Government

What's So Special About Manufacturing?

In his proposed corporate tax overhaul, President Obama calls for giving special treatment to manufacturers. The report the White House released today says:

The manufacturing sector plays an outsized role in the U.S. economy with significant spillovers to other sectors that make it particularly important to future job creation, innovation, and economic growth. Furthermore ... both existing and emerging manufacturing industries are subject to more intense international competition than other sectors. Encouraging manufacturing investment and production supports higher wage jobs.

For a counterpoint, we turn to Christina Romer, the Berkeley economist and former chairwoman of Obama's Council of Economic Advisers. She recently wrote a New York Times column column arguing against giving manufacturers special treatment.

She wrote:

There are sectors where workers with good educations could earn good wages if the economy were healthy. Why focus on manufacturing to create such jobs? Instead, government could make it easier for workers to get the education needed for high-skilled jobs in many fields — and encourage business formation wherever entrepreneurs see a promising opportunity.

If increasing income equality is the goal, it might be wiser to put money into infrastructure than to subsidize manufacturing. Construction also pays good wages, but with lower educational requirements. And America's infrastructure needs are enormous. Or, we could redistribute income through the tax code — economists' traditional tool.

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. ... So far, a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established.

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