to work very hard for a small, but significant, increase in their quality of life, starting with Deng Xiaoping's market reforms through fairly recently.
The surplus of cheap labor is shrinking, and the current "made in China 2025" plan is intended to drive the growth further by shifting more portions of their economy away from foreign services and goods.
The tactics are largely the same, though: massive subsidies to local companies that disadvantages foreign ones, tacit acceptance if not outright approval of theft of trade secrets from those foreign companies that do business in China, and until recently anyway, kept the yuan pegged to the USD, meaning that it is far cheaper to buy Chinese goods than elsewhere. Now, it is tied to a basket of currencies, but held in a fixed range, so it remains intentionally undervalued.
All of this put together ensures that foreign countries will buy Chinese goods and services, and that Chinese people will also prefer to buy locally.
Think of it as a "cold" trade war. Why they were allowed in the WTO with such policies I'll never know.
China itself may not, but the production groups within China have a pretty exhaustive recent history of largely ignoring IP regulations whenever profitable, and the market response has been widely happy-to-consume.
For a single example look at the history of composite bicycle manufacturing from the 60s onward, with specific detail on the emergence of China produced composite bicycles in the 90s -- it wouldn't have gotten off the ground at all without blatant IP theft spurring the first half.
Running the reserve currency requires running a deficit (others want to export their savings, so you need to import their savings). This pumps assets and dumps exports.
Take this for example: >China dominates the production of full electric vehicles
And put it in context with the recent revelations of hectares of abandoned new EVs rotting in many locations in China. Why? The financial policy gave incentives to making more EVs, some enterprising individuals managed to manufacture very low quality cars while funding it with "shared car startup model". Then when these car sharing schemes went bankrupt (because many cars wouldn't complete a single trip without malfunction) they had enormous profits regardless. How? The cost of manufacturing was funded by investors in these startups(a third party, or a client from the manufacturer's point of view). After they went bankrupt there would be no warranty claims etc. While the per car gov subsidy was pure profit.
I cannot understand why anyone in the West would believe any economic statistic or number coming out of China. The country is known for fudging numbers at all levels. The corruption is endemic to the point one actually pays for government positions with cash (as a bribe to higher ups) and considers it an investment to recoup in own bribes in future.
It's Soviet Union all over again. Back then The West to the last moment had many prominent authors praising Soviet advancements in many fields until the very end and the collapse that was a complete surprise to many.
I hear you. But I am not worried about whatever economic modellers say, or what prominent authors write. What I am worried is when huge companies, predominantly preceived as western ones, spread their arms and swear there is no way they can make their gizmos in the USA.
Look at Apple for example, most valuable company on the whole world and 44-47% of their production sites is in china. Did we had anything like that in the Soviet block?
Yes, you make a very valid point.
>Look at Apple for example, most valuable company on the whole world and 44-47% of their production sites is in china. Did we had anything like that in the Soviet block?
No, definitely not, there is a difference in how Soviets couldn't overtly accept western investments without it looking like a failure of their central planning. Also the relationship between both blocks(USSR vs the West) was much more openly antagonistic. China is different in these ways. One could write a book about the differences and similarities of both countries.
As for large companies doing that I blame the lawmakers (and people voting for them). A share based company is supposed to act in the best interest of shareholders. How long or short the time horizon to prioritise is decided by the shareholders when they hire the board of directors. It is not a surprise a bunch of shareholders will want to prioritize short term gains. It is the lawmakers job to ensure its citizens don't fund enemy regimes. That leads to another point, for a life of me I do not understand how the Chinese Communist Party regime is not officially considered an enemy of the USA and all other deocratic countries. For some countries with very corrupt political scene (like Germany, Austria etc) it is obvious why, but the US? Perhaps the political elite in US has awoken to the fact current China is their biggest enemy, they just don't see any benefit in communicating it clearly at this stage.
Rent seeking behaviour is so deeply entrenched in US-led business culture, that any time potential advances are figured out they are viewed through the lens of "can we patent this?".
If the answer is "No", then funds for developing that potential advance - eg concept dev, prototyping, potential field testing - just don't exist.
It's not about being able to improve manufacturing. It's become "what's the greatest ROI on spending these dollars? Can we lock in a monopoly around it somehow too?".
While that short sighted foot gun approach remains prevalent, "fixing" the advanced manufacturing problem is going to proceed pretty damn slowly.
