America’s FIRE Economy: The secular decline in manufacturing and the rise of finance, insurance, and real estate (FIRE) is shown relative to U.S. GDP:

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Source: Macroman

Category: Markets

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23 Responses to “Manufacturing vs Finance Insurance Real Estate”

  1. Petey Wheatstraw says:

    The values would average to a net loss to the bottom line of GDP (within this limited, but important, set).

    As for the remainder of GDP, has there actually been growth, or is the devaluation of the dollar responsible for apparent growth/expansion?

  2. Rescission says:

    This is disturbing.
    Manufacturing goods is so important to the long term health of an economy and a society.
    While, IMO, Finance and Insurance really don’t add any value to the economy, especially finance.
    We became consumers instead of producers, and finance simply allowed us to do more consuming.
    Spenders vs. Savers. We need a tidal wave change in culture where producing, thrift and saving become status goals, and get away from the myth that luxuries, spending (using debt) and accumulating toys is equivalent to real wealth.

  3. Dow says:

    How much of that is a result of private equity asset stripping what little still remains of American manufacturing?

  4. Sechel says:

    The role of a healthy financial sector is to support the “real economy”. But now it’s the opposite, like the tail wagging the dog.

  5. franklin411 says:

    Now, compare the graph of manufacturing in the US to a graph of the national debt, public support for education, the number of patents registered by country over time, etc…

  6. Kort says:

    What little remains of American manufacturing? We are #1 in the world and produce 40% more than China (#2).

    From 3 days ago:

    http://www.msnbc.msn.com/id/41349653/ns/business-us_business/

    “The United States has lost nearly 8 million factory jobs since manufacturing employment peaked at 19.6 million in mid-1979. U.S. manufacturers have placed near the top of world rankings in productivity gains over the past three decades.

    That higher productivity has meant a leaner manufacturing force that’s capitalized on efficiency.

    What’s changed is that U.S. manufacturers have abandoned products with thin profit margins, like consumer electronics, toys and shoes. They’ve ceded that sector to China, Indonesia and other emerging nations with low labor costs.

    Instead, American factories have seized upon complex and expensive goods requiring specialized labor: industrial lathes, computer chips, fighter jets, health care products.”

  7. paulsta says:

    I’ve been directly involved in Fortune 500 Manufacturing site selection . . . and can say that the overwhelming factor driving manufacturing overseas is taxation. Over the years sites like Singapore, Ireland, Puerto Rico, and many others are favored due to the *Tax Holidays* offered there. When you factor in a site where you can operate free of taxes vs a 35% tax rate in the US it isn’t a hard decision. Now you can see similar tax avoidance strategies being played out in Ireland with Service companies like Google.

    It pains me no end to see our ignoramous public policy wonks work (by default) to gut our economy of value, and align themselves with corporate oligarchs.

  8. ashpelham2 says:

    I wonder if this graph can be produced for other developed and developing countries? I’d be interested in seeing this chart from Italy, Germany, Spain, UK countries, China, Japan, and a few others. I suspect that it’s natural for an advanced society to move away from making big heavy stuff to more intellectual products, but I know it’s also at great peril to completely do away with a nations’ heavy industry (to develope and manufacture it’s own weapons).

  9. Jojo says:

    Not surprised because the job ads are loaded with jobs for insurance agents (own your own agency!), RE agents and financial planners. These are jobs where it is not difficult to get a license. But they have huge churn.

  10. IS_LM says:

    Banking used to be called the 1-2-3 industry. Pay 1% on deposits, loan at 2%, and head to the golf course by 3.

  11. paulsta says:

    It would be interesting to do a thorough review of the public policies in Germany compared to the US. German manufacturing remains an important element in their economy, despite the relatively high costs of operation. Most generally view their policies as providing a more highly skilled workforce (greater emphasis on vocational/trade skills vs US), and I suspect their taxation favors long-term ownership of firms (compared to the “flip it” mentality prevelant in the States). Finally, they’ve been focused on being global for the past 50 years . . . whereas US mid-market manufacturers are far less focused on competing globally. I admire companies like Stihl, Martin, and others that compete so well globally.

  12. sickmint79 says:

    ash, what intellectual products are they making? liquidity? the finance sector is supposed to support the economy, not be the economy.

    h/t michael hudson, originator i believe of the term FIRE. also used often by eric at itulip. my favorite site (no offense barry!)

  13. spiderjhn says:

    The pulse rate of the dying middle class. I have watched as the manufacturing jobs have left and remember hearing that not to worry, these jobs will be absorbed by the service economy. Now we have a true unemployed/under employed somewhere north of 16%, debt 14T and inflation raising its head. Does Mr. Berbanke care that he is squeezing the people on fixed income?
    I know a lot of people here in NC that are hurting and I am afraid the hurt will continue for a long time to come.

