Be suspicious about automation as driver for dramatic change

Susan Houseman is a senior economist at the Upjohn Institute in Michigan. I first discovered her work in the Quartz article titled The epic mistake about manufacturing that’s cost Americans millions of jobs. But the title of this article isn’t quite right. America has lost millions of manufacturing jobs:

Between 2000 and 2010, manufacturing employment plummeted by more than a third. Nearly 6 million American factory workers lost their jobs. The drop was unprecedented—worse than any decade in US manufacturing history.

And Susan Houseman has discovered a flaw in how manufacturing output is measured:

even as US factories laid off an historically unprecedented share of workers, the amount of stuff they made rose steadily—or at least, it appeared to. The sector’s growth in output, adjusted for inflation, had been chugging away at roughly the same pace as US GDP since the late 1940s.

The problem is, the processor released in 2017 is superior to that sold in 2016 in many tangible ways. But how do you account for the fact that a 2017 processor provides users with more value? In general, statisticians assume the difference in value between the two models is just the difference in their prices. If, say, the 2017 processor costs twice as much as the 2016 one does, then selling one 2017 processor counts as selling two of the 2016 versions in the statisticians’ books.

the method statisticians use to account for these advances can make it seem like US firms are producing and selling more computers than they actually are.

This “epic mistake” Houseman discovered exposed artificially inflated manufacturing output which means that manufacturing output did not grow consistently as perviously thought. Therefore the narrative that “American factories are about twice as efficient today as they were three decades ago” must be false.

The article then goes on to say that:

China’s accession to the WTO in 2001—set in motion by president Bill Clinton—sparked a sharp drop in US manufacturing employment. That’s because when China joined the WTO, it extinguished the risk that the US might retaliate against the Chinese government’s mercantilist currency and protectionist industrial policies by raising tariffs.

And claims that:

US policymakers put diplomacy before industrial development at home, offering the massive American consumer market as a carrot to encourage other countries to open up their economies to multinational investment. Then, thanks to the popular narrative that automation was responsible for job losses in manufacturing, American leaders tended to dismiss the threat of foreign competition to a thriving manufacturing industry and minimize its importance to the overall health of the US economy.

So that article is arguing trade is responsible for the loss of millions of Americans manufacturing jobs and not the “epic mistake” that Susan Houseman uncovered. The mistake served to obfuscate the truth about trade but that is all.

I find the title of this post to be a more appropriate title for the article. We should always be suspicious of claims about dramatic efficiency gains. Improving processes is hard and only happens gradually, slowly and iteratively. Just ask Elon Musk.