The dangerous assumption of the investor class

[Ardent15]

So much of modern business has been focused on investment. The dangers of this is that many businesspeople have come to believe that if you have taken care of the investors, you have taken care of the economy. Forget things that create wealth, like jobs or a manufacturing base. And who cares about debt and unemployment when the nation's investor class is doing great?

The people who take care of the investor class simply don't care about the woes of small business, the decline of manufacturing, or an enormous debt to China. As long as this one class is happy, it's all good.

[elleng]

1. The times they are changing,

and everyone will have to adapt, otherwise we're all in a bad way.

[Speck Tater]

2. Problem is they are now mostly investing in ... investments.

They are just gamblers betting on the outcome of bets made by other gamblers. It's a whole world of make-believe virtual wealth with nothing tangible to back it up. Reality has no meaning in their world.

But reality always gets the last word.

[Statistical]

3. There has been no decline in manufacturing.

Another tired wrong and oft repeated meme.

The US is the LARGEST industrial power in the world and has highest industrial output in sheer numbers and on per capita basis.

Productivity gains has resulted in the same output with less workers but US industrial output is still rising.

[girl gone mad]

8. Globalist balderdash.

Since the 1950s, American manufacturing has dramatically declined, as a relative share of the American economy. In 1958, 28% of employed Americans worked in manufacturing; in 2008, only 8% did so. In 1958, there were 14.6 million factory workers; in 2008, only 12.7 million Americans worked in factories. Not since the industrial revolution in the mid-19th century has manufacturing occupied such a small relative share of the American economy.

In his review of American manufacturing, Stephen Manning, writing for the AP, presents these statistics, but fails to appreciate their importance (Stephen Manning, "Just What Is Made in USA Nowadays?" Press-Enterprise, Riverside, California, February 21, 2009.). The important statistic, he says, is that in 2007 the US sold $1.7 trillion of manufactured goods at home and abroad. To have produced more with fewer workers, he says, indicates our great growth in productive efficiency. It is an efficiency that returns money to America. Unhappily, he has understood the significance of his data. It is not a story success about increasing wealth; it is a story of dimishment and declining wealth.

First, the retail dollar value of tangible goods "manufactured" in the US does not reflect the value of American manufacturing. Many components of American big-ticket products--missiles, aircraft, automobiles--are now manufactured abroad, imported, and inserted during the assembly process into goods that are "made in USA". Automobiles and aircraft are truly global products. Much of that dollar value obtained at time of sale of the products is sent out of the country to manufacturers abroad.

Second, the decline in number of workers in the manufacturing labor force has resulted in a decline in living standards for the blue collar work force as a class.

Third, value of manufacturing to the economy is not measured in efficiency, but in productivity. Efficiency is a significant measure for the companies making the products, as it relates to profit or net income. Productivity is a significant measure for the nation as a whole. Part of productivity is what is being produced. The substitution of non-productive service and governmental employment for productive manufacturing employment decreases the nation's wealth, if not its income. Wealth is assets that produce income. Manufacturing creates such wealth; service produces little wealth; government produces no wealth. Only when the products of services and government, such as engineers trained in schools, are manifested in manufacturing companies making tangible goods do the service companies and government thereby indirectly generate products.

http://shroudedindoubt.typepad.com/bodyparts/2009/02/the-decline-of-american-manufacturing.html

[Statistical]

10. Never said the % of economy devoted to indstry is rising.

Nor did I deny that other portions of the economy are rising FASTER. However Industrial output is NOT in declined (as suggested by OP) and is actually increasing.

The US is the largest industrial power in the world. We are almost equal to the next two countries combined (Japan + China) and almost greater than the entire European Union combined. If you look at it on a per capita basis the US still is on top (although Japan is very close on per capita basis).

US manufacturing has grown over the last 3 decades. No way to deny that fact.

Two issues face US manufacturing labor:
1) productivity increases require less labor for the same amount of output
1) the rise of industrial output has been LESS than productivity gains (productivity has risen faster than demand for US goods).

The combination has resulted in a sharp drop off in INDUSTRIAL LABOR but to say the US INDUSTRIAL OUTPUT is in decline is simply wrong.

[RaleighNCDUer]

15. Of course, manufacturing increases when you have putting

hanburgers together at McDonalds reclassified as 'manufacturing'.

Assembling components made in Asia is NOT 'manufacturing', even if the government claims it is. Look at your desk. What there, including the desk itself, was manufactured in the US? Computer? Printer? Cork board? File cabinet? Anything?

[Statistical]

17. One hamburgers aren't classified as industry.

Two consumer goods are not the entire extent of world eocnomy. Actually consumer goods tend to be the cheapest, lowest margin, lowest skilled segment of all industry.

China is starting up 80 nuclear power plants over next 30 years. Where are those reactors made? Oh yeah the United States.

Who builds the majority of the satellites currently orbiting our lovely planet? Oh yeah that little country called the United States.
Once they are built who launches the majority of them? Oh yeah once again that "non industry" US.

