Watch Out for Political Solution to Non-Problems

Here’s some editing of John Huntsman’s recent comments:

“When I was born in 1960, manufacturing agriculture comprised 25 four percent of our GDP. Ten years earlier it was about seven percent. Today, it’s down to around 10 one percent. This does not reflect a decline in American ingenuity or work ethic; it reflects our government’s failure to adapt to the realities of the 21st Century economy. It’s time for Made Grown in America to mean something again.”

MP: Even though the shares of GDP for both agriculture and manufacturing have fallen over time, the total production of agricultural and manufactured products have continued to increase to record levels in almost every year. It’s a testament to the increased productivity of American farm and factory workers that we can produce more output over time with fewer workers. And it’s those significant increases in productivity that have dramatically lowered the prices of food and durable goods over time, so that purchases of those goods represent a decreasing share of national and personal income.

If Huntsman is suggesting that increasing manufacturing’s share of GDP back to 25% would make us better off economically, then wouldn’t it also be the case that we would be better off if the farming/GDP share increased back to 7%? In both cases it would imply a significant reduction in worker productivity making the manufacturing and agricultural sectors much less efficient, leading to large increases in the prices of food and durable goods, and increasing the share of income spent on food and durable goods (see chart below for food). That would make us much worse off.

Bottom Line: It’s a sign of remarkable progress, not regress, that the farming/GDP and manufacturing/GDP ratios have fallen over time, and means that our standard of living has risen, not fallen. Be very skeptical of Huntsmam’s political solution to this non-problem because it would certainly make us worse off, not better off.

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