If this is the economics they\’re teaching at Cambridge no wonder we\’re fucked

By Michael Kitson, Cambridge University Senior Lecturer in global macroeconomics, Assistant Director of the Centre for Business Research.

Sigh.

The manufacturing sector has suffered benign neglect from governments of all persuasions from the 1960s and particularly from the 1980s onwards. The manufacturing sector has been allowed to decline based on the argument that markets know best and that the economy can be built on services. Manufacturing has been left to decline, whereas in the USA and Germany it has been supported. For some, the “invisible hand” of the market, will solve all economic problems – a phrase used only once by Adam Smith in “The Wealth of Nations”. Markets rely on help from government to help them work more efficiently and become more effective – the role of the State is to support markets. If we just rely on ‘market forces’, the result is an unbalanced and weak economy.

In the UK, there are sectoral imbalances: we have seen a focus on the financial services and the relative decline of manufacturing.

Look, manufacturing as a percentage of the UK economy is almost dead on manufacturing as a percentage of OECD economies. It\’s actually higher than the portion in France.

Manufacturing is falling, has been falling for decades, as a portion of the global economy. Manufacturing has been falling as a percentage of the German and US economies for decades too.

This whingeing is about as useful as complaining that agriculture has gone from 80% to 2% of most modern economies. It\’s just being gargantuanly ignorant of the fact that there\’s only so many things we want that we can drop on our feet before we would prefer to have services to consume rather than more things.

ASnd if the people at Cambridge are teaching this tossery then it\’s no wonder we\’re fucked, is it?

46 thoughts on “If this is the economics they\’re teaching at Cambridge no wonder we\’re fucked”

  1. > Tim

    Has maufacturing really declined or has it just grown slower than services. I read that it actually increased in the 80’s

  2. He was at King’s. Which is well known to the general pub. for the christmas carols by its excellent choir, but to all tabs as the raving communist college. I believe Wadham, Oxford has a similar rep.

    When something silly is said by a tab, always check first they weren’t at King’s (well, since the 50s. Before that it was all right).

  3. As I understood things, the long term trend with UK/Western manufacturing has been a shift away from easily-automated acres of factories bolting widgets together, to small volume high precision stuff, e.g. F1, aerospace, specialists electronics, and other such things involving various degrees of geekery and far cleaner boiler suits than of old.

    As far as UK manufacturing has ‘declined’ (and that’s largely relative, as other have said) it been a combination of *too little* neglect by interfering corporatist and socialist politicians and economically suicidal trade unions.

  4. Typical lefty, history is to be re-written when it doesn’t fit. I seem to remember Maggie giving BL 990 million quid in 1981 to try and get them into shape. And that’s 1981 pounds. Add in plenty of other basket cases. It’s just not quite that simple

  5. Oxonymous: Same at King’s. I even went out with a girl from King’s for a few months. She was stunning, but we had to never talk about politics.

  6. However manufacturing is more dependent on energy than most services. And we have had 40 years of government stifling generation of cheap energy, climaxing in the present windmillery.

    So it is not benign neglect but active suppression. Government neglect, benign or otherwise, would be a considerable improvement.

  7. Can anyone explain why there’s a difference when talking about manufacturing & services? It looks obvious but when you really get down to it, is it?
    Take hair dressing for example. Stylist takes the raw material, hair. Uses the salon’s facilities, premises & equipment, to produce something that wasn’t there in the first place. A hairstyle. What’s the difference between that & a furniture manufacturer taking wood & making a bespoke table? One might argue the result of one is ephemeral & will need to be repeated & the other not, but it’s only a matter of time scale. All food manufacturing could be considered a service. As could the manufacture of plastic cutlery.
    It really does seem to come down to Tim’s definition. That which can be dropped on your foot.

  8. why do the commies have more attractive girls in their ranks?

    I’m not sure they do, they just have more outliers. I’m willing to bet that the overall average standard at, say, a young tory bash would be better than at the young labour or liberal same.

    And of course the lower average standard makes the outliers stand out even more.

  9. Further to BIS, how do we define “manufacturing”. Are my digital cartoons “manufacturing”? Would they be if they were on paper?

    This is the problem with the whole aggregate variables approach. The boundaries are fuzzy, and often what is presented as an objective qualitative difference is really not at all. I remember a debate with a Keynesian in another place, where he said the definition of an “investment good” is one you have for more than a year. Why a year? And as I asked him, does that make my toothbrush an “investment good” rather than a “consumption good”? Or, how long do you have to hold onto some money before it’s “savings”? And so on.

    It seems to me that when these people talk about “manufacturing”, they’re really talking about a stereotype of a factory with a production line and the workers in flat caps. The Left are really very reactionary. What Marxist call “the mode of production” changes over time, and the factory and textile mill are just not as common a mode of production as they used to be. If there are fewer central printing presses and more downloads of books onto electronic readers, has “manufacturing” declined? Or is that perception just a failure to keep up with the times?

