The real causes for the USA's trade deficit have less to do with its ability to manufacture goods and more to do with macroeconomic conditions such as its strong currency, relatively low domestic savings rate, and relatively high rate of foreign investment.
Theoretically, it should eventually sort itself out due to normal market forces. For example, domestic savings should increase and foreign investment should decrease as Americans begin to quit living on credit and start refilling their bank accounts. Incidentally, this sort of thing happened a few years ago, and was accompanied by a huge drop in the size of the trade deficit.
There was a wonderful article on lights-out machining in the States that I found thanks to HN - sorry I don't have the link - but which mentioned that manufacturing in the States grew by a third since 2000, while jobs were slashed.
That really complicates the conversation.
Lots of people seem to implicitly assume that by giving companies incentives to manufacture here, we can solve the employment problem. Um ... nowadays, there are manufacturing jobs that require knowledge of CNC machines and maybe even programming and/or metallurgy. Skilled stuff.
I want to know: now that we don't have the easy fix that 'wet robot' jobs gave us, are jobs on the whole being created or destroyed in high-tech societies? Even assuming people can be given technical skills in the numbers that they'd need, the openings for skilled technical work hardly seems sufficient for the masses of people being made redundant.
I feel like a Luddite even typing that.
Massage parlors and landscaping -- pretty geographically limited, ie limited competition, and scale poorly, ie no large competitors with economies of scale.
Is that the overall trend? The things that wealthy societies want -- in the future, will they increasingly or decreasingly come from geographically limited services that scale poorly and are thus good candidates for employing large numbers of humans? Even if increasing wealth grows the pie, will enough of the things we want in the future be the kinds of things that lots of our individual neighbors can give us?
I wouldn't bet on it.
I mean, I think it'll all work out -- it always has -- but I could also see lot of things we take for granted, like high employment and industrialized education as sufficient to prepare people for work, revert back to the historical mean a bit.
The historical trend is that as technology improvements have reduced the need for human labor in industries that used to be big employers, humans think up new and exciting ways to put the excess labor force to use.
When we look back on the era of cottage industry, we don't remember it as a golden age of high employment. We remember it as an era where the standard of living was lower because the huge amount of human labor that went into textiles meant that they were comparatively expensive. So expensive that after people were done paying to clothe themselves they had little money left for other consumer goods such as clocks, books, or glassware.
Similarly, we don't look back on the era of peasant agriculture as a time when every able-bodied person was virtually guaranteed a job in the thriving agricultural industry. We remember it as an era where most everyone was tied to the land and eked out their lives doing backbreaking labor.
As for whether the service economy can replace the manufacturing economy, I don't think that's a question we need to speculate on. Looking back on the past few decades of American economic development, it's clear that it already has. And that employment rates in the USA have remained relatively high throughout that process.
If we truly want full-automation of boring and dangerous jobs to become a viable alternative we need a society that is ready for it. You need appropriate living and working conditions, even geographic-spread of those jobs across, education facilities, re-education facilities and so on.
The same as you don't just jump from Capitalist to post-scarcity in the blink of an eye.
I don't think it's the most likely possibility, necessarily, but I'm totally open to the idea that near-full employment was a brief historical blip, caused by the momentary usefulness of humans as wet robots during the early days of automation, creating demand for them as 'employees.'
I sometimes suspect that both education and employment, at least as we know them now, are just blips caused by temporary conditions, and that may well revert to a less rosy historical mean. (I don't think that's a good thing, either -- history, uh, sucked).
Take education - what the heck chance does the current educational model stand of preparing people to be, say, a programmer?
It's not hard to learn programming. Not at all. And yet after 12 years of public school, 40-60% of the people who want to be programmers are weeded out of their very first year. That's a fairly damning indictment, given that programming is about the 'softest' engineering discipline out there.
But the truth is that most designers didn't start from zero in college, and most programmers the same. We came in knowing something, maybe knowing a whole bunch, maybe having done it since we were kids.
Industrial-age schools worked when it only needed to produce wet robots. What if that was a blip, and systems of apprenticeship, which are a natural fit for skills that may take several years of on-the-job experience to be really useful in, turn out to be the right model?
But what percentage of massage parlors, interior designers and mobile game programmers can a society sustain, under the current rules and conditions?
If we can get well-automated intensive consumer goods industry to provide basic necessities by using 3-4% of the workforce, and can finally make some progress in automating construction and other infrastructure, then I see no reason why all the "standard needs" can't be provided by ~10% of people, leaving the other 90% for these 'luxury' occupations. This can (and most likely will) happen after a few decades, still during my lifetime.
The problem is that we feel that when government spending minus taxes is greater than zero, it represents some kind of moral failing rather than what it actually is. Americans can't net save dollars unless more dollars get put into circulation than get taken out.
Incidentally, this was why the auto bailout was such a big deal -- it was not about protecting the car companies, but protecting the industry around it.
When do you think the peak of US manufacturing output was? It was actually 2007, it has only dropped since then due to the economic downturn. However, while US manufacturing output has doubled since 1975, the number of jobs available has more like halved, due to increasing per-worker productivity (from computers, containerized shipping, factory automation, etc.)
The question is: How do we create jobs for people with manufacturing skills in other industries that are more needed in our economy? We need to figure out a way to transition workers to jobs that are better for the economy, not keep on subsidizing industries in the name of creating jobs.