Did you here? The folks who make things for a living are now … cool. Many business gurus out there, including Warren Buffett, say manufacturers are leading the economic recovery. The Institute for Supply Management reported the fifth month of growth in manufacturing employment. ISM’s employment index in April was 58.5 (above 50 is expansion), 3.4 points higher than it was in March.
The Rust Belt’s coming back too, at least in some areas. Team NEO, a nonprofit devoted to attracting new business to Northeast Ohio, recently reported that local manufacturing businesses, including metal fabricators, are expected to grow by 2015, and much of that growth may be tied to clean energy and related sectors.
Tom Waltermire, told the Cleveland Plain Dealer that, “This new, growing field … is enabled by our past,” referring to the area’s manufacturing legacy.
You can tell manufacturing’s cool again not only because of its ties to alternative energy (a subject getting a lot of mainstream media ink anyway), but the fact that people tend to trust the numbers. A manufacturer’s balance sheet is likely to be more straightforward than those of the major Wall Street firms.
Consider the rule change that eased the requirements for mark-to-market accounting. Bankers no longer have to assess their holdings to market value, that is, what others are willing to pay. They now essentially can record what they think the value will be worth.
I’m no market strategist, but that sounds fishy to me. If an asset has the tendency to have wild fluctuations in market value, well then, that’s the risk you take if you decide to own one of those assets. You should take the good with the bad, right? You buy an asset, and if market demand makes its value go sky high, you can reap the financial rewards (as banks certainly did). If the asset value heads south, well then, that’s the risk you take.
Yes, you can argue that investors thought housing was a safe bet; house prices hadn’t fallen in decades, so they didn’t know the investment was so risky. But everyone knows the adage, if it looks too good to be true, it probably is—and skyrocketing housing values certainly looked too good to be true.
Changing the mark-to-market rules makes me wonder: What’s the actual value of those assets? It’s all very confusing. More to the point, how do these rules make our lives better? Sure, there’s the indirect argument: Without healthy banks, we couldn’t get loans to launch and expand businesses—a fact that, after the Great Recession, we know all too well.
But when so much of today’s wealthy individuals work in finance, it begs the question: What, exactly, are they financing? As we found out with the financial crisis, financiers often built a long and confusing trail between the actual asset (say, houses), and the financial products they were peddling.
Like in manufacturing, the financial world has gotten automated too—which, as we discovered during Thursday’s 1,000-point plunge (and quick recovery) in the Dow—can be scary if things go awry. Yes, maybe the European situation had something to do with it. But most think high-speed trading (and the lemming nature of Wall Street traders) exacerbated the issue. The fact that someone incorrectly keying in a trade could cause so much havoc is a bit unnerving.
High finance has gone so far so fast, probably because that’s where the money is. The asset value behind complex investments may have plunged in recent years, but the finance sector’s huge paychecks haven’t. Over the past decade or more, those paychecks have lured so much talent into the financial community that the business of making actual products had been metaphorically swept under the rug—that is, until this past recession. Today, everyone seems to be putting their hopes in the people who can dream up ways to make new and better products, tangible things that don’t require accounting wizardry.
Robert Reich, a professor at U.C. Berkeley, put it aptly in a recent interview on pubic radio’s Marketplace: “Four decades ago, Wall Street worked on behalf of industries that made real products. And real products were where the money was. But as Wall Street itself became the place where the biggest bucks could be made, everything seemed to have flipped. Most of American industries are now, in effect, working for the Street, whose analysts and traders can determine the fates of companies every quarter. And a lot of American entrepreneurship has shifted from real products to financial products. This is a long-run problem for the American economy.”
The problem persists. As has been reported repeatedly, high finance still pays high-roller pay packages. But we may be at the beginning of a slow transformation; people seem to value manufacturing differently these days. Everyone’s eye is on that manufacturing entrepreneur who can make actual things that we value, not as an investment, but as products that will make our lives a little better.