  10. Oxonymous>

    Looks correlate pretty well with the level of wealth of someone’s background: rich/well-off middle class kids are more likely to turn out looking good (probably just because they’re more likely to make the best of what they have, but who knows). Since the ‘communists’ in this country are entirely made up of rich kids, it’s not surprising they’re often fairly hot.

  11. “why do the commies have more attractive girls in their ranks?”

    Given quite a lot of though to that one. it may be for the same reason attractive women often don’t have particularly attractive personalities. They simply don’t live in quite the same world as their less blessed sisters.
    For the attractive, the world is a much kinder place, especially for women. There’s always help available when needed. Much less rejection. From their point of view it looks much more socialist because it’s constantly rearranging itself for their benefit. If you don’t need to compete because you’ve already out-competed, competition seems much less important. They’re simply incapable of appreciating the “each according to (or in their case beyond) their needs” doesn’t apply to everyone else.
    Interestingly, if you put a bunch of very attractive women together they compete rabidly, Real tooth & claw stuff. See actresses, models etc etc Missing the checks & balances their dowdier sisters have acquired.

  12. Dinero, manufacturing value has increased even though the amount of manufacturing has declined. So no more huge factories churning out cars. Now lots of companies taking mass produced goods and adding value (including IP) or producing small quantities of high value product (e.g. F1)

  13. BIS

    hadn’t thought about it like that, although there’s agood rational argument there. It is interesting about the “perceiving the world” thing. I knew a girl once who genuinely thought all men were a bit stupid. This is because they were, around her. She was so gorgeous that it slightly short-circuited the brain of straight men. But I also remember thinking that she’s in for one hell of a shock if she doesn’t weather well.

    Funnily enough she is, or claims to be, a communist.

    The other interesting thing is that there doesn’t appear to be a direct male equivalent. I suspect because pretty girls remain, regardless of one’s personal preferences, pretty girls. A chap may favour a certain shade of hair or body type, but it’s icing, not cake. Whereas female preferences seem a) more individual and b) more bound up with other aspects of personality.

  14. Nobody weathers well. This ties into a couple of arguments I’ve had here with wishful thinkers. Youth is attractive. Being old isn’t. This is worse for women than men, because the degree of advantage in looks is greater for women, so they’ve more to lose, and when that happens, it is a very unpleasant experience for them; which leads to a lot of the resentment of male sexual preferences in Feminism. So yeah, she’s going to be a bitter old communist.

    I was going to make much the same point as BIS did, but then he made it so I didn’t bother. Much of the reason that youngsters tend to be lefitst is they live in a world of enablement by others rather than self reliance. This is more acute for young women, for the reasons BIS gives.

  15. Oh, also, I’m not sure that female preferences are any more individual(ist) or personality focussed than male ones. The male ideals presented for attraction to females (movie stars, boy band members) are pretty stereotypical. The main gender difference is that females have an option of selecting men for either physical characteristics (the “physical alpha”) or social status (the “status alpha”) snce the latter allows them to parasitise a successful, wealthy male to their personal benefit, a “fork” which seems to have occurred with the rise of civilisation; before that, the physical and social alpha circles on the Venn Diagram were largely congruent (the physical alpha was also the social alpha).

    Hence, the woman who marries an older and physically unimpressive tycoon, but fucks the the swimming pool boy, tennis/ski instructor/etc.

  16. > Sam

    “I knew a girl once who genuinely thought all men were a bit stupid. This is because they were, around her.”

    Interesting idea , and such men in the University college likely to let the most attractive women in the college to have the last word in an argument.

  17. Offshore Observer

    David Moore, I studied economics for 5 years and I haven’t a fucking clue how the economy works, but at least I don’t go around trying to spread my ignorance an pontificate on shit I shouldn’t.

  18. Much of the reason that youngsters tend to be lefitst is they live in a world of enablement by others rather than self reliance.

    Yes, though also they don’t pay tax and they don’t own much, making them more likely to be in favour of [other people] paying more tax – especially if it is spent on them, which it will be because polticians want their vote* – and less bothered about the stuff that [other people] own.

    *though with the aging population this will surely change. I don’t know what proportion of the vote is made up of 18-30 year olds vs 55-75 year olds but I bet the latter increases and the former decreases every year.

    The male ideals presented for attraction to females (movie stars, boy band members) are pretty stereotypical.

    this is true. Might it be argued though – and admittedly I’m winging it here – that this is because of, not despite, indivual preference? Ergo you have to find the highest common factor, meaning they all look the same. Whereas most men are quite capable of simultanesouly finding a tall willowy blonde and a petite curvy brunette alluring.

