Manufacturing

One of the things Obama emphasized in the SOTU today was increasing manufacturing jobs in America. You frequently hear all types of politicians and pundits talk about the importance of the manufacturing sector. It has been in decline, and many view that as the reason for widening income inequality. But is there anything special about manufacturing?

Matthew Yglesias has written a few articles about this I thought were really good, explaining how arbitrary the difference between manufacturing and services is:

if I make pasta then dry it and stick it in boxes, I'm manufacturing. If I make fresh pasta and serve it to you on a plate with my pea pesto that's services. The difference between manufacturing and services is not an ontological void between making things and not making things. It's really a gap between putting things in boxes and not putting them in boxes. Like if you build a bookshelf and ship to a store and I buy it, that's manufacturing. If I hire you to come to my house and install custom built-in shelves, that's services.

Plus, whereas people often act like our loss of manufacturing jobs is a recent phenomenon, you can see in this chart that it's been in basically the exact same steady decline since WW2 ended.

While there has been a correlation between manufacturing decline and income inequality, it seems to me that there's nothing intrinsic about manufacturing that should lead us to think that correlation is causation in this case. We need jobs and less income inequality, but I don't think that's any reason to have policies specifically favoring manufacturing.

This could turn into another topic, but I also generally don't like the idea our goal is to bring back jobs that have been outsourced. If a job is better done somewhere else; keep it there. I think that once we restore aggregate demand in our economy, the market will adjust to provide new jobs for people without policies designed to bring back the old ones.