Growth

The good news is that soon there will be less chemical energy feed-in to our economy, and we'll have increasing need for human or animal power to make up the difference. Some jobs will be created, or perhaps re-created thereby.

It is not only globalisation, standardisation or deregulation but, more importantly than phenomena, also the lack of animal spirits - of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities that has been discouraging the American manufacturing, especially needed among the middle-class households.

Look at the middle-class Asians; they manufacture for the sake of it and not as a result of meticulous calculation beforehand. This convention pushes up the schedule of MEC, ironically to the eyes of the Americans.

Probably, those Asians start to manufacture consumer goods because they want to have them while they haven't enough capital to import them from abroad. That corresponds with the fact that the Americans and the peoples in the advanced economies have become too rich in view of real wages.

For the description of animal spirits, read the famous Page 161 of General Theory.

I suppose Rodrik is saying that if you send all your manufacturing jobs abroad and don't make anything, just consume, then you could end up with a large trade deficit, budget deficits and almost unpayable debt. Also, lots of unemployed and unemployable middle class workers. You'd then probably need to spend billions in adjustment programmes and social welfare to save companies and dislocated workers...blowing out your debt further. That would be terribly inefficient. No-one could argue that an economy should be run like that.

Remember that from a narrow US perspective, high tech manufacturing is not important since the US doesn't have much....cannot compete on cost with China and SEA or on quality with anyone. However, it is important to the likes of Germany, Japan, Korea, Taiwan, China and SEA nations, employs many, and is the main reason for China's explosive growth over 30 years.

Also, China's manufacturing is increasing. There is a labor shortage in skilled manufacturing in the East. However, since China has a tiny service sector you would expect and hope that services grow relatively. It doesn't mean manufacturing isn't important. US stagnation and decline is the main risk to China's manufacturing which is why it needs to orient more towards Asia, Europe and the domestic market.

China's manufacturing will likely not be unsustainable (think of Northern Europe and East Asia not the unsustainable US model) but China does need to downgrade the importance of the US as a customer since it's too risky and unstable. China is not likely to send the entire manufacturing sector abroad as the US did, and given that 1.3bn people have barely even started to consume, it makes sense for manufacturers to be close on hand for when they do.

reminds me of:

"For the most part, Tyrone pointed out, technological progress, is labor displacing. It simultaneously creates valuable new techniques for reconfiguring real resources while diminishing the number of people who are required to participate in those transformations, and who can therefore trade their participation for spending power. There is a myth among neoliberal economists that labor markets have always “adjusted” sua sponte: that when laborers were displaced from farms, “higher value” factories arose to employ them; that when the factories were downsized and offshored, a more pleasant, higher-value service economy came to be; etc. That narrative is wrong, he told me. At best it is criminally incomplete. With each technological change, new social institutions had to arise to sustain dispersed purchasing power despite a reduction of numbers and bargaining power of workers in old industries. Displaced workers ultimately did find new work, but only because the new social institutions “artificially” created buyers for all the things displaced workers reinvented themselves to sell. Without this institutional innovation, Tyrone tells me, something like the Great Depression would have been the new normal. Historically, institutions that have arisen to sustain purchasing power despite increasingly labor-efficient core production include direct government transfers and expenditures, labor unions, monetary policy interventions, financial bubbles and financial fraud."

from http://www.interfluidity.com/v2/1116.html

The great thing about industrialization is that it moves the vast majority of people from the lower income bracket (People normally working in agriculture) toward the middle income bracket. However, the wealth generated by industrialization needs to be saved to be invested in retraining the middle class with new skills so they can take new jobs when medium skill, labour-intensive manufacturing is no longer cost effective. Unfortunately, it often feels like factory wealth will last forever and so the money is just used to create a welfare state.

All good things come to an end.

Kenneth Rogoff's belief that future waves of technological innovation will decrease rather than increase inequality, in part by commoditizing higher education:

http://www.project-syndicate.org/commentary/rogoff82/English

Interesting and thoughtful. It isn't the purpose of free enterprises to create jobs -- it is their purpose to make a profit which (ideally -- let's leave aside lobbying and government handouts) entails delivering desired goods and services for the least cost.

Another point is that there may simply be a limit to manufacturing capacity demand. The developed world already has clothes, cars, houses, and a sea of useless toys. The added value is not in producing _more_ trinkets but in marketing and design to make people pay more for things coming from existing capacity.

It may be that a middle class along with other 20th century luxuries like extended idle adolescence, early retirement, and cheap food were only a byproduct of a one-time bonanza in cheap fossil fuel consumption.