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American
Economy: R.I.P.
By Paul Craig Roberts
09/10/07 "ICH' -- -- The US economy continues its slow death
before our eyes, but economists, policymakers, and most of the
public are blind to the tottering fabled land of opportunity.
In August jobs in goods-producing industries declined by 64,000.
The US economy lost 4,000 jobs overall. The private sector
created a mere 24,000 jobs, all of which could be attributed to
the 24,100 new jobs for waitresses and bartenders, and the
government sector lost 28,000 jobs.
In the 21st century the US economy has ceased to create jobs in
export industries and in industries that compete with imports.
US job growth has been confined to domestic services,
principally to food services and drinking places (waitresses and
bartenders), private education and health services (ambulatory
health care and hospital orderlies), and construction (which now
has tanked). The lack of job growth in higher productivity,
higher paid occupations associated with the American middle and
upper middle classes will eventually kill the US consumer
market.
The unemployment rate held steady, but that is because 340,000
Americans unable to find jobs dropped out of the labor force in
August. The US measures unemployment only among the active work
force, which includes those seeking jobs. Those who are
discouraged and have given up are not counted as unemployed.
With goods producing industries in long term decline as more and
more production of US firms is moved offshore, the engineering
professions are in decline. Managerial jobs are primarily
confined to retail trade and financial services.
Franchises and chains have curtailed opportunities for
independent family businesses, and the US government’s open
borders policy denies unskilled jobs to the displaced members of
the middle class.
When US companies offshore their production for US markets, the
consequences for the US economy are highly detrimental. One
consequence is that foreign labor is substituted for US labor,
resulting in a shriveling of career opportunities and income
growth in the US. Another is that US Gross Domestic Product is
turned into imports. By turning US brand names into imports,
offshoring has a double whammy on the US trade deficit.
Simultaneously, imports rise by the amount of offshored
production, and the supply of exportable manufactured goods
declines by the same amount.
The US now has a trade deficit with every part of the world. In
2006 (the latest annual data), the US had a trade deficit
totaling $838,271,000,000.
The US trade deficit with Europe was $142,538,000,000. With
Canada the deficit was $75,085,000,000. With Latin America it
was $112,579,000,000 (of which $67,303,000,000 was with Mexico).
The deficit with Asia and Pacific was $409,765,000,000 (of which
$233,087,000,000 was with China and $90,966,000,000 was with
Japan). With the Middle East the deficit was $36,112,000,000,
and with Africa the US trade deficit was $62,192,000,000.
Public worry for three decades about the US oil deficit has
created a false impression among Americans that a
self-sufficient America is impaired only by dependence on Middle
East oil. The fact of the matter is that the total US deficit
with OPEC, an organization that includes as many countries
outside the Middle East as within it, is $106,260,000,000, or
about one-eighth of the annual US trade deficit.
Moreover, the US gets most of its oil from outside the Middle
East, and the US trade deficit reflects this fact. The US
deficit with Nigeria, Mexico, and Venezuela is 3.3 times larger
than the US trade deficit with the Middle East despite the fact
that the US sells more to Venezuela and 18 times more to Mexico
than it does to Saudi Arabia.
What is striking about US dependency on imports is that it is
practically across the board. Americans are dependent on imports
of foreign foods, feeds, and beverages in the amount of
$8,975,000,000.
Americans are dependent on imports of foreign Industrial
supplies and materials in the amount of $326,459,000,000--more
than three times US dependency on OPEC.
Americans can no longer provide their own transportation. They
are dependent on imports of automotive vehicles, parts, and
engines in the amount of $149,499,000,000, or 1.5 times greater
than the US dependency on OPEC.
In addition to the automobile dependency, Americans are 3.4
times more dependent on imports of manufactured consumer durable
and nondurable goods than they are on OPEC. Americans no longer
can produce their own clothes, shoes, or household appliances
and have a trade deficit in consumer manufactured goods in the
amount of $336,118,000,000.
The US “superpower” even has a deficit in capital goods,
including machinery, electric generating machinery, machine
tools, computers, and telecommunications equipment.
What does it mean that the US has a $800 billion trade deficit?
It means that Americans are consuming $800 billion more than
they are producing.
How do Americans pay for it?
They pay for it by giving up ownership of existing
assets--stocks, bonds, companies, real estate, commodities.
