The New Economy

There’s a great deal about mainstream economic thought that doesn’t sit well with me. Measuring and promoting economic growth. Trade. Dealing with economic inequality.

One major issue I have never understood was the beauty of the new economy, particularly regarding Michigan. Everyone says the state has to regroup for the new economy, must smash the unions who oppose the new economy, and must get more education to compete in the new economy.

I still don’t know what’s wrong with manufacturing. Of course I understand why production centers close and move to Mexico or China, but there seems to be a bias against creating new production centers here as new products are developed. One case in point is hybrid automobiles. Why the hell would we even entertain anything but the idea that Michigan should be the North American design and production center for hybrid automobiles? If Ford and GM had or do get off their asses to create competitive hybrid technology, is there some reason we would not want those production jobs in Michigan? What about the production of train cars, something Detroit used to be a center for?

Indeed, it seems that with all this new economy education we’ve served up, we’re actually better positioned for production since we could create processes that are less wasteful and less polluting. Perhaps this would only be economically feasible if, for example, we imposed a carbon tax, but you take my point, I think. The U.S. and/or Michigan should be able to compete when human costs and environmental externalities are internalized.

Paul Krugman has said for a while that we’re eventually going to have to recreate a good share of our production capacity as the dollar falls in value. Stephen Roach in the Times the other day suggests production and infrastructure would help alleviate our stagnant economy.

A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.

That won’t be easy to achieve. Such a shift in the mix of the economy will require export-friendly measures like a weaker dollar and increased consumption by the rest of the world, which would strengthen demand for American-made goods. Fiscal initiatives should be directed at laying the groundwork for future growth, especially by upgrading the nation’s antiquated highways, bridges and ports.

That’s not to say Washington shouldn’t help the innocent victims of the bubble’s aftermath — especially lower- and middle-income families. But the emphasis should be on providing income support for those who have been blindsided by this credit crisis rather than on rekindling excess spending by overextended consumers.

By focusing on exports and on infrastructure spending, we might be able to limit the recession. Such an approach might also set the stage for a more balanced and sustainable economic upturn in the next cycle. A stimulus package aimed at exports and infrastructure investment would be an important step in that direction.

Consumption has never made sense to me, either on an intuitive, personal level, or on a large, macroeconomic level. Cheap goods do not seem to me to be that great. Moreover, a larger wardrobe or more toys–seemingly the natural consequence of cheap goods–never seemed to aid in quality of life much, either for my middle class self, or the poor that my economist friends always seemed to be (disingenuously) arguing on behalf of. The same with food: the expensive stuff that’s somewhat local and high quality seems to be better for you than the cheap, high-fructose crap that gives the poor all the calories they ever need for a low, low price.

So for my econo-friends: what’s so bad about manufacturing and local production? I’m looking for something better than a facile Ricardo re-hash.