Steve Keen highlighted a YouTube video on why the US manufacturing goose is cooked and will stay cooked. The points it makes are broader than the observation we have repeatedly made, that for the US to have any hope of resoring its industrial capacity, it will require way more than just tariffs but sustained industrial policy. But as we will explains, it also is romantically anchored in a past of manufacturing as a generator of many and good middle class jobs, when production is now highly automated and requires few if any workers.
How Superpowers Die: The 5 Stages of Industrial Collapse https://t.co/ZC0nL9Fzvm via @YouTube
— Dr. Steve Keen (@ProfSteveKeen) November 1, 2025
There are two obvious problems in the US with trying to implement industrial policy. The first is that the US is allergic to it and engages in it mainly on an a default basis, via subsidies and tax breaks to politically powerful sectors. See healthcare, the arms industry, banking, real estate, and higher education as some of many examples. Biden’s Inflation Reduction Act proved that rule, by trying to achieve a hodge-podge of objectives, none of them very well.1
The second reason is that the US (ex when on a World War II level war footing) is incapable of sustaining any economic policy over time. Effective rebuilding on a large-scale basis would take at least ten years, even assuming it could be done.
This video provides some useful high level history but is simplistic and at points, inaccurate:
While it makes some important points, such as the virtuous circle that results from manufacturing prowess and how it produces spillover benefits, for instance, to suppliers, it incorrectly implies that manufacturing still generates a significand number of high wage jobs. In fact, industrial kingpin China was reporting 21.3% reported youth unemployment when it suspend publishing the data in 2023 to review the methodology. Its revised, presumably more flattering methodology, showed a still eye-watering 18.9% in August and 17.7% in September.
The rise of highly automated factories, including dark factories that have no humans present during routine operations, has broken the connection between manufacturing and job growth. A summary from Engineerine:
1. What is a Dark Factory?
- A dark factory is a fully automated production facility that requires no human interventionduring normal operations.
- These factories run without lights, as robots and AI-powered machines do not need visual guidance.
- They leverage artificial intelligence, interconnected IoT systems, and robotics to manage everything from material handling to final product assembly.
2. How Do Dark Factories Work?
- AI-driven robotic systems manage production lines autonomously.
- IoT connectivity ensures seamless communication between machines, enabling predictive maintenance and self-regulation.
- Automated logistics handle inventory, supply chain management, and transportation of finished goods without human input.
3. Why Are Dark Factories Being Adopted?
- Increased production efficiency – Machines work 24/7 without breaks, reducing downtime.
- Lower operational costs – No wages for human workers and reduced energy consumption.
- Consistent quality control – AI-driven monitoring ensures precise manufacturing and defect-free products.
And a video showing one in operation:
Another video gave more technical detail but oddly would not embed properly.
Supposedly state of the art US factories are laggards. For instance, Hyundai opened a “factory of the future” in Georgia in 2025. It employed roughy 1,200 early on and expects that total to increase to 8,500 when it has ramped up production to 500,000 vehicles annually.
Consider how meager this level is by historical standards, Ford’s Rouge plant had 120,000 workers at it peak in the World War II. Admittedly, one reason for the large workforce was that Rouge was a fully-integrated facility, even making its own steel.
So even if the US could bring manufacturing back on a large scale basis, there is no there there in terms of job creation.
The Steve Keen video is also a bit simplistic as to the reasons for US decline. When I was in business school in the late 1970s, both the business press and Harvard Business School faculty criticized sclerotic US managements, particularly of automakers. They did concede that Germany and Japan had a perverse advantage, in that rebuilding after World War II meant they had new infrastructure, while the Big Three had huge investments in their installed base that they were reluctant to abandon or make less relevant by investing in entirely new (as in smaller) platforms. But this tendency was reinforce by the fact that all companies were headquartered in Detroit, where heavy, gas-guzzling cars were a plus in the snow, so it was too easy for the top brass to project, based on local conditions, that Americans would stay loyal to big cars. But even worse, the executives had their cars babied every day by company mechanics, so they had also set themselves up to be blissfully ignorant of product quality problems. But US exceptionalism and racism were also factors. Many manufacturing executives found it inconceivable that the Japanese could outdo them (the Germans, with their history of mathematics and engineering prowess, were more credible competitors) until they had decisively eaten their lunch.
While the decline of American car producers was baked in, a big accelerant was the big rise in the value of the dollar in the early 1980s after Volcker relented on his super-high interest rate policies. Japanese car makers made great market share gains due to their cars becoming even bigger relative bargains in the following 24 months which they never gave up.
The Keen video similarly misleadingly depicts US labor costs as a key factor in the decline of the steel industry. Steel is a continuous manufacturing process, meaning that capital and raw materials costs far and away dominate total product costs. Labor is not a major input. But the percentage of uptime is critical to profits. It was widely reported in the business press, again in the 1970s, that US steel mills were old and not competitive, particularly (then) compared to mini-mills. It was outdated plant, and not labor costs, that was the death knell for the steel industry. The same pattern has played out in the paper industry, where the productive life of machines is very long (older ones can be profitably redeployed to smaller run, fussier and high profit paper grade), where mills that should have been world competitive for another generation are being downsized or shuttered due to paper industry executives and now private equity (!!!) uninvesting and even skrimping on regular maintenance.