America used to be a creditor nation. Now America is a debtor
nation. Foreigners own $2.5 trillion more of American assets
than Americans own of foreign assets. When foreigners acquire
ownership of US assets, they also acquire ownership of the
future income streams that the assets produce. More income
shifts away from Americans.
How long can Americans consume more than they can produce?
American over-consumption can continue for as long as Americans
can find ways to go deeper in personal debt in order to finance
their consumption and for as long as the US dollar can remain
the world reserve currency.
The 21st century has brought Americans (with the exception of
CEOs, hedge fund managers and investment bankers) no growth in
real median household income. Americans have increased their
consumption by dropping their saving rate to the depression
level of 1933 when there was massive unemployment and by
spending their home equity and running up credit card bills. The
ability of a population, severely impacted by the loss of good
jobs to foreigners as a result of offshoring and H-1B work visas
and by the bursting of the housing bubble, to continue to
accumulate more personal debt is limited to say the least.
Foreigners accept US dollars in exchange for their real goods
and services, because dollars can be used to settle every
country’s international accounts. By running a trade deficit,
the US insures the financing of its government budget deficit as
the surplus dollars in foreign hands are invested in US
Treasuries and other dollar-denominated assets.
The ability of the US dollar to retain its reserve currency
status is eroding due to the continuous increases in US budget
and trade deficits. Today the world is literally flooded with
dollars. In attempts to reduce the rate at which they are
accumulating dollars, foreign governments and investors are
diversifying into other traded currencies. As a result, the
dollar prices of the Euro, UK pound, Canadian dollar, Thai baht,
and other currencies have been bid up. In the 21st century, the
US dollar has declined about 33 percent against other
currencies. The US dollar remains the reserve currency primarily
due to habit and the lack of a clear alternative.
The data used in this article is freely available. It can be
found at two official US government sites: http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=20&area_id=3
and http://www.bls.gov/news.release/empsit.t14.htm
The jobs data and the absence of growth in real income for most
of the population are inconsistent with reports of US GDP and
productivity growth. Economists take for granted that the work
force is paid in keeping with its productivity. A rise in
productivity thus translates into a rise in real incomes of
workers. Yet, we have had years of reported strong productivity
growth but stagnant or declining household incomes. And somehow
the GDP is rising, but not the incomes of the work force.
Something is wrong here. Either the data indicating productivity
and GDP growth are wrong or Karl Marx was right that capitalism
works to concentrate income in the hands of the few capitalists.
A case can be made for both explanations.
Recently an economist, Susan Houseman, discovered that the
reliability of some US economics statistics has been impaired by
offshoring. Houseman found that cost reductions achieved by US
firms shifting production offshore are being miscounted as GDP
growth in the US and that productivity gains achieved by US
firms when they move design, research, and development offshore
are showing up as increases in US productivity. Obviously,
production and productivity that occur abroad are not part of
the US domestic economy.
Houseman’s discovery rated a Business Week cover story last June
18, but her important discovery seems already to have gone down
the memory hole. The economics profession has over-committed
itself to the “benefits” of offshoring, globalism, and the
non-existent “New Economy.” Houseman’s discovery is too much of
a threat to economists’ human capital, corporate research
grants, and free market ideology.
The media has likewise let the story go, because in the 1990s
the Clinton administration and Congress overturned US policy in
favor of a diverse and independent media and permitted a few
mega-corporations to concentrate in their hands the ownership of
the US media, which reports in keeping with corporate and
government interests.
The case for Marx is that offshoring has boosted corporate
earnings by lowering labor costs, thereby concentrating income
growth in the hands of the owners and managers of capital.
According to Forbes magazine, the top 20 earners among private
equity and hedge fund managers are earning average yearly
compensation of $657,500,000, with four actually earning more
than $1 billion annually. The otherwise excessive $36,400,000
average annual pay of the 20 top earners among CEOs of
publicly-held companies looks paltry by comparison. The careers
and financial prospects of many Americans were destroyed to
achieve these lofty earnings for the few.
Hubris prevents realization that Americans are losing their
economic future along with their civil liberties and are on the
verge of enserfment.
Paul Craig Roberts was Assistant Secretary of the Treasury in
the Reagan administration. He was Associate Editor of the Wall
Street Journal editorial page and Contributing Editor of
National Review. He is coauthor of The Tyranny of Good
Intentions.
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