Outright abolishing all patents might get things going in the right direction, but the heart attacks that would cause in business circles makes that impractical. ;)
I don't really see a way to reverse everything. It is not about investing more in education or patching up policies. We are talking about a whole generation, maybe two, of elites and (some of the) people who profit from globalization. You simply cannot rely on the hands to chop themselves off. This is going to be a violent, bloody process because changing tides in politics is always bloody, literally. This is also going to touch the cake of numerous upper-middle class interest groups: landlords, bankers, you name it, anyone who prosper from the last 40 or so years, especially last 10 years since the first QE. Why? Because you are basically saying, OK I'm going to create a new group of middle class people but hey the cake is just that big so I need to cut someone else's piece.
Of course, everything has a cheat. The cheat, which I believe was already chosen by the American elites, is to instill conflicts globally and create mass exodus of highly skilled workers from other countries to the United of States.
My son joined a non-union shop last year, recruited by his instructor while in a training program for machinists. They had an "assembly department" that was under extremely arbitrary and shifty requirement metrics. They had long time machinists who worked there and if they got hurt (after getting back from medical leave) they were thrown into the assembly department until they quit.
That was the tip of the iceberg in that place. Asking for PPE to mitigate cancerous fumes from various chemicals got my son fired. He suffered chemical burns during his short time there and witnessed several serious random safety events involving 400amp 220v live electrical wires making contact with carts and shelving.
This was not a small rinky dink shop. They have multiple large facilities in the US.
I think a big, poorly understood part of these stories is "advanced games" or "long term degeneration."
Take government procurement, like fighter jets or new hospitals. Post-war, the way this worked was "cost-plus." Companies accounted for their costs and were promised a fixed profit. The obvious flaw is that companies lose interest in efficiency. But... it did work during the war and resulted in more tanks, ships and jets than anyone thought possible. It also worked post war.
But, such games mature. Under "cost-plus" a company increases profits by spending. That's an incentive that will bite eventually. So... they move to competitive bidding. This degenerates into a lawyers-only game, etc.
That's the administrative layer, but game maturation also exists at the political layer. Rooseveltism was a thing for a while, and then anti-rooseveltism became it's competition. During the neoliberal era, industrial policy was the devil. Half the international institutions (trade deals, imf, wb) exist mostly to enforce bans and limits on industrial policy.
During this era, when governments' job was to "get out of the way," the alternative to (now evil) industrial policy was either big trade deals, or tax policies. Tax breaks and tax complexity counted as "getting out of the way" while trade deals structured markets (eg auto-manufacturing) with more detailed rules than a Soviet five year plan.
Anyway.... the statement about making economics a defence job... it feels like an attempt to declare bankruptcy on the "trade-deals and tax breaks" era, and move to an weirder and more awkward model. A bad idea that hasn't played out might be better than a better one that has.
Sorta a 'do not pass go, do not collect $200, until {x} is solved' situation.
If a city still has parking minimums on the books, I evaluate all involved parties as utterly unserious, pseudo-scientific religious zealots.
Do you think the American south, in the era of chattel slavery, could solve 'advanced manufacturing problems'? NO! of course not! So why does anyone think 'america' could solve an advanced problem?
Meh. I shouldn't be surprised by the article, though. The authors probably think the USA isn't a backwater country that is 'on top' only via a willingness to use economic and actual violence to achieve all aims.
You speak the truth here...
The rest I could take or leave. It's not completely wrong but I think it's a more nuanced situation. I'd summarize it more along the lines of "America has become too classist to respect manufacturing. See Britain."
The US uses violence and coercion as a matter of fact, continuously, in every way, shape, and form.
If you tried to 'play' with the US from a position of mutuality and co-creation... you get colonized and cleansed and westernized.
In the 40 years that the US has offshored manufacturing, all of those guys that used to know what's what have retired or died. There's nobody left. It's going to take another 30-40 years to replace them. The US doesn't have the luxury of having those 30-40 years.
Almost there.
They commonly keep employees using the simplest heuristics that someone at some point in the past developed which worked then, so why break it? And they push this mediocrity throughout the entire organization and industry. Then they swap out one failed CEO for the same person with a different name like a pair of gloves, wondering what ever happened as there was nothing more that could be done. Meanwhile their ageist management policies block out the insights of the young, all but ensuring that no new ideas are brought into the mix—all until it’s time for another bailout.
Incumbents benefit from economies of scale and newcomers face dis-economies of scale. Which we know takes time from the economies Growing new competitors becomes hard and requires some cleverness to get around. Just look at electric cars and how they choose luxury/sports cars as their first models for a reason, so that the higher costs can be hidden in the high luxury margins. They need to be able to grow past that awkward point.
The same economies of scale which made the industrial revolution possible essentially props up "gigantic idiots" (companies which perform poorly but are sizable enough that their economies of scale made up for bad habits) until their "stupidity" (bad decisions) becomes great enough a disadvantage that others can compete with them.
