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Net Manufacturing Investment was a miniscule 0.18% of US GDP in 2011
Howard Richman, 9/5/2012

High U.S. manufacturing investment means that American workers are getting new tools at a faster rate than old tools are wearing out. But when net manufacturing investment (gross investment minus depreciation) is just above zero, tools are wearing out almost as fast as they are being purchased. As a result, American manufacturing workers lose out in world competition.

According to statistics released on August 15 by the Bureau of Economic Analysis (BEA), net U.S. manufacturing investment (gross investment minus depreciation) continued at minuscule levels in 2011, at just 0.18% of GDP. This continues the extremely low average of 0.20% for the decade beginning in 2002, as shown in the graph below:

If the United States were trading other products for manufactured goods, our low manufacturing investment could be justified by the doctrine of comparative advantage, but the collapse of American manufacturing investment has coincided with the collapse in the U.S. trade balance shown in the graph below:

InvestmentAndTrade19512011.gif

So why is U.S. manufacturing investment low. The reason is simple. Presidents GW Bush and Barack Obama have let emerging market governments buy massive amounts of dollar reserves in order to give their manufacturers an advantage and to give our manufacturers a disadvantage in world markets.

Figure 8 from Federal Reserve Chairman Ben Bernanke’s November 19, 2010, speech in Frankfurt Germany, shows that 13 of 16 emerging market governments devoted more than 3% of their countries’ GDP to currency market interventions from September 2009 to September 2010. Even though currency manipulations violate the International Monetary Fund's articles of agreement and WTO rules let trade deficit countries require balanced trade, Presidents Obama and Bush permitted them.

Thus, emerging market workers get manufacturing investment while U.S. workers do not. President Obama was correct to blame President Bush for poor management of the U.S. economy. Unfortunately, President Obama has not done any better. He gives himself an "I" for "Incomplete", but he deserves an "F" for "Failure."

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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