The leaders of the G-20 meeting in Pittsburgh might make headway in promoting world prosperity by reducing trade barriers and encouraging aggressive exporters like Germany and China to focus more on consumption, but after they have come and gone, our domestic challenges will remain. We are struggling to emerge from the longest and deepest recession since The Great Depression, and though there are signs of recovery, we are not out of the woods yet.

Manufacturing as always is a bellwether for the economy. The manufacturing dynamic where raw materials are forged into finished products is where our economy creates wealth. When the economy turns down and consumers lose confidence, manufacturing is first to feel the contraction. To date, one half of the jobs lost in the recession have been in manufacturing and construction, with most in manufacturing. Right now, the manufacturing capacity utilization rate is 65 percent, which means 35 percent of our capacity is idle. Until our factories are working full throttle again, the economy will continue to struggle.

Of course, when the economy comes out of recession, employment is the last thing to turn around. The unemployment rate is still climbing, albeit at a slower rate, and will likely top 10 percent by mid-2010. We don’t expect to start seeing meaningful improvement in employment until 2011. And consumers without jobs are unlikely to return to the marketplace. (See the NAM’s 2009 Labor Day report.)

In the long term, between now and 2014, we expect to see up to a million manufacturing jobs return, but that will depend at least in part on decisions made in Washington that will have tremendous impact on our ability to grow our economy and put people back to work.

Regrettably, our government today is focused not on making manufacturing more competitive and encouraging growth, but rather on priorities that - so far at least - seem likely to increase the cost of production. As currently being discussed, reforms to our health care system and climate change legislation would greatly increase the cost burdens of manufacturers who already shoulder a 17 percent disadvantage compared to our major trading partners.

Our greatest opportunities for growth lie beyond our borders. A full 95 percent of the world’s consumers are not in the U.S. To grow and prosper, we need a much larger commitment to increasing exports. Yet our government cannot bring itself to enact the free trade agreements with Panama, Colombia and South Korea that would greatly expand exports and create jobs.

We can all wish the G-20 attendees in Pittsburgh well. But in the final analysis, our economic future will not be determined in Brussels or Beijing, it will be determined in Washington. And so far, our leaders are not rising to the challenge.

The New America Foundation today hosted a panel discussion entitled “Manufacturing A Better Future For America,” that stressed, logically enough, the compelling need to strengthen U.S. manufacturing. There is a disturbing lack of understanding among political leaders and economists of the critical role manufacturing plays in a modern economy. As Leo Hindery of the New America Foundation noted, a job in manufacturing is worth a lot more than a job in services. It pays more and every manufacturing dollar generates $1.40 in other sectors.

The panelists were clearly concerned about our country’s industrial base and alarmed by the exodus of so much manufacturing to other countries. Yes, we need tax reform, more capital investment, more R&D and more investment in workforce training. But some of the solutions they proposed were troubling, at least to me. If having an “industrial policy” means our government will finally realize how important manufacturing is and do its part to help us compete, I’m for it. If it means having bureaucrats in Washington pick winners and losers, that is a cure worse than the disease.

All of the talk about losing our industrial base is premature. The U.S. is still the world’s largest manufacturing country, by a large margin. Manufacturing contributes $1.6 trillion to our GDP and employs 12 million Americans directly, millions more indirectly. And before we go abandoning our commitment to free trade, we might take note that we enjoy a trade surplus in manufactured goods with free trade nations as we sell $80 billion worth each month.

Still, we have been much too complacent. We must make manufacturing a top national priority. As Akio Morita, the founder of Sony said, “The world power that loses its manufacturing base will cease to be a world power.”

In his latest movie, “Gran Torino,” Clint Eastwood advises a young man of foreign extraction that you can fix anything around the house with duct tape. (Clip) Well, actually you can fix anything around the house with duct tape — and a can of WD-40.

We almost missed the obituary two weeks ago of John S. Barry, the man who gave us WD-40, the ubiquitous spray found in about 80 percent of American homes with at least 2000 uses – including preventing squirrels from climbing into birdhouses, lubricating tuba valves, cleaning ostrich eggs and freeing tongues stuck to frozen metal.

