This is going to stray a little bit from the regular focus on pure politics for us. But I was sitting around thinking about this tonight and I wanted to get some of you smart folks to add your thoughts on where my head is at. As many of you know I am a full time student as well as the fabulous author of this blog, which means that I split a lot of my time between here and work and schoolwork (but only for 11 more days… another degree almost finished!!!). So my head is in the world of business for school a lot. In a lot of the writing I have been doing for school I have put forth the premise that we have begun the switch away from the industrial economy that made us a world power in terms of economies…

Let me say up front that, for this article at least, I want to stay away from the arguments or debates about whether it is right for the government to tax us, or to use taxes to control business. I know that we all have differing views there and I don’t want to get bogged down getting past them to get to the points. So for the purpose of this debate, let’s assume a few things here: The government system is what it is right now. The tax code is complicated and can be used to manipulate the free market (I know many of us hate that but it is the reality of the market today, so let’s just say we deal with it for this debate). What I want to discuss here is economically what is the best course forward for our country on the most basic level.

A little history here. In the late 1700′s and early 1800′s, the world saw the events we now call the industrial revolution. We transitioned from an agricultural economy to an industrial economy. During this time, technological and economic progress gained momentum with the development of steam-powered ships, railways, and later in the 19th century with the internal combustion engine an electrical power generation. GDP per capita was broadly stable before the Industrial Revolution in and the emergence of the modern capitalist economy. The Industrial Revolution began an era of per-capita economic growth in capitalist economies. And we saw the American economy begin to flourish over time as the US became a major force in manufacturing. 

Over time we have seen this force of manufacturing leaving the US. This has happened for many reasons, but the results are obvious. We began to be out-manufactured by countries such as Japan; the auto industry is a prime example of this. Textile industries largely saw the same things happening. Manufacturing began to move overseas, for many reasons. The point is that manufacturing became a secondary part of the US economy. And agriculture is long gone as a factor, constituting only about 1% of the GDP. 

The shift has been evident. The US is the largest importer in the world, however even with the largest economy in the world, we are only the third highest exporter in the world. Basically this means that we are importing more goods manufactured abroad than we are exporting. That is the definition of moving away from being the world manufacturing giant. The US is now what is termed a post-industrial economy.We are now far more service based, with the service sector representing 67.8% of the GDP in America. 

The leading business fields by net income it is finance and insurance industries. In 2005, 155 million persons were employed with earnings. The majority, 79%, were employed in the service sector. With about 15.5 million people, health care and social assistance is the leading field of employment. This shift to service is what I term the knowledge economy. Knowledge and service based on that knowledge are what is for sale in America these days. 

So enough history, just take a look around you to understand what I mean by all of this. Look at how much of our economy is in the financial sectors, the insurance sectors, IT fields, pharmaceutical fields, Retail industry, Food Service industry, Repair services, health services; I think you get the point. How many people do you know that are somehow involved in actually manufacturing anything anymore? Look at the state of the traditional manufacturing towns: Pittsburgh, Cleveland, Buffalo, Worcester, Cincinnati, Baltimore, and Detroit. 

A quick side note here… Worcester, Massachusetts is the home of my people. It saddens me to see that town go downhill. It was once the largest inland port in the United States. But if you ever find yourself in Worcester, do yourself a favor and head on over to Southbridge Street and get some hot dogs from George’s Coney Island Hot Dogs. They are the best in the world. The place has been there since 1918. My grandmother and grandfather used to go there for dates. So did my father, and so did I. The atmosphere is amazing as the original wooden booths are still there, with four generations of my family’s initials carved into them (U have to see the booths to understand, they are all covered in carvings and writing). I know there are some Worcester readers of the blog, and you all know what I am talking about. George’s Coney Island is an American Institution. I miss it terribly. 

Couple this move away from manufacturing and towards this knowledge based economy with the fact that our schools systems are not focused on giving children knowledge. They are focused on giving them propaganda and indoctrinating them into the system. What we are finding is that in terms of knowledge we are being outperformed by many different countries in Asia and Europe. 

So it makes me wonder if we are making a giant mistake here in moving towards this knowledge economy. Let’s just look at the two industries that were noted above as the highest net income fields, financial and insurance. These are two of the most corrupt industries in the country, as we are seeing with today’s financial mess involving… you guessed it the financial and insurance industries. Insurance giant AIG and financial giants such as Bear Stearns, JP Morgan, Citi, Bank of America, and Leahman Brothers. 

Since the financial and insurance industries are the two leading economic industries in America, is it any wonder that their failures and manipulations are at the root of the flagging economy? With 10% of the people employed in the health services industry and the social services industry, is it any wonder that these broken systems (oddly enough broken, at least in part, because of the insurance industry) are major parts of the equation as well?

As another quick side note, I have found that I don’t seem to have nearly as much of an issue with those bazillionaires that make their money in manufacturing. At least they are providing a tangible product in exchange for the Billions the earn. In direct contrast to that are the financial folks who are becoming Billionaires by manipulating the markets and leveraging my money 40:1 for lending. In my head manufacturing just seems like a far more honest way to make a fortune. Hate Bill Gates all you want for having a “monopoly”, but you all got computers in exchange for your money. What did you get from your bank?

I guess the point to all of this in my thinking process is that I have to question whether it is healthy for the US economy to be so service based? Look at the convoluted answers we get as to how to fix the economic problems. No one seems to know because you cannot just say lower the interest rate and give the banks $700 Billion and everything will be fixed. There is not a tangible fix here. It isn’t like manufacturing, where increasing quality and product rates is a tangible thing to do. 

So as I think about what we need to be doing in order to get things fixed, the question becomes for me whether the focus should instead be on reviving American manufacturing? I know this is not an easy thing to do. We would have to fix quality in Detroit, lower wage expectations for manufacturers, gain some control over certain out of control unions, and provide a reason for companies to manufacture here, where costs will be higher. We would have to decrease the amount of costly regulation, the amount of costly tax burdens on companies. 

So now I will turn it over to all of you. Should we be focused on returning to manufacturing as the way to getting our economy back on track? It would probably take 10-15 years to make it work. If we did decide that this was the best way forward for America, could it even be done in today’s global environment?



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