A lot of people who watch trade flows think that the United States is making a mistake by losing its manufacturing activities to other countries. They recognize that other countries can provide some manufactured goods at lower cost than the United States, lowering costs for consumers, and they recognize that free trade levels the playing field, allowing less developed countries to share in world commerce. Many understand that if there are net flows of manufactured durables from the United States’ there is an offsetting net inflow of financial (monetary) investments into the United States. This is a simple artifact of balance of payments accounting.

I say manufactured durables because people also believe that the value of an economy is based on the production of manufactured durables. They understand that the economy includes nondurables manufacturing and services but they believe that these activities are somehow “fake” since they are non-durable.

The reality of economic activity is that it continually changes over time. Let us roll history back a few millennia. In most communities, agriculture was still improving to a higher than subsistence level, freeing up a portion of the population from work in the fields. It was only when some of the population could pursue other activities that education, knowledge and inventions began to occur. Later, of course, there was a large-scale industrialization process that occurred. Recently, the economy has undergone a transformation that implies more non-tangible activity, the information economy if you will. The recent intensification of non-tangible economic activity implies that there is value in this activity. Lots of value, just ask Google.

Non-tangibles are very important in the modern United States economy. These include, besides the internet and software: education, job-specific knowledge, primary research, technology adoption, and others.

As we become wealthier and move up Maslow’s hierarchy of needs, utility increasingly comes from less-tangible sources. This is ok.