Who is a major exporter of the following?
Diesel Electric Locomotives
Semiconductors
Networking Equipment
Telecom Infrastructure
Civilian Aircraft
Weapon Systems
Pharmaceuticals
Custom Chemicals
Precision Machining Equipment
Turbines
Automotive Parts
Complete Automobiles
Heavy Industrial Machinery

Here's a hint it is that country everyone claims "makes nothing". The US didn't become the largest industrial power and third largest exporter by "making nothing".
Sorry you need to realign your world view. Cheap consumer crap is not the end all to industrial power in the world economy. The US is NEVER EVER EVER going to compete with low margin consumer crap. Trying to is simply a recipe for failure. The US can and does compete in highly skilled, high margin products. We should focus our attention to opening new ports for these products we make better than anyone in the world.

[girl gone mad]

16. Not correct.

http://www.federalreserve.gov/releases/g17/Current/table9.htm

This table shows almost a 30% decrease in consumer durable goods output between 2000, and third quarter 2009. When people think of American manufacturing, they usually think of cars, washing machines, toasters, etc., which falls into the durable goods category. Things like finished aeropspace and military equipment get counted toward our output, even though many or most of the parts that go into complex machinery are actually manufactured overseas. There are other problems with your analysis, but the bottom line is that we can't create enough service jobs to replace the displaced manufacturing jobs. We are digging our own grave here.

US industrial output falls for 5th month to 10-year low

WASHINGTON (AFP) — US industrial production fell in March for the fifth consecutive month, by 1.5 percent, to the lowest level in a decade amid a prolonged recession, government data showed Wednesday.

The seasonally adjusted monthly decline matched the 1.5 percent drop in February, revised up from a prior estimate of 1.4 percent, the Federal Reserve said.

The March slide was much steeper than the 0.9 percent decline expected by most analysts.

Output in March dropped to its lowest level since December 1998 and was nearly 13 percent below its year-earlier level.

On a 12-month basis, output was down a hefty 12.8 percent.

For the first quarter of the year, industrial output dropped at a punishing annual rate of 20.0 percent, the largest quarterly decline "of the current contraction," the Fed said.

Output had fallen 12.7 percent in the final quarter of 2008.

[Arctic Dave]

11. I asked in an earlier post to show a link to your statements.

I am interested to see what it is we are manufacturing and exporting.

[Statistical]

13. I should get back to studying but here is somewhere to start.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition

You can sort by industrial output (far right).

While industry/manufacturing now represents a minority of US economy (1% Agr, 20% Industrial, 79% Services) the entire world economy is moving towards services (4%, 32%, 64%) as is the EU economy (2% Agr, 27% Inustrial, 71% Services).

US industrial output still remains high and is growing (although not as fast as productivity). If industrial output grows say 30% over a decade but productivity grows 50% then that will result in a net loss of jobs.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html

US is third largest exporter. I think the disconnect here is consumer goods =/= all international trade. Most consumer goods a relatively low margins, mass produced, unskilled products. The shift in manufacturing to third world has been exactly this type of product.

US exports tend to be high precision, high costs, large capital expenditures like locomotives, power turbines, computer precision machining equipment, nuclear reactors, complex weapons systems, large industrial items (ships, boilers, construction equipment, etc).

The idea the US can compete in low margin items is a failed strategy. Instead US should focus on the things we produce the best and our govt should work to secure ports for those products. If the US govt hadn't neglected nuclear power for 3 decades likely we would have 100% control over that industry. A single nuclear power plant runs $3-$5 billion. It takes a lot of toys from China to equal a single nuclear reactor.

Here is a list of top US exports....
http://import-export.suite101.com/article.cfm/top_american_exports_in_2007

I know there is one for 2008 just can't find it right now and I need to get back to studying my dead-end service job (since everyone knows ALL service related jobs are all "fake")..... software development. :)

[Arctic Dave]

14. Hanks for the link.

[Turbineguy]

4. It's the Finance Class

They don't actually make anything. They have no idea really how wealth is created, only how it's shifted.

[natrat]

5. thing is they don't have to care like in the past

the investment money goes overseas and other countries buy the widgets now so who cares if the domestic market caves. Thank you clintons and the rest of the whore politicians for nafta.

[RKP5637]

6. Excellent points and so very true! Seems all many people look at are investments ...

and the stock market. I get so tired of seeing the DOW on the screen when Obama talks during active trading. Many in this country have wrong business planning priorities and judge results on the wrong statistics. It is a dangerous recipe for success in the 21st century. As I've told some endlessly, just because the stock market goes up does not mean you're getting employed and/or the country is doing well.

