PPI In the News

Manufacturing and Inflation

PPI’s Michael Mandel was cited over at Slate about the potential to decrease unemployment through an increase in manufacturing jobs in the United States. While Slate’s Yglesias views this as unlikely, the proposal is nevertheless intriguing.

It might seem odd for the United States to be running such a large trade deficit amid such high unemployment. One of the main reasons to import goods rather than make them yourself is that by importing goods you free up scarce labor to do other things. But right now we’ve freed up labor to enter the unemployment sector. Bad news.

One potentially useful way of thinking about this is through the calculation Michael Mandel deploys to ask what the economy-wide consequences would be of balancing America’s trade in nonoil manufactured goods (PDF). He thinks it would take 3.5 million to 4 million workers to make the requisite stuff. Potentially that would be a very costly change if it involved 4 million fewer people working in hospitals, schools, and restaurants just to get our hands on material goods that we already have. But unemployment is high. So under present circumstances, he writes that this could “reduce unemployment by about 2.3-2.6 percentage points,” which would be a lot.

However, firms don’t locate production abroad for no reason. They do it because it’s cheaper. So if we relied more on domestically made goods, prices would have to be higher

Read the entire article HERE