Is U.S. Manufacturing in Decline? Pop wisdom says Yes some evidence. But these facts do not mean that American manufacturing output is declining absolutely or per-person. Real Per-Capita Manufacturing Output in America. 1970: $7,569 (2011 dollars) 2008: $11,687 (2011 dollars).
Is U.S. Manufacturing in Decline?
Pop wisdom says Yes
But these facts do not mean that
American manufacturing output
is declining absolutely or per-person....
1970: $7,569 (2011 dollars)
2008: $11,687 (2011 dollars)
This happy trend is the result of
steadily and dramatically improving
But would America’s manufacturing
sector be even larger if low-wage
foreign countries weren’t
becoming so dominant in
Maximum Amounts Possible to Produce
Amounts Produced AND Consumed
Tom offers to give me 37 fish if I give him 25 bananas
Some more simplifying assumptions:
1. Don’s fish and bananas are identical to Tom’s
2. Don and Tom are trustworthy
3. Don and Tom each want, with trade, to continue to consume the same number of bananas that each consumed without trade (that is, 25 bananas for Don and 50 bananas for Tom)
Amounts Produced with Trade
Amounts consumed with trade....
DonTomania is Wealthier by 25 fish!
With trade, each of us can consume more than each of us can produce!
With trade, each of us can consume MORE than each of us can produce!
Not at all.
Ask: What does It Cost me to produce a fish? A banana?
Then ask: What does it cost Tom to produce a fish? A banana?
If those costs are different, then there is the potential for mutual gains from trade
Don is the lower-cost bananaerererer...
Tom is the lower-cost fisherman
Trade enables each of us to tap into the better talents of the other
Don wants fish and bananas and can produce his own fish at a cost of 1 banana. Because Tom also wants bananas yet can produce his own only at a cost of 2 fish, Tom figures out that, (1) because he (Tom) can produce a fish at a cost of 1/2 banana; (2) that Don wants fish; and that (3) Don’s cost of catching his own fish is 1 banana per fish -
Tom realizes that he (Tom) can enable Don to profitably “produce” his (Don’) own fish by him (Don) first gathering bananas (at a cost of 1 fish per banana) and then trading each of those bananas to Tom in exchange for more than one fish (say, 1.5 fish per banana).
The result of Don getting from Tom 1.5 fish for each banana that Don produces and exchanges is that each fish that Don “produces” in this way cost him only 2/3rds (or 0.67ths) of a banana.
Any ratio of exchange (“price”) of fish for bananas that has fish fetching at least slightly more than 1/2 banana yet no more than 1 banana is mutually advantageous.
The reason is that Tom’s cost of producing each fish is 1/2 of a banana, and Don can produce his own fish at a cost of 1 banana
Tom’s Concentration on fishing makes him a better fisherman
But Tom’s becoming a better fisherman makes
him a worse bananaerererer....
That is, each banana now costs Tom 3 fish to produce
rather than 2 fish
And Tom’s becoming a better fisherman also makes
me a relatively better bananaerererer....
That is, whereas before I could produce bananas
at 1/2 the cost that Tom incurred to produce
Now I can produce bananas at 1/3 the cost that Tom
incurs to produce bananas.