The Keen video gives no reasons as to why the decline and inability to turn things around are inevitable; the assertion basically is that once a country has lost the innovation race, there is no reversing course.
But it is not hard to make a list of reasons why the US won’t come back.
1. Decline of public education and US relative performance. From 2024 in The Balance:
The United States isn’t investing as much in human capital as other developed countries, and its comparative advantage is falling behind as a result—particularly with respect to education rankings.
U.S. students’ math skills have remained fairly stagnant for decades, and the country is falling behind many others that have greatly improved, such as Japan, Poland, and Ireland. Additionally, U.S. test scores are below the global average. Here’s how they break down.
Key Takeaways
- The U.S. placed 16th out of 81 countries in science when testing was last administered in 2022.
- The top five math-scoring countries in 2022 were all in Asia.
- U.S. students’ math scores have remained steady since 2003. Their science scores have been about the same since 2006.
- The IMD World Competitiveness Center reports that the U.S. ranked 12th in its 2024 Competitiveness Report after ranking first in 2018.
This comparison may understate deterioration on the ground. For instance, I have had readers tell me that they have found that young candidates for retail jobs too often can’t count change. On a completely different front, IM Doc has recounted that elite med school students who went to his hospital on a summer program were hopelessly AI/search dependent and seemed to lack independent knowledge, let alone the beginnings of clinical judgement.
2. Limited to no career paths for young technical degree/engineering grads. This has operated for at least 20 years. I have been told the only field where engineering grads have good career prospects is petroleum engineering; otherwise, the cost of degree acquisition versus earnings makes no sense unless the student continues and gets a law degree so as to become a patent/intellectual property attorney.
3. Lower status attribute to manufacturing management roles and living in non-major city locations. Some may be shrewd enough, or like outdoor pursuits so as to appreciate a possible improved cost/lifestyle tradeoff of living in what some might regard as the boonies. But this common predisposition is an impediment to attracting “talent” to manufacturing.
4. Active destruction of what advantage the US possessed via the Trump war on elite universities. One ranking by QS put Western institutions on top:
Another ranking comes to somewhat similar conclusions….
:
…but notes:
Oxford retains the number one spot for the tenth consecutive year, driven by strong research environment score
Princeton rises to joint third place, and is the only US university to achieve its best-ever finish this year
China has five universities in top 40, up from three last year, but top universities remain steady
Hong Kong occupies a record six spots in the top 200 as a result of improvements in teaching metrics
India now has the second highest number of ranked universities for the first time, behind only the US
To put it another way, the continued Western leadership in top academic institutions makes its decline in practical application (and the US decline in life expectancy) even more striking.
5. The US is unlikely to be willing to accept the pollution cost of being a major manufacturer again. All of the whinging about rare earths conveniently obscures the fact that the US had rare earths production but effectively got out of that business because it was too nasty, particularly in terms of water pollution, and is now in the process of reopening some mines. But people have an aversion to living near industrial operations. For instance, paper making produces a noxious smell even when the output is safe because the human nose can detect sulphur down to 4 parts per billion. A more dramatic and harmful example are the chemical plants and oil operations in the lower Mississippi, which activists correctly point out exact a health cost on those living nearby.
6. The increased importance of personal and family connections in economic and career success devaluing skill acquisition. Even as a young person, I was put off even when by the emphasis on networking, since it treats social contacts as assets to be mined for financial gain. Readers are encouraged to sanity check, but the greater importance of legacy admissions at Harvard and I assume other elite schools (recall that Larry Summers lost ginormous amounts of money to interest rate swaps speculation; my impression from a distance is that admissions took a more mercenary turn after that) points to a rise in clientelism/tribalism as income inequality rises and class mobility falls.
I am told (and seek input) that in the Middle East, young men don’t apply themselves to studying because all that matters is family connection. This is the dirty secret behind girld doing better in math than boys in that part of the world. Mathematical attainment is not valued among men, while it can help some women get ahead (think as teachers or in technical jobs, like nursing and in laboratories).
I am sure readers can add to this starter list of “Why we can’t get there from here” in terms of rebooting US manufacturing. Please pile on in comments.
_____
1 The title of the bill was already a big sign of hesitation to commit to robust government intervention in the economy, even though that happens on both an ad hoc basis and as a result of lobbying every day. From the White House website:
Two years ago, President Biden signed the Inflation Reduction Act, with Vice President Harris casting the tie-breaking vote in Congress. The Inflation Reduction Act is a key part of the Biden-Harris Administration’s Investing in America agenda, which has driven the fastest and most equitable recovery on record – creating good-paying jobs, expanding opportunity, and lowering costs in every corner of the country.
Already, the Inflation Reduction Act is transforming American lives by finally beating Big Pharma to negotiate lower prescription drug prices, making the largest investment in clean energy and climate action in history, creating hundreds of thousands good-paying jobs, lowering health care and energy costs, and making the tax code fairer. Visit the White House Savings Explorer to see how Americans are saving money on their annual expenses because of the Inflation Reduction Act and other Biden-Harris Administration actions.
