August 21, 2016
In the olden days, like the late ’90s and early ’00s, it was a good thing that America was ridding itself of heavy manufacturing industries. They were, like, so 20th Century, man. We were entering a new century of computers, the internet and high tech manufacturing. Compaq Computer, Sun Microsystems (Java), Microsoft, Oracle (databases), and Apple expanded in Massachusetts, Colorado, California and N. Carolina. Bye, bye old smoke belching industries and hello new clean room high tech industries. America was becoming a knowledge and service economy. Let those third world countries like Mexico, China and Thailand make stuff and pollute their cities, and ship the finished products to our shores.
Wind the clock of history to the present day and we are having a markedly different discussion. Donald Trump, the Republican candidate for President, vows to bring old time manufacturing back to the U.S. Under pressure from the leftist wing of the Democratic Party, Hillary Clinton pledges to kill the Trans-Pacific-Partnership (TPP) trade agreeement in its present form. The theme of this election: jobs and security.
Remember the billionaire Ross Perot who ran for President in the 1992 and 1996 elections? Ross and The Charts. Sounds like a Motown group. While Perot didn’t get any votes in the electoral college, 20% of voters pulled the lever for him and probably pulled most of those votes away from George H.W. Bush, the incumbent Republican President in the 1992 election. Bill Clinton won that one with the lowest popular vote in history and may send Mr. Perot a Christmas card each year as a thank you. Perot said that if NAFTA passed – and it did pass in 1993 – there would be a big sucking sound as jobs were vacuumed from the U.S. into Mexico. In the late 90s, not too many companies had moved to Mexico yet. The high tech and internet booms were in full swing and the unemployment rate was less than 5%.
No big suck until…
In 2001 China was admitted to the World Trade Organization (WTO). Put into a big pot a lot of cheap labor, eager urban planners in China, and lax environmental regulations. Stir vigorously. A black hole forms that sucks jobs from America and other developed countries.
From 2000 to mid-2008, before the financial crisis, manufacturing industries lost four million jobs. Almost 25% of the work force gone in just eight years. The transition from manufacturing had been going on for several decades but at a much slower pace. In the previous twenty-two years, from 1978 to 2000, the manufacturing work force fell by two million. As more product manufactures moved to China and southeast Asia in the 2000s, the job loss rate was five times what it had been in those two decades.
Manufacturing is a stew of many ingredients called the supply chain. The chain includes the companies that make parts and tools for big industry as well as the transport needed to get raw materials to these suppliers. It includes the housing, schools, shops and hospitals for a large regional work force. Donald is going to bring that huge infrastructure back. All by himself. Yay for Donald.
Franklin D. Roosevelt and the Banking Panic of 1933
Two days after FDR took office in March 1933, he declared a national bank holiday, shutting the nation’s banks for a week. For a month before FDR took office, depositors had been withdrawing their money from banks in a concerted panic. The conventional narrative is that FDR’s quick action saved the banking system from a certain collapse. But wait, there’s more. Why were people in a panic?
In order to win the election in November 1932 against the incumbent Herbert Hoover, FDR used a familiar tactic – scare the voter. In the midst of the Depression, this wasn’t difficult. Britain had gone off the gold standard in 1931 and American confidence in their financial institutions and their very currency was sorely tested. FDR’s oratorical and theatrical skills helped convince many voters that only an FDR presidency could rescue the American family.
In those days, a new President did not take office until March of the year following a November election. Soon after FDR was elected, people began to fear that he would devalue the dollar once he took office. En masse, people wanted to trade in their dollars for gold or something that could be converted to gold. In the first months of 1933, states began to declare bank holidays to halt the wave of withdrawals but the panic caused many more banks to fail. (A detailed account of the bank panic)
When FDR took office, 35 states had declared bank holidays of various extent. FDR made the bank holiday a national one that included the reserve banks. In the ensuing week people grew more confident as they realized that FDR would not devalue the dollar and that the Federal Reserve would guarantee all deposits until a national insurance program could be enacted. When the holiday was over, people began to return the hoarded money to the banks. To sum it up, FDR’s quick action helped alleviate the panic which was started in part by FDR’s election. Here’s a more complete account from the FDIC I wish history was more like the simple version found in our grade school history books.