[SoCalDem]

7. "Business" used to be about

1. finding a need
2. making/building to fill that need
3. hiring people to make & build
4. using profits from selling what was built/made, to bolster the business & pay the workers, hire more workers, support the family of the owners of the business

The money earned by the workers at company "A", were spent locally, buying the products made by company "A", "B", "C", etc

Businesses that overextended themselves, where the boss took too much money out for himself, where the need was improperly defined, or where bad management was present... well they FAILED

Businesses that could not support themselves, and that needed vast quantities of "investor money" were often doomed to failure, because "too many cooks spoil the soup"...and a business that has to constantly raise money in order to make payroll or to pay the bills, probably has a bad business plan, or does not make a necessary product

[unblock]

9. it happens in every trade, large or small.

if something is worth $5 to you and $10 to me, then a trade will happen and the economy will benefit, as will both of us.

but at what price? if at $6, then i will have $4 profit to your $1; if at $9, then it is the other way around. our negotiating power and skill determines the price and the outcome. in practice, the bigger player invariably comes out on top. when businesspeople talk about "economies of scale", they pretend that they mean it in an engineering sense, like bigger plants are more cost-efficient. which may be true, but the bigger payoff of scale is that you can bully everyone you deal with. wal-mart has so much power as a purchaser of goods for retail that it keeps squeezing their suppliers until they ship their jobs to china and accept much lower payments.

but this happens even on a small scale. anyone who can negotiate a volume discount is playing this sort of game.

[bertman]

12. After years of investing via a 401-k, I asked myself if it is moral for my long-term

financial security to depend upon the actions of some corporate managers I do not know, whose motivation I do not know, whose methods I do not know, whose attitude toward their employees I do not know, whose commitment to the long-term success of the corporation I do not know.

My conclusion was "No."

By being an "investor" I had been turning my dollars over to SOMEONE SOMEWHERE to turn a profit so I could make more money. The idea that I would give my money to someone whose only responsibility was to the "bottom line" was not something I cared to continue.

I've heard about the "socially responsible" investment plans but I don't know if they are really a good idea. Any opinions??

[Statistical]

19. Here is a place to get started.

http://www.socialinvest.org/resources/mfpc/

The bad news is likely your 401K doesn't offer an SRI (socially responsible investment) option.

However if/when you leave your current job you can rollover an 401K into an IRA (even better pay taxes one time and roll it over then convert to a Roth IRA).
An IRA allows you to control the direction of your funds.

http://www.calvertgroup.com/

Calvert is one of the largest SRI.

Nice thing is they also have "theme based funds" like alternative energy fund.

The normal legalese disclaimer applies. I am not a financial adviser, investing is risky, read the prospectus, due dilligence is your responsibility. I am not affiliated with either site just have found them interesting. My wife has substantial portion of her IRA in SRIs. Me on the other hand I take a more profit and then use profits for good methodology.

[bertman]

21. Thanks, Statistical. I'll check out those sites.

[Hidden Stillness]

18. They Reduced Their Whole Definition of "Economy" to Investors, and This is Why Policy Fails

This is an important point to make and keep in mind on so many levels, because it makes clear again why some things work, and so much of what has been done over the past 30 years or so, has done nothing. The single best return to the real economy, of tax money spent on Government programs, is food stamps, with a clear boost to the local retail economy, followed by unemployment benefits; both are spent immediately, to good effect. Tax cuts get much less response, and tax cuts to rich people return nothing measurable, because they do not lack and need anything, so there is no immediate spending. It is saved or invested, which helps nothing.

Further, gearing Government actions to corporations always ends up defeating the whole purpose, as with the multiple cases of corporations given so many tax cuts, subsidies, and othe "incentives," that the State has to carry them and only loses its own revenue on the arrangement. We have lost manufacturing jobs and industries--here in Michigan, our unemployment rate was just revised upward to 22.8%, because of the collapse and long-term outsourcing of the auto industry. That is the need.

Gearing tax money spent by Government programs to "entreprenuers" and their businesses, rather than to the unemployed and the general population, also does not work, as with Clinton's "empowerment zone" scheme. People built commercial enterprises in depressed areas (Detroit had several), and then--surprise--no one has money enough to support anything in the area, and they all failed. If the programs had been geared to the poor and unemployed instead, and the lack of money in the depressed area, and solved the actual problem, things might have been different. In this current era's "everything for capitalists" mentality, though, that will never happen; it will all fail instead. There will probably be no improvement at all until someone can understand why the New Deal approach is the only one that works.

[OHdem10]

20. It is as if the Investor Class have chosen to ignore the obvious

signs in the economy. Everybody does keep repeating that
silly phrase " Jobs are always a lagging indicator". It
appears that the Wall Street Crowd seem to think the recession
is over and jobs will be well and all will be just as before
the Great Meltdown. Jobs are not and will not come back.
If and when some begin to get jobs, most of these people
will be working at a much lower wage than they made previously.

My point is at some point in a sound economy, there is a connection
or relationship between Wall Street and Main Street. If people
are not earning as before, this adversley affect Wall Street and
Main Street. If they ignore this again and continue to do high
stakes gambling---watch out. We may end up with a Great Depression
after all. I hope not