  19. Manufacturing: Simple mass production work such as bashing metal in to boxes that can be done by those who have been failed by the State education system, ideally in State owned factories not subject to market forces.

  20. @Sam, that’s because it is genetically in men’s interests to fuck anything with functional ovaries while women have to find a partner whom they can continue to be sexually attractive to (ideally but not necessarily exclusively) as long as the kids need his income.

  21. JamesV-

    @Sam, that’s because it is genetically in men’s interests to fuck anything with functional ovaries while women have to find a partner whom they can continue to be sexually attractive to (ideally but not necessarily exclusively) as long as the kids need his income.

    What is?

  22. @ Sam

    The politicians don’t give a fuck about the votes of the under 30’s. Just look at the areas of spending that are being rinfenced by the current lot.. pensions and the NHS (which are to the benefit of the oldies) and schools (theoretically for the benefit of people too young to vote, but clearly for the votes of the middle-aged.)

    I’m not trying to get into the whole ‘baby boomers stole all the money’ thing… but surely it’s obvious that young people are just not on the radar. Their turnout is lower, when they do vote it’s more likely to be in urban centres with an embedded Labour majority anyway.. not the middle-class hotbeds where elections are won and lost.

    The key issues for people under 30 (increasingly, becoming people under 40) are paying for university, getting a half decent job, and being able to buy a house. Rightly or wrongly, the last two governments have mainly made these things worse… and in the case of university fees and housing, have done so deliberately and systematically.

  23. I suspect that he isnt calling for a return to industrial policy a la British Leyland and the other national champions. It looks more like a rehash of the neo-Krugmanite ideas that were big in the early Clinton administration – Laura Tyson being one of their standard bearers. (Krugman wrote about strategic trade – and then disassociated himself from this idea.)

    http://www.businessweek.com/stories/1992-12-27/whatever-you-call-it-industrial-policy-is-on-the-way

    The main reasoning behind this came from a perception that Japan had done really well with industrial policy (and yes, it is quite amusing that Kitson mentions US and Germany, but not Japan – which was the home of these ideas). In fact Japanese industrial policy was relatively easy in the period prior to when it became popular (1980s) because Japan was playing catch-up. But it may well have hobbled Japan – it’s TPF has stalled at around 75% of US productivity since the mid-1970s. Also Japanese industrial policy turned out to be capable of producing lots of turkeys – the analogue HDTV just as digital became the standard, a mobile telecoms standard that never sold outside Japan and so on. It also turned out that industries that got the most support from the Japanese government were the worst performing.

    Kitson also appears to believe that the UK suffers from City short termism. He, like many others, believes that there is a skill shortage in the UK (something that Gordon Brown banged on about and that George Osborne also goes on about). This is a bit more nuanced:

    http://michaelkitson.files.wordpress.com/2013/02/kitson-and-michie-the-deindustrial-revolution-oct-20121.pdf

  24. A lot (but not all) of the reported decline in manufacturing and growth in services is due to “outsourcing” of a lot of services that manufacturing used to do for itself – canteens, cleaners, payroll, transport ….
    So the number of people directly employed by manufacturing industry declined and the number employed in the “service” sector increased without any change in actual functions.
    This does not account for all the decline but it *does* distort the figures and is also a small part of the reason for Tim acclaiming the rise in productivity per head.

  25. “The politicians don’t give a fuck about the votes of the under 30?s. Just look at the areas of spending that are being rinfenced by the current lot.. pensions and the NHS (which are to the benefit of the oldies) ”

    My theory is that, with an ageing society, there are going to be lots and lots of oldies (around the time I become one of them) who are going to be badly off because they weren’t able to save for a decent pension or acquire equity in the form of a house who will demand higher taxation of everyone else to keep them in the style they think they deserve. They will vote for whoever delivers it, ie the grey vote will go to the left.

    Goodbye free-market economy, goodbye wealth-generating people, hello misery.

  26. Ian B,

    Further to BIS, how do we define “manufacturing”. Are my digital cartoons “manufacturing”? Would they be if they were on paper?

    I don’t really understand the fetishising of “manufacturing”. Why was the EMI CD pressing plant better than Amazon pushing out MP3s from servers? In both cases, we want music. One is quicker and cheaper, but for some reason, that’s bad, and the alternative is better.

    I suspect it’s something about the romantic view of the sort of Graun liberals who see things like farming with oxen as noble poverty because they tend a veg patch as a hobby.

  27. OO

    “David Moore, I studied economics for 5 years and I haven’t a fucking clue how the economy works, but at least I don’t go around trying to spread my ignorance an pontificate on shit I shouldn’t.”

    I don’t think anyone knows how the economy ‘works’. If they did macroeconomics might actually have some meaning.

    As for the spreading pontification and ignorance, isn’t this the whole purpose of the economics profession? Once your past a basic level of micro, it’s just a mess of pontification after all.

