Would a Budget Surplus Bring Manufacturing Jobs Back to the U.S.?

Question: As I understand it, deficit spending by the federal government lowers the value of the U.S. dollar, causing a rise in cost of raw materials. Manufacturers outsource production because rising raw material costs narrow profit margins. Outsourcing of manufacturing puts downward pressure on wages, causing deflation.

My questions are: Have the percentage costs for energy and raw materials vs. labor in the market price for manufactured goods changed from 1972 when inflation was in the double digits to now? Will a budget surplus allow us to bring back more manufacturing jobs to this country by lowering the percentage cost of materials and energy? Thanks.

Paul Solman: Okay, one item at a time.

First, federal deficit spending does not necessarily lower the value of the U.S. dollar. Suppose the spending was to protect the country from Auric Goldfinger, the James Bond villain who planned to irradiate all the gold in Fort Knox? Or save the banking system from ruin, thus rescuing the U.S. economy during a global crash? Remember this aphorism: What matters is not how much you borrow; it’s what you spend the money ON.

Now it’s true that, all else equal, a lower dollar means higher commodity prices (raw materials). It’s also true that outsourcing of manufacturing puts down pressure on wages. But there are so many other factors involved in deflation that lower wages will rarely cause it by themselves.

On to your actual questions. I don’t know about the cost components, 1972 compared to today. But as to your last one — “Will a budget surplus allow us to bring back more manufacturing jobs to this country by lowering the percentage cost of materials and energy?” — I’d simply say there are way too many variables to say, one way or the other. All else is NOT equal is this case.