The product was actually invented by the Rocket Chemical Company in 1953 for the aerospace industry. Barry took over the company in 1969 and proceeded to make WD-40 a household word. He spruced up the packaging, sent 10,000 free samples every month to soldiers in Vietnam to keep their weapons dry, and pushed to get WD-40 in supermarkets, of all places.

John D. Barry, a true marketing genius, was 84 when he died.

Those who believe the climate change brouhaha is overblown, and that proposed “cap and trade” legislation could bring about an economic catastrophe, have probably learned by now to keep their views to themselves. We are living in an Orwellian age when only the foolhardy dare challenge prevailing scientific orthodoxy.

But there are a few brave souls out there who dare to stand against the tide. Columnist George Will is one, but perhaps the most formidable critic of the global warming alarmism is the revered scientist and liberal intellectual Freeman Dyson, portrayed last Sunday in The New York Times Magazine. (”The Global Warming Heretic.”) Dyson has expressed concern about the “enormous gaps in our knowledge, the sparseness of our observations and the superficiality of our theories.” He says “all the fuss about global warming is grossly exaggerated” and “the fact that the climate is getting warmer doesn’t scare me at all.” He says climate change has become an “obsession,” the primary article of faith for “a worldwide secular religion” called environmentalism.

This is the part I love: “According to the global warming people,” Dyson says, “I say what I say because I’m paid by the oil industry. Of course, I’m not but that’s part of the rhetoric. If you doubt it, you’re a bad person, a tool of the oil or coal industry.” Global warming, he said, “has become a party line.”

And best of all: “The polar bears will be fine,” he said.

I recently had the pleasure of attending a book-signing event at Politics & Prose, a bookstore in Washington, where my friend Bob Samuelson was selling and signing his new work, “The Great Inflation and its Aftermath: The Past and Future of American Affluence.”All of us who read Bob’s columns in The Washington Post and Newsweek know him to be a prescient observer of the economic scene, and rarely if ever have his prescient observations been more needed than today. Bob took us on a journey back in time to the 60s and 70s when inflation ran riot, undermining everyone’s faith in the future. There really was something creepy about watching your money lose value year after year, but most of us have forgotten those times.

It was a deadly cycle fostered by big labor in concert with big business with their open-ended contracts that guaranteed steadily rising wages for labor and prices for products. The political class was committed to full employment and thus resisted efforts to squeeze inflation out of the system. Public opinion polls showed people were more concerned about inflation than the Vietnam War or the Iranian hostage crisis.

Along came Fed Chairman Paul Volcker determined to squeeze inflation out of the system and President Ronald Reagan who, Samuelson contends, was the only political leader of either party with the fortitude to support the Fed through that tough passage. Inflation, unemployment and interest rates were in double digits. The people were in distress and the politicians were beside themselves.

But we saw it through and got inflation under control, setting off a generation of steady economic growth interrupted by a few brief, shallow recessions. Until now, that is. Now we’re into truly unfamiliar territory.

Bob says he does not foresee another Great Depression, but he does see two similarities between the 1930s and today. One, no one knew what was going on back then and no one knows now. Two, there was no single nation willing and able to assume the leadership then or now to needed to wring order out of chaos.

It’s a good book. I recommend it.

(Editor’s note: Samuelson wrote a Washington Post column touching on the book’s themes in June, “Return of Inflation?“)

I just got back from a productive visit with our friends with Arkansas Manufacturing Solutions (AMS) in Little Rock, offering a talk about the importance of manufacturing to our economy and the challenges we face. The AMS is one of many Manufacturing Extension Partnerships (MEPs) around the country that work with small manufacturers to help them acquire modern technology, have access to professional advice, obtain funding and export their products abroad. The MEPs are a profound blessing to manufacturing and our economy, so of course the bean counters in the Office of Management and Budget try to zero out the minimal federal funding they receive each year, and every year we (the NAM) fight to get it put back. But every dollar that goes to the MEPs generates many more in economic growth, new jobs and exports.

I don’t have space to recount all of the information I picked up down there. But a couple of stories stand out. Timothy J. Grant, Chairman, President and CEO of Actronix, described how his company brought production back to the U.S. from China, primarily because of concern about quality. Lee Morgan, President of Farr Air Pollution Control, described how his company almost went under and attributed much of the credit for their survival - and expansion - to the AMS. There was lots of talk about, and interest in, green manufacturing. And everyone there was grateful to Rep. Marion Berry (D-AR) for his ardent support of the MEP program.

