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In yesterday’s New York Times Janet Yellen, President of the Federal Reserve Bank of San Francisco, is quoted as predicting a slow drop in the U.S. unemployment rate, now 9.7 percent, to 9.25 percent by the end of this year and 8.0 percent by the end of 2011. This is pretty anemic in view of her forecast of 3.5% GDP growth this year and 4.5% next year, a robust performance for a mature economy, though she attributes much of this growth to reduction in inventories rather than growth in sales. Ms. Yellen doesn’t foresee a return to peak economic performance and a corresponding drop in unemployment until 2013. The cause, she says, is clear: an increase in business efficiency and labor productivity, which she says, “is here to stay.” [click to continue…]
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I have just finished reading “A Farewell to Alms,” by Gregory Clark, which seeks to explain how and why the Industrial Revolution occurred when and where and how it did, in the textile industry in 19th-century England. Clark argues that a tripling of England’s population from 1760 to 1850, combined with modest productivity gains and the vast expansion of cultivated land in the United States over the same period, were a far more important cause of the Industrial Revolution than the explosion of knowledge and innovation that took place around the same time. “Had [the] English population remained at 6 million into the 1860s, the country’s domestic agricultural sector would have been able to feed and provide raw materials for the English population.” The explosion of its population, however, turned England into a net food importer, forcing it to export manufactured goods. Net exports by the 1860s constituted nearly 20 percent of GDP. Demographic circumstances, then, contributed far more than any special virtues of the English people or their system of governance, to the creation of an industrial economy. [click to continue…]
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Even before this week’s Economist came out with “The Collapse of Manufacturing,” emblazoned on its cover, I had been thinking about manufacturing. Actually, I have been thinking about it for a long time. I love going to factories, seeing massive pieces of equipment, hearing the clang of machinery, feeling the heat from molten glass and metal, seeing how they put the filling between halves of an Oreo cookie, and watching people dressed like extras in a James Bond movie padding around in a silent clean room in their sterile slippers, making silicon wafers. [click to continue…]
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