There is a sense that people seem to have that the making of things is an activity crucial to a modern economy. It's crucial because a country that can't make things is vulnerable to trade collapse. It's crucial because a country that can't make things is likely to lose its economic edge. It's crucial because without manufacturing you can't export. And it's crucial because manufacturing jobs, everyone knows, are high-paying jobs that provide a good living to people with limited education.
I don't think too much of this. Economic activity isn't about satisfying the demand for objects, it's about satisfying demand, period, and people demand many things that have little to do with assembly lines and smokestacks -- hair-cuts, mixed drinks, financial advice, dentistry, and so on. These activities are important. If they weren't important, people wouldn't be willing to pay lots of money for them. Economic growth, meanwhile, is about figuring out how to do more with less. There's no reason why "doing more with less" ought to be associated with manufacturing rather than services. It's true that some service sectors that are among the fastest growing in terms of employment -- like education and health services -- have experienced slow productivity growth. But I think people are far too quick to conclude that this has something to do with the nature of the services provided, rather than with the institutional environment of those sectors and simple cost constraints.
-- Ryan Avent