  14. DeDude says:

    Rescission;

    Whereas I agree that luxuries, spending and accumulating toys has nothing to do with real wealth it has everything to do with GDP. The “man-hours” freed up by increased productivity can either be used to complete more tasks and produce more things (which increase GDP), or to allow individuals to retain the same standards of living on less lifetime work-hours (which would not grow GDP). Many countries in Europe have used a fair amount of their increased productivity to give people less work and more free time, whereas US used it to get bigger cars & houses and more toys. As a result our consumer driven GDP has grown more than theirs, but I am not sure that has given us a better or richer society.

  15. JohnnyVee says:

    This is the problem. Everything else is the symptom of this problem.

  16. philipat says:

    1. Now that the US no longer manufactures anything, what happens if there is a real war and supplies from Asia get cut off?
    2. Irrespective, is it sustainable to have an economy which is 70% dependent on the sheeple buying cheap crap from China?
    3. Also irrespective, given the way the economy is controlled by the Corporatocracy, the sheeple won’y be able to keep spending, so where can the economy go? The Corporatocracy doesn’t care because with globalisation they can sell to developing economies, and increasingly do so. But the strategic implications of all this for the US are troubling.

  17. Jack says:

    Back in the ’80s a guy named Victor Kiam was on 60 Minutes because he had turned around Remington Shaver. When asked about the future, he said (I paraphrase) that if the US kept going in the direction it was, pretty soon we’ll all be selling life insurance to one another.

    Are we there yet?

  18. jaysan says:

    I first learned about this at itulip.com, created by Eric Janszen, author of the recent “THE POST CATASTROPHE ECONOMY: Rebuilding America and Avoiding the Next Bubble.”

  19. Jojo says:

    philipat said 1. Now that the US no longer manufactures anything, what happens if there is a real war and supplies from Asia get cut off?
    ————
    Actually (and I was surprised by this also), the USA is still and has been the world’s biggest manufacturer! Check out this story:

    January 30, 2011
    U.S. Manufacturing Strongest in the World – For Now

    For decades Americans have been battered with messages around the demise of the United States manufacturing sector. Some state concerns of too much of a shift to services, which is said to produce nothing. Is goods manufacturing really fading in the U.S.?

    IHS Global Insight, an economics consulting firm, has published a ranking of the manufacturing output of the leading economies, and to my surprise, the U.S. still manufactures more stuff than anyone else — $1.7 trillion in manufacturing value added in 2009, compared to $1.3 trillion from China.

    Manufacturing as a percentage of GDP

    The IHS report makes two assertions. First that the American Manufacturing sector is in decline from the perspective of portion of GDP and total economic output. And second, that China is increasing it’s economic output from both of those perspectives.

    In 2009, the United States economy was held up, in part, by $1.7 Trillion (with a T) in manufacturing output. By comparison, China’s economy was supported by $1.3 Trillion in output. What may be more important is to understand what percentage of the Chinese economy is based on just building cute trinkets for Americans and Europeans to buy.

    http://conservativedailynews.com/2010/12/u-s-manufacturing-strongest-in-the-world-for-now/

  20. Dow says:

    The Plight of American Manufacturing
    By Richard McCormack, The American Spectator, December 21, 2009

    Since 2001, the U.S. has lost 42,400 factories — and its technical edge. [...]

    Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent of all manufacturing jobs since October 2000. The last time fewer than 12 million people worked in the manufacturing sector was in 1941. In October 2009, more people were officially unemployed (15.7 million) than were working in manufacturing. [...]

    Our trade deficit will not diminish absent a significant increase in domestic manufacturing.

  21. philipat says:

    @JoJo

    Thanks and, yes, that is correct. However:

    1. The trends in place wrt % to GDP with more rapidly growing economies elsewhere, and whilst the US economy expands its Government share of output, means that this will no longer be the case within the next decade.
    2. Also, if you look beneath the headlines and excluse defence, commercial aircraft (Boeing), construction equipment and agricultural equipment, the balance already changes significantly. Also, whilst I cannot find hard data to support this, I also understand that the data is distorted by US Companies reporting of manufacturing data overseas consolidated into US accounts for tax purposes.

    I believe that my essential thesis remains valid?

  22. philipat says:

    @JoJo

    The point being that Corporate America doesn’t really care about America or the American people. Manufacturing is being shifted overseas in the global regimen of, well, globalisation. That’s why Corporate profit margins are at all time highs whilst the US economy stagnates and unemployment remains high. The Corporatocracy continues to attempt to deflect blame by pointing at China’s exchange rate management. In fact, wages in China remain at about USD 100-200 per MONTH, compared to USD 25/HOUR in the US. SO even a 100% revaluation of the RMB would make ZERO difference.

    Globalisation is screwing the Wsetern Middle Classes to the benefit of Corporations. What is happening is a global adjustment of living standards, whereby standars are falling in the West and rising in the developing world, until they move towards convergance somewhere in the middle. This is what the “Progressives” should applaud. And the Corporatocracy/Military industrial complex welcomes and exploits.

    IMHO, and it doesn’t bother me personally either way.

  23. Denis says:

    Seems like biased chart porn…

    How about adding a second chart that shows by how much the industrial sector’s output grown (in value) since 1947?

    And while we’re at it, how about tossing agricultural output and share of the economy as well, with a series beginning in the 19th century.