Oren Cass Can’t Keep His Story Straight About Manufacturing

Oren Cass recently wrote The New Conservatives: Restoring America’s Commitment to Family, Community, and Industry, where he makes his case for what the future of conservatism in America should look like. The book is deeply flawed, but its treatment of trade and manufacturing warrants special attention. 

Throughout the book, Cass constantly laments the hollowing out of American manufacturing and how American jobs and capital are going to foreign countries. In one chapter, he quotes Adam Smith, the father of modern economics, when he says that investors’ preference for domestic industry and profit seeking creates a beneficial outcome that the investors did not intend. Cass claims that in the modern era of globalization, investors have abandoned their preference for domestic investment, and that America needs more controls on the flow of capital and goods across its borders to make a bounded market.

He says this despite the fact that America’s manufacturing capital stock has continued to grow throughout the 2000s, gross fixed capital has been growing since the 1970s, industrial capacity is at its peak, and industrial production is just shy of its peak. Even a cursory look at American manufacturing data shows that it has not been hollowed out. 

The only factual claims he makes to support his position are the stagnant productivity and declining employment in manufacturing. However, both these facts should be taken with a grain of salt. Manufacturing employment has declined since 2000, but Cass neglects to mention that it peaked in 1979, had been largely stagnant from the mid-1960s to 2000, and the share of manufacturing employment in overall employment has been declining since the 1940s. And while manufacturing productivity has stagnated recently, total factor productivity has continued to rise in America, reflecting an intensification of innovation outside of the manufacturing sector. 

Ironically, the next chapter, written by Robert Lighthizer, makes almost the exact opposite claim. Lighthizer complains about America’s chronic trade deficit, and blames the trade deficit for causing a number of economic maladies.

However, Lighthizer correctly recognized that there is a connection between capital flows and the trade deficit, namely, that foreign capital inflows increase the deficit (although he somehow reverses the direction of causation, claiming that the trade deficit causes the capital inflows). Like Cass, however, he also concluded that trade barriers were needed to create more balanced trade, even though tariffs have almost no effect on the balance of trade. 

Apparently, no one at American Compass realized that the claims made in these two chapters were contradictory: one claiming the profit seeking has driven capital out of America, and the other claiming that America is oversaturated with capital from abroad. Whether capital is fleeing or flooding the country, the American Compass solution is barriers to trade.

America still has a robust manufacturing sector, has an incredible standard of living, and is a global hub for innovation. Americans are by and large thriving and living the American dream. That does not stop Cass and Lighthizer from peddling protectionism, even if the claims they make are contradictory.