Make America Great Again?

What’s all this about “again”? We certainly have our problems but the U.S. is still an incredible engine. As the old saying goes, “In the land of the blind the one-eyed man is king.” We are qualified to be the one-eyed man today, having recovered more impressively than almost any other country from the Great Recession.

Take manufacturing for instance. As the chart below shows, it is still the biggest contributor to U.S. GDP, and manufacturing production has just about recovered to 2008 levels. We expect to go to record numbers shortly.

The problem, however, is employment. Productivity in manufacturing, how many more widgets you can produce per hour of labor, has gone up impressively over the years. This means we can produce more with fewer bodies and these fewer bodies are being squeezed, not earning as much money (in real terms) as previously. Since 1990, nominal (not adjusted for inflation) weekly wages have gone up from $400 to $800. Pretty impressive. But when you strip out inflation the percentage gain in wages the past nearly 20 years is only maybe 10%.

Elkhart, Indiana is a good example of what is happening now. Elkhart is the world’s center of recreational vehicles (RVs) production. The town was hard hit when sales declined in the last recession. Now things are booming. Unemployment is under the national average and many manufacturers are paying up to $23 an hour for skilled labor.

But Elkhart is a worried community. Donald Trump is doing quite well there, playing to the anxiety of stagnant wages, the uncertain economic future and the erosion of the middle class. In addition there are social issues like gun control, same-sex marriage and the Affordable Care Act.

Andy Grove the former head of Intel who died recently, was famous for saying, “Only the Paranoid survive.” This was the title of one of his books. It is healthy to be a bit paranoid, or as Satchel Paige would say, “Don’t look back. Something might be gaining on you.” But America seems to have overdone things recently. Yes, competition and lower wages outside the U.S. have eroded the U.S. middle class, but still the economy is growing. The test of our economy will be how well we train and retrain those who in the past came out of high school, got good paying jobs in manufacturing and retired after 40 years with a pension. Those days are gone. We will need to be more nimble and constantly reinventing ourselves to move up the value-added curve.

Manufacturing is far from dead in America, but it is fast changing and the skills needed to compete are a challenge. Job One for America - - and this includes industry, our education system and Government - will be to provide workers with what is needed to take advantage of the opportunities the global economy will present us with.