The type of disruption that the manufacturing companies seem to engender is funding outsourcing to some remote cheap locale, and then wake up wondering where all of their competitors came from after they taught people enmasse how to build their product.
The plains of nebraska for example are an excellent place (again, opinionated) for an assembly plant like foxconn but american. Mainly because a crapton of freight via railways passes through there and plenty of undeveloped cheap land. Such factories have high shipping/receiving volume and new towns with new cheap housing for potential workers is feasible.
Yuma is another great location because of it's stable (sunniest in US) climate, proximity to mexico boarder and like with TSMC and Tuscon it is very disaster safe, right on I10 and close to CA (the US might starve if Yuma was destroyed! A lot of food processing there for these reasons).
Manufacturing at old towns and factories will have minimal competitive advantage.
Lastly, the US does not have a "success at any cost" mindset towards manufacturing as the fuel for economic success. It is very much an afterthought. A lot of this and many other issues are a result of political divisions.
Edit: He did have something interesting to say about the "idiot index" which is the price of a component over the cost of the raw materials. If that's very high, it means there are serious problems at that manufacturing organization.
https://officechai.com/stories/elon-musk-idiot-index/
There's so much inefficiency in American manufacturing. It cost SF $1 billion a mile to extend the subway for example.
I agree that his naysayers are making a grave mistake of calling him universally stupid. He’s a vile selfish person, who makes a lot of bigoted stupid statements and actions, but ignoring him would be the end of us.
A Tamil saying I like translates (by ChatGPT) in English as, “Regardless of the speaker’s guise, Seek the truth that in the statement lies.”
How so? That's an extraordinary claim that you haven't remotely justified.
While it's possible for anyone to say something smart, Elon Musk is no more likely to have clever insight than the average janitor.
He makes a bunch of insightful-sounding claims that only make sense if you don't have a clue on the subject he's talking about - like when he stack-ranked by lines of code, at Twitter.
This ushered the era of Japan (where Japan almost "overtook" the US as the first economy). You can draw lots of parallels to what's happening with China now.
I am afraid, given the size of China, that it'll not "just" reach US GDP but will skyrocket beyond it to the stars. The era of Western/US dominance might be over and it's inevitable.
DC politicians redistributing money to advanced manufacturing will generate wealth for transnational corporations that siphon wealth out of the source economy. It will serve as a grift for those with political connections more than it will repair our industries. The playing field is not level because of regulatory capture and inefficient regulation, and the talent pool that can fill the roles has both dwindled in number and chosen other career paths.
A piece like this is not a self contained textbook. It's a hot topic with 100 years of history near the centre of political and economic discourse. Contentious claims are inevitable.
The reverse claim also gets made, and whether or not the claim is "supported," it's never sufficiently supported. The reality is that there's a whole debate with vountermoves behind either claim.
One side looks at employment, tonnage, plant construction, anecdote and common sense. The other looks at accounting.
Accounting says that "manufacturing" has increased. Skeptics consider this an accounting fiction. The reality is that "manufacturing" in 2023 is not quantifiable in the way that it was in 1923. Accounting semantics are abstract and past a point turn into a matter of accountants' naming convention.
A 1923 ford factory represented most of the "manufacturing" represented by the cars that they produced. As the industry splits into OEMs, T1s, T2s, toolers and whatnot^ we move into more abstract definitions. Has one of Ford's industrial engineering teams ceased to be "manufacturing," because they now design processes for a Mexican subsidiary? How about the US-based management/overherheads for the subsidiary? Irl, accountants can represent these any way that the tax man, board or market prefers. The same physical change can represent 20% or 5% decrease in manufacturing.
There's just a point where quantifications fail, and can't be used to decide such debates conclusively.
Where we're at now, imo, requires us to keep purpose in mind, and forget about a single, neutral quantification. If you're quantifying manufacturing for maximum military potential, employment or resilience to trade problems... You probably need different definitions/quantifications of "manufacturing."
^These specific conventions were created to structure trade deals and regulate tarrifs.
Most of this was dismantled after the Raegan era, when they decided to move all production to other countries with the goal of running everything from Wall Street, through the power of dollar-based financialization. They wanted to control everybody else as modern colonies, where developing countries would perform the role of workers and the US the role of a business owner. It just happened that some countries never really wanted to play by these rules, that's why the US is threatening to dismantle the globalization system.
Major wars might be far less likely if America's ruling classes felt that they had some real skin in the game, and people they cared about could easily get killed.
That might be changing with smart weapons. 15 Russian generals have died in Ukraine, enough to have Wikipedia page.
That would seem to be simpler
In other news - treating your oxen wonderfully will not transmute a wooden moldboard into an iron plow.