  28. AndrewWS

    “My theory is that, with an ageing society, there are going to be lots and lots of oldies (around the time I become one of them) who are going to be badly off because they weren’t able to save for a decent pension or acquire equity in the form of a house who will demand higher taxation of everyone else to keep them in the style they think they deserve. They will vote for whoever delivers it, ie the grey vote will go to the left.

    Goodbye free-market economy, goodbye wealth-generating people, hello misery.”

    It’s going to be interesting, mass emigration of the younger generation and a lot more calls to create a ‘passport’ tax? At the moment you can dodge the generational debt for the price of an airline ticket. Not just free-market economy at threat, but also freedom of movement.

    Japan might provide some clues as to how it will go, they are just a bit ahead of the curve to the rest of the west.

  29. Offshore Observer

    DM, indeed, its all just chicken entrails and the dephic oracle as far as I am concerned. I agree micro works, and if you scale that up then the simple fact of the matter is incentives work. government should just do the basics (defence, law and order, justice) and get out of everyoe elses way

  30. @IanB, the “genetic interests of men”. A commonly-used dummy subject construction in English, it is.

  31. Offshore Observer

    I’m afraid it’s a little more complicated than that. Firstly economics meets politics when we start to worry about externalities – what is pollution, how much tax, who should be compensated etc. Micro does work, but on the macro scale political economy is much more important.

    Secondly, if the government didnt have fiat money, regulated banks and provide deposit insurance, provide services, etc, maybe your solution would work (getting out of the way), but in practice we are where we are. It’s like the fact that narrow banking (no leverage) might work – although there’d probably be less growth, dont ask me how much, and if we tried to move to it from where we are today, the results would be bloody. So we have to study this stuff and try to improve our understanding.

  32. I rather suspect SimonF has hit the mark – a plentiful supply of low-skill or no-skill jobs that we can shovel the unemployed at.

    Basically, we quite like being a first world country with cheap imports, but all this competition is a bit barbaric, yes? Want to kick back and enjoy, but find the race isn’t actually over.

  33. Ken-

    If patriotism is the last refuge of the scoundrel, “we are where we are” is the first one.

    Consider, “well, if we weren’t a communist nation, your free market idea might work, but we are where we are”. Etc. You have to be willing to recognise whether a system is dysfunctional, and be prepared to change it if it is.

  34. Ian B

    I never said we can’t change. Just that changing from where we are would be painful.

    Do I believe changing from a nasty kleptocratic dictatorship to one with the rule of law and democracy is a good idea? Of course. And yes, it would be difficult, but probably worth it. So in your words, dysfunctional. Can we change from where we are to a minimal state? Possibly, but it would be expensive and I’m not convinced it would be that much better. So, in my opinion, not sufficiently dysfunctional.

  35. The current form of the financial system only dates from the 1970s; we’ve basically given it one working lifetime as a test, and it has performed very badly. That doesn’t seem to me to be a system which is set in stone.

    Switching to anything that a minarchist like me would call a “minimal state” would take decades even if we started tomorrow. But the key thing would be to reverse ideological trajectory, from “ever bigger state” to “how can we reduce it a bit?”.

    The recent financial crisis- which we do need to understand was the moment when “neoliberalism”[1] went into failure mode. It was an excellent moment to have a fundamental rethink. Instead, those with personal selfish interests in that system have determined to keep it running, much like the commissars who wouldn’t accept that Communism wasn’t just in need of some tweaking, but fundamentally and inescapably broken as a system.

    It doesn’t need to be more “painful” that it already has been and already is. It’s painful now. Of course, it would be enormously painful for the likes of Goldman Sachs, but, look at this tiny, tiny violin I have here. It might be the tiniest violin in the world.

    [1] Defined loosely as the post-1970s system in which the financial sector is seen as the “driver of the economy”.

  36. @Ian
    I think Northcote Parkinson explains why reversing the trajectory would be an enormous change. Probably easier just to go straight to a minarchist state.
    Bureaucracies inevitably expand. it’s what they do.It’s their purpose. Trying to get one to contract would be like shoveling a river uphill. With a fork.

  37. @IanB – so back to fixed exchange rates then? Britain in the euro, yay!

    Seriously, I am not remotely a fan of an investment bank-driven economy, or even an investment bank-driven Ford Fiesta for that matter, but I have to lay the blame for the financial crisis largely at Greenspan’s feet. That recession was not going to be on his watch, better later and harder.

    And despite it all, I think over any span of ~20 years we get more or less the same sort of development we would have done even if different levers had been pushed in different directions. The pushing of economic levers such as interest rates seems to affect the swing amplitude more than the trend.

    And we also have the empirical evidence, namely that the economy since the 1970s has served the developed world incredibly well.

  38. “why do the commies have more attractive girls in their ranks?”

    Because they haven’t seen the awful reality?

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