Why Johnny Can’t Innovate: the American Economy’s Most Surprising Deficit

Ian Fletcher

Activist Post

I argued in a previous article why, despite America’s current obsession with government budget issues, the real key to bringing back our economy lies in a) fixing our trade deficit and b) restoring our capacity for innovation.

Although the former problem has now grabbed significant public attention, most Americans seem to think that our national capacity for innovation is healthy and without problems.

After all, we’re the home of Silicon Valley.  So things must be going great, right?

Unfortunately, no, and for the same reason that, as I explained elsewhere, our manufacturing sector isn’t healthy. While it’s true that there’s an enormous amount of innovation (and manufacturing) going on in this country, “enormous” is not, in and of itself, an adequate quantity.

To figure out how much innovation (or manufacturing) is enough for America, the quantity must be measured against how much we need to maintain our living standard.  And we are, in reality, falling short in both areas.

The American Manufacturing Crisis and Why it Matters

Ian Fletcher

Activist Post 

Despite the denial chorus of the same politicians, financiers, and economists who told us prior to 2008 that our financial sector was fine, the American public is increasingly aware of the truth:American manufacturing is in a state of deep crisis. (And, as I argued in a previous article, the recent small uptick in this sector doesn’t change that fact.)

Let’s start with manufacturing employment.  Below is a chart giving the grim story of job losses in this sector. (Source)  

This degree of  manufacturing job loss is not inevitable or normal.  The U.S. actually enjoyed relatively stable employment levels in manufacturing as recently as the year 2000.  Then, thanks to our burgeoning trade deficit, things fell off a cliff.