Why focus on manufacturing, and a modest idea

Last week, I wrote about the manufacturing crisis in the US.  I asserted that this was the country’s most important issue and that the incoming administration should direct its best people toward this problem versus other problems like government spending.  I got good feedback, and I’d like to react to some of it.   I remain convinced that this manufacturing crisis is the most important issue of the day.

Manufacturing and National Security

Manufacturing leadership and national security go hand in hand.  Our country succeeded in WWII because we outproduced the Axis powers.  Our success in the Cold War was largely due to our economic prowess.   Now, as Noah Smith says, we are dangerously exposed — 

China has the capacity to defeat the U.S. in any extended conventional war, thanks to its domination of global manufacturing; soon, it may have the capacity to defeat the U.S. and all of its allies combined. At that point, what China does to the U.S. will be limited only by what China feels like doing to the U.S.

And I think it’s clear that what China’s current leaders want is to reduce the U.S. to a second-rate power, so that there’s no chance it will threaten their hegemony or their freedom of action in the future. This is what some people argue the U.S. did to Russia after the Cold War. And communist China is not nearly as nice a country as the U.S. was in the 1990s.

The economic and political consequences for the American people would be, to put it mildly, pretty negative.

The only way I see to prevent this outcome, other than simply praying that China somehow collapses or that the Chinese are some sort of uniquely passive and mild people who won’t really do any of the things their leaders say they want to do, is to reduce the manufacturing gap between the U.S.-led alliance and China. Biden made some strides toward this during his term in office, reviving U.S. manufacturing somewhat with his industrial policies, and implementing stringent and wide-ranging export controls on the Chinese chip industry.

One of the government’s primary goals is to keep us safe — and a failure to address the manufacturing gap head-on is a significant risk to the nation.  

Deficits and Waste

Some argue that excessive government spending is a more critical issue than the manufacturing gap — that government spending pulls capital from the rest of the economy, slowing down growth.   And that ongoing deficits will result in drastic fiscal measures or inflation, which will be bad for the country.  And so the argument is that we must cut deficits before we do anything else and that we should put our best people in charge of cutting spending.

This would be great if I believed in our ability to cut spending.  I’ve been a voter for nearly 50 years, and I have some acquired pessimism about our ability to control spending.  I’ve lived through the Golden Fleece era, the Grace Commission, PART, the National Performance Review, the many Drain the Swamp pushes, and now DOGE.  I am sure I’ve forgotten a half dozen spending control initiatives.   Politicians support budget cuts — until they affect their constituents, at which point the budget becomes untouchable.  No one is willing to “take one for the team.”

People like to complain about the sheer amount of waste in government spending — the oft-repeated story about the $600 toilet seat or hammer, the massive growth in administration staff in the government.  Some of these stories are true; there is certainly waste and fraud in government spending, and we should eliminate it when we find it.  

However any significant savings in government spending would have to come from program cuts, not efficiencies in the administration of existing programs.  Chatgpt tells me that for every $1 of government spending, about 91-93 cents flow out to the programs, and 7-9 cents go to federal payroll and administrative costs.    Any waste and inefficiency is in this 7-9 cents.  Here is another chart demonstrating this (from Krugman’s article) — federal payroll is a small fraction of federal outlays:

These numbers suggest that whacking the federal payroll isn’t going to move the needle very much on government spending and deficits.  Should we root out waste in federal bureaucracy?   Absolutely, but don’t expect it to generate a lot of cost impact.  

The more significant opportunity for cutting government spending is to cut or reduce programs.  And there are probably programs worth cutting.  But this is no longer just a matter of managing things more tightly — all these programs exist because the legislature created them through laws.  

Elon excels at cost-cutting, improving efficiency, and being a change agent. However, the opportunity for unilateral action to cut costs is low; Elon will have to become effective at the political work to move the House and Senate.  Maybe he can do this, but the Krugman article points out how hard this has been in the past.  I am skeptical Elon can navigate the politics here.

Deficits and Growth

If we can’t cut the budget, then the way to address deficits is by pulling growth forward.  I am way more optimistic about politicians getting behind growth plans.  

Faster economic growth pulls future year tax revenues forward.   Looking at the last ten years, US federal tax receipts have grown from ~$3T in 2014 to ~$5T in 2024.  At the same time, we’ve been adding ~$.5T-$1.5T annually to the deficit (in both cases, skipping over the pandemic years, which distort receipts and spending).   So, we are spending 5-10 years ahead of our revenue.   If we can encourage faster growth, our receipts will rise faster and help us close the gap.   

A renewed manufacturing base and economic growth deriving from manufacturing prowess is the most politically viable way to attack our deficits and is necessary for our national defense.

A modest proposal

So, how do we close the manufacturing gap?  I offered no ideas in my original post, which a couple of commenters noted.  I am no public policy expert; others would be better suited to talk about tax policy, industrial policy, regulatory policy, and other elements to encourage more investment in manufacturing.  

I do have one small idea.  Hadi Partovi and his team have done amazing things at Code.org.  They have driven computer science education to unprecedented levels.   They’ve built awareness, they’ve made it easy for schools to spin up programs, they’ve helped to train educators, they have had impact throughout the entire education field.  They are an inspiration.

Code.org is all about bits  — and we need the atoms equivalent.  We need an organization that is singly focused on improving our capabilities in the physical sciences — materials science, metallurgy, chemistry, electrical engineering, geology, etc.   We need to make it easy and cool to dig into the creation of physical things, and into the process technology behind the manufacture of physical things.  It is super easy to get started in computer science these days — you can be programming in seconds.   It is much harder to make and explore physical things — but we need to make that more manageable so that more kids enter these fields, so that more teachers can be trained, so that we start to build up our manufacturing muscle. 

I would love to see someone clone the Code.org playbook and run it for the physical sciences.  I’d be happy to help, it would be fun!  And it is vital — reviving manufacturing is not just a good economic choice — it’s a national security imperative.