Investing in the US manufacturing sector has been a critical plank of the Bidenomics doctrine. Since the passage of the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law, domestic and foreign corporations have been given hundreds of billions of dollars in subsidies, grants, tax credits, and narrow tax breaks. Despite promises of America returning to its manufacturing prowess of the 1960s, the industry is stagnating based on various data points. Has this turned out to be an abysmal return on investment?
State of US Manufacturing
Purchasing Managers' Index (PMI) readings provide insights into how US manufacturing is performing. The regional central banks maintain a series of PMIs to help determine the sector's overall trend, from output volumes to input price pressures to employment. The latest report came from the Federal Reserve Bank of New York's Empire State Manufacturing Index. The June PMI contracted for the eighth consecutive month and fell short of the consensus estimate.
Others depict an industry struggling to take advantage of all the taxpayer funding being dumped on its lap. The Dallas Fed Manufacturing Index has failed to register a positive reading since April 2022. The Philadelphia Fed Manufacturing Index has slumped below zero in seven of the last eight months. Over the last year, the Kansas City Fed's Manufacturing Index has recorded positive prints just twice.
As for the broader US manufacturing sector, the Institute for Supply Management's (ISM) PMI suggests an industry in a recession. The widely watched monthly report indicated weakening employment, tumbling new orders, and elevated prices. The S&P Global Manufacturing PMI hinted at stagnation in manufacturing. Either way, it is not a good look for the current administration.
Surely, manufacturing jobs are booming, right? Well, payrolls have flatlined, too. President Joe Biden repeatedly claims that his policies helped create 800,000 new US manufacturing jobs. This is misleading because most of the positions were returned from the coronavirus pandemic. Before the COVID-19 public health crisis, there were 12.78 million manufacturing positions. Today, there are 12.95 million, meaning that the White House has overseen the creation of fewer than 200,000 jobs. Additionally, there are fewer manufacturing jobs today than there were in September 2023.
What is happening exactly? The industry does not know. Last month's Texas Manufacturing Outlook Survey generated some interesting responses from executives. One individual in printing and related support activities said, "It’s just the luck of the draw with our customers needing us more than their customers needed them?" Another person at a machinery manufacturing company noted that "business remains sluggish at best. We see no signs of improvement and anticipate that there will be no major changes in economic activity before the election."
A Sunk Cost
In economics, a sunk cost is when a dollar amount has already happened and cannot be recovered. This typically applies to any government-led investment or program. As Liberty Nation News recently reported, the White House has announced billions in corporate welfare for multi-billion-dollar companies and their green initiatives. Earlier this month, the Biden administration announced $1.7 billion for companies like Fiat-Chrysler, General Motors, and Harley Davidson so they can retrofit their manufacturing facilities and start producing electric vehicles.
The claim is that the investment will advance the green economy, preserve 15,000 jobs, and create 3,000 new ones. This has been prevalent over the last few years, with states joining the action and subsidizing jobs. In 2023, Michigan doled out $1.7 billion to Ford Motor Company, with the Center for Economic Opportunity calling it the worst economic development deal of the year. The arrangement will create an estimated 2,500 "good-paying jobs," which will cost taxpayers $680,000 per position. To no one's surprise, electric vehicle and battery production was the most heavily subsidized industry last year, with eight states announcing close to $6 billion in subsidies for some of the biggest automakers in the country.
Of course, America is not the only nation to embark upon poor cost-benefit analysis endeavors. North of the border, the Canadian government is spending $1.7 million for ten new jobs at a pasta plant, forcing taxpayers to subsidize $170,000 per position. That's a spicy poutine, er, meatball!
Back to the United States. The good news for taxpayers is that public policymakers have become more reluctant to accept these agreements. Nya Anthony, a research analyst at Good Jobs First, a watchdog organization that monitors economic development deals, found that 2023 witnessed fewer so-called megadeals compared to the previous year.
"Whereas we dubbed 2022 a 'mega-year' for megadeals, the decreasing costs and number of deals in 2023 suggest a cooling-off period for state and local subsidy decision-makers this year," wrote Anthony. "Sixteen states approved ‘megadeals,’ which means at least $50 million in public subsidies went toward privatized industries."
The Age of Dependence
The challenge behind subsidizing multinational corporations is that Uncle Sam and state officials produce dependence. Since these companies possess the resources to relocate anywhere else in the world, they can blackmail the United States and its politicians: Give us free money, or we will take our business — and its 3,000 jobs — to a friendlier nation. Ensuring that employment levels remain intact has become the baseline scenario for desperate politicians trying to keep their comfortable seats warm. The subsidy decision-makers have forgotten that these public investments also need to lead to activity, innovation, and productivity. Corporate America is saving its pennies since it is passing the costs to retool at-risk facilities onto taxpayers. This absent-mindedness shows that showering the private sector with subsidies has failed to manufacture idyllic scenery from a Normal Rockwell painting.
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