Politicians say we have the most productive workers in the world. They don't know what they're talking about.
Better data could fundamentally alter the policy debate over how to rescue the U.S. economy. For example, economists and journalists repeatedly say that the U.S. economy won’t recover and jobs won’t come back until the consumer starts spending again. That seems to imply that the U.S. needs another massive jolt of fiscal stimulus directed toward pumping up consumers. But which producers would really benefit from such a jolt? If U.S. manufacturers have cut back on factory jobs because of higher domestic productivity, then boosting consumer demand will indeed cause the factories to hire back American workers. But if cutbacks in manufacturing employment have come from increases in supply chain productivity, then giving Americans more money to spend on clothing and consumer electronics will simply boost employment in other countries.
Instead, an effective domestic job creation strategy would need to target the production side of the economy. That means focusing on areas that stand to improve the productive capacity of the country, such as better infrastructure and regulations that would make it more attractive for businesses to invest and hire in the U.S.
In addition, the information generated by the competitiveness audit would assist in targeting economic development funds in a way that gives us the biggest bang for the buck. Rather than wasting billions, we could identify which domestic industries are close to being competitive with foreign goods and services, and invest in those. These borderline cases would benefit the most from targeted help to “recapture” domestic market share from imports and gain global market share via exports.
On a broader scale, we need to understand our true productivity and competitiveness in order to generate the political will to make the big changes that are needed to prosper. Politicians love to tell voters that American workers are the most productive in the world, even as, in the next minute, they play to anxieties about runaway federal spending on health care, the excess of government debt, the rise of China, and the decline of the U.S. education system. The more politicians and economists emphasize the high productivity of U.S. workers, in other words, the more they weaken their own cases for entitlement reform, tax reform, education reform, or any other action that would dramatically change our current trajectory.
Indeed, our misleadingly high productivity figures help enable a whole political culture of confusion and complacency. Only after we accept that the official figures have led us astray can we hold a true political debate about what type of economy we want to have. Do we want to keep proceeding along our current course, borrowing hundreds of billions of dollars each year to temporarily prop up consumption? Or do we want to rededicate ourselves to becoming a production economy once more, which requires cutting back on consumption and boosting investment in physical, human, and knowledge capital? What voters really need to hear is the truth. Manufacturing today is not like agriculture yesterday. A happy ending is possible, but it is not inevitable.
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