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America’s Hegemonic Status Slipping Away
By Paul Craig Roberts
09/19/07 "ICH" -- -- Former Fed Chairman Alan Greenspan’s memoir
has put him in the news these last few days. He has upset
Republicans with his comments on various presidents, with George
W. Bush getting the brickbats and Clinton the praise, and by
saying that Bush’s invasion of Iraq was about oil, not weapons
of mass destruction.
Opponents of Bush’s wars welcomed Greenspan’s statement, as it
strips the moral pretext away from Bush’s aggression, leaving
naked greed unmasked.
It is certainly the case that Iraq was not invaded because of
WMD, which the Bush administration knew did not exist. But the
oil pretext is also phony. The US could have purchased a lot of
oil for the trillion dollars that the Iraq invasion has already
cost in out-of-pocket expenses and already incurred future
expenses.
Moreover, Bush’s invasion of Iraq, by worsening the US deficit
and causing additional US reliance on foreign loans, has
undermined the US dollar’s role as reserve currency, thus
threatening America’s ability to pay for its imports. Greenspan
himself said that the US dollar “doesn’t have all that much of
an advantage” and could be replaced by the Euro as the reserve
currency. By the end of last year, Greenspan said, foreign
central banks already held 25 percent of their reserves in Euros
and 9 percent in other foreign currencies. The dollar’s role has
shrunk to 66 percent.
If the dollar loses its reserve currency status, the US would
magically have to move from an $800 billion trade deficit to a
trade surplus so that the US could earn enough Euros to pay for
its imports of oil and manufactured goods.
Bush’s wars are about American hegemony, not oil. The oil
companies did not write the neoconservatives’ “Project for a New
American Century,” which calls for US/Israeli hegemony over the
entire Middle East, a hegemony that would conveniently remove
obstacles to Israeli territorial expansion.
The oil industry asserted its influence after the invasion. In
his book, Armed Madhouse, BBC investigative reporter Greg Palast
documents that the US oil industry’s interest in Middle Eastern
oil is very different from grabbing the oil. Palast shows that
the American oil companies’ interests coincide with OPEC’s. The
oil companies want a controlled flow of oil that results in
steady and high prices. Consequently, the US oil industry
blocked the neoconservative plan, hatched at the Heritage
Foundation and aimed at Saudi Arabia, to use Iraqi oil to bust
up OPEC.
Saddam got in trouble because one moment he would cut production
to support the Palestinians and the next moment he would pump
the maximum allowed. Up and down movements in prices are
destabilizing events for the oil industry. Palast reports that a
Council on Foreign Relations report concludes: Saddam is a
“destabilizing influence . . . to the flow of oil to
international markets from the Middle East.”
The most notable aspect of Greenspan’s memoir is his unconcern
with America’s loss of manufacturing. Instead of a problem,
Greenspan simply sees a beneficial shift in jobs from “old”
manufacturing (steel, cars, and textiles) to “new” manufacturing
such as computers and telecommunications. This shows a
remarkable ignorance of statistical data on the part of a
Federal Reserve Chairman renowned for his command over numbers
and a complete lack of grasp of offshoring.
The incentive to offshore US jobs has nothing to do with “old”
and “new” economy. Corporations offshore their production,
because they can more cheaply produce abroad what they sell to
Americans. When corporations bring their offshored production to
the US to sell, the goods count as imports.
Had Greenspan bothered to look at US balance of trade data, he
would have discovered that in 2006, the last full year of data,
the US exported $47,580,000,000 in computers and imported
$101,347,000,000 in computers for a trade deficit in computers
of $53,767,000,000. In telecommunications equipment the US
exported $28,322,000,000 and imported $40,250,000,000 for a
trade deficit in telecommunications equipment of
$11,883,000,000.
Greenspan probably has given offshoring no serious thought,
because like most economists he mistakenly believes that
offshoring is free trade and learned in economic courses decades
ago before the advent of offshoring that free trade can do no
harm.
For most of the 21st century I have been pointing out that
offshoring is not trade, free or otherwise. It is labor
arbitrage. By replacing US labor with foreign labor in the
production of goods and services for US markets, US firms are
destroying the ladders of upward mobility in the US. So far
economists have preferred their delusions to the facts.
It is becoming more difficult for economists to clutch to their
bosoms the delusion that offshoring is free trade. Ralph Gomory,
the distinguished mathematician and co-author with William
Baumol, past president of the American Economics Association, of
Global Trade and Conflicting National Interests, the most
important work in trade theory in 200 years, has entered the
public debate.
In an interview with Manufacturing & Technology News (September
17), Gomory confirms that there is no basis in economic theory
for claiming that it is good to tear down our own productive
capability and to rebuild it in a foreign country. It is not
free trade when a company relocates its manufacturing abroad.
Gomory says that economists and policymakers “still are treating
companies as if they represent the country, and they do not.”
Companies are no longer bound to the interests of their home
countries, because the link has been decoupled between the
profit motive and a country’s welfare. Economists, Gomory points
out, are not acknowledging the implications of this decoupling
for economic theory.
A country that offshores its own production is unable to balance
its trade. Americans are able to consume more than they produce
only because the dollar is the world reserve currency. However,
the dollar’s reserve currency status is eroded by the debts
associated with continual trade and budget deficits.
The US is on a path to economic Armageddon. Shorn of industry,
dependent on offshored manufactured goods and services, and
deprived of the dollar as reserve currency, the US will become a
third world country. Gomery notes that it would be very
difficult—perhaps impossible—for the US to re-acquire the
manufacturing capability that it gave away to other countries.
It is a mystery how a people, whose economic policy is turning
them into a third world country with its university graduates
working as waitresses, bartenders, and driving cabs, can regard
themselves as a hegemonic power even as they build up war debts
that are further undermining their ability to pay their import
bills.
Paul Craig Roberts was
Assistant Secretary of the Treasury in the Reagan
Administration. He is the author of Supply-Side Revolution : An
Insider's Account of Policymaking in Washington; Alienation and
the Soviet Economy and Meltdown: Inside the Soviet Economy, and
is the co-author with Lawrence M. Stratton of The Tyranny of
Good Intentions : How Prosecutors and Bureaucrats Are Trampling
the Constitution in the Name of Justice.
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