Many thanks to Dan Curtis and Tovia Chan of the AMS for arranging this great meeting and inviting me to speak. I had a wonderful time, and as always happens on these trips, I came back wiser than I left.

Isolationist writer Alan Tonelson has made a career of distorting economic data to convey a false image of U.S. manufacturers abandoning our country for foreign shores. The reality that the United States remains the world’s leading manufacturing country, that we enjoy an immense technological advantage, or that we actually have a trade surplus with free trade agreement nations, has no place in Tonelson’s mythical land of demons and dragons trying to subvert our way of life.

Anyone who doubts Tonelson’s estrangement from reality can allay their doubts by visiting his web site and the post, “Who’s on First?” at the National Association of Manufacturers. Tonelson  tries to get his audience to believe that NAM President John Engler has contradicted himself about implications of China’s manufacturing expansion.

In reality, as Tonelson should know if he did any due diligence at all, Engler was misquoted in The Financial Times and the editors afforded him an opportunity to state his real position. If you missed the FT retraction on September 18, you will find it on the NAM home page (www.nam.org) along with the Engler commentary.

Tonelson is entitled to his own opinions, but not to misrepresent the opinions of others.

Charles Eames and his wife Ray are not household names, and yet their inventive genius is present in just about every household – not to mention airports, restaurants, and other public places all over the world.
They got their start during World War II creating laminated plywood splints for wounded military personnel. They were better than the metal splints that easily transmitted vibrations to wounds and fractures.

When the war ended, Charles and Ray branched out, applying what they had learned about hot-molding wood laminates to furniture design. All across the country, there was a mad scramble to build houses for returning servicemen, and all those houses needed furniture.

Charles and Ray entered a furniture design contest run by the Museum of Modern Art with a single shelled molded plywood lounge chair that was comfortable even though it had no upholstery. It was designed of soft but lasting material to fit the design of the human body. And being so simple, it was inexpensive to make, also a major plus. They won the contest.

That chair was introduced commercially in 1946 and is still being made. In its last issue of 1999, Time magazine named it the Best Design of the 20th century.

The Eames didn’t just invent creative furniture; they also invented the tooling to make it. Manufacturers just loved them and with reason. Their chairs were, and are, comfortable, simple and inexpensive.

One of my favorite scholars, Professor Jean Smith of Marshall University, in Huntington, W.Va., has a typically well-written and thought provoking op-ed in today’s New York Times, “We Should Still Like Ike,” in which he recommends that Barrack Obama reach out to traditional Eisenhower Republicans, an often neglected group. (Smith’s op-eds appear in the Times fairly frequently, but this time his Marshall connection is omitted in favor of a reference to his most recent book, a fine biography of FDR.)

Smith makes a compelling case that Eisenhower was, after FDR, the most successful president of the 20^th century. He cites Ike’s successes on the home front – integration, the Interstate Highway System, defense of Social Security and unemployment insurance – and his refusal to embark on foolish military adventures abroad. “After Eisenhower made peace in Korea,” Smith writes, “not a single American died in combat for the rest of his presidency.”

I attended a reception/dinner at the Embassy of Canada last night and I was most impressed – by the beauty of their building, the quality of the cuisine and the intensity of their commitment to international trade. Canadian Ambassador Michael Wilson reminded everyone – as if we needed reminding – that Canada is our largest trading partner by far. U.S.-Canadian trade supports more than 7.1 million jobs in the U.S. He reiterated also a well known fact of life – that the North American Free Trade Agreement (NAFTA) has been a rousing success, stimulating economic growth and job creation in Canada, the U.S. and Mexico. He expressed incredulity that there is criticism of NAFTA in Congress and even talk of re-negotiating NAFTA. Incredulity is in order.

Opposition to NAFTA and international trade in general cannot be understood in terms of reality, but rather an angst in the heartland that things aren’t going well and surely someone must be to blame. This reflects an age-old isolationist mentality among the public, dating back to the time of the Founding Fathers, that has never completely subsided and continues to surface from time to time. It is the responsibility of political leaders of all parties and ideological persuasions to steer the voters away from this folly. The world today is more economically interdependent than ever before. Should we permit protectionism to find expression in actual policy, it will have calamitous consequences.