By Paul Craig Roberts
October 17, 2012 "Information
- During the second half of the 20th century the
United States was an opportunity society. The ladders of upward
mobility were plentiful, and the middle class expanded. Incomes
rose, and ordinary people were able to achieve old-age security.
In the 21st century the opportunity society has disappeared.
Middle class jobs are scarce. Indeed, jobs of any kind are
scarce. To stay even with population growth from 2002 through
2011, the economy needed about 14 million new jobs. However, at
the end of 2011 there were only 1 million more jobs than in
Only 426,000 of these jobs are in the private sector. The bulk
of the net new jobs consist of waitresses and bartenders and
health care and social assistance. According to the Bureau of
Labor Statistics, over the 9 years, employment for waitresses
and bartenders increased by 1,188,000. Employment in health care
and social assistance increased 3,087,000. These two categories
accounted for 1,000% of the net private sector job growth.
As for manufacturing jobs, they not only did not grow with the
population but declined absolutely. During these nine years, 3.5
million middle class manufacturing jobs were lost.
Over the entire nine years, only 48,000 new jobs were created
for architects and engineers.
In the 21st century the US economy has been able to create only
a few new jobs and these are in lowly paid domestic services
that cannot be offshored, such as waitresses and bartenders.
The lack of jobs, especially high value-added, high productivity
jobs, is the reason real median household income has declined
and the distribution of income has worsened. Without rising real
household income, there cannot be a consumer economy.
In the early years of the 21st century, the Federal Reserve
substituted a rise in consumer debt to drive the economy in
place of the missing rise in consumer incomes. Low interest
rates drove up housing prices, and people refinanced their
mortgages and spent the equity. The Federal Reserve kept the
economy alive by loading up consumers with debt that housing
prices and consumer incomes would soon be unable to support.
When debt and real estate prices reached unsustainable levels,
the bubble popped, and the ongoing financial crisis was upon us.
The cause of all of the problems is the offshoring of Americans’
jobs. When jobs are moved offshore, consumers’ careers and
incomes, and the GDP and payroll and income tax base associated
with those jobs, go with them. When the goods and services
produced for American markets by offshored labor are brought
into the US to be sold, the trade deficit rises, and downward
pressure is put on the dollar, pushing up domestic inflation.
(On October 12, statistician John Williams (shadowstats.com)
reported that “third-quarter wholesale inflation jumped to an
Jobs offshoring is driven by Wall Street, “shareholder
advocates,” the threat of takeovers, and by large retailers,
such as Walmart. By cutting labor costs, profits go up.
It is that
simple. However, as a result of sending American jobs to cheap
labor countries, US consumer incomes go down. The end result is
to destroy the domestic consumer market. What would have been US
consumer income growth becomes instead profit growth for US
Keynesian economists use in their textbooks the example of how
the aggregate effect of individual saving could be the opposite
of the effect intended by the individuals. Whereas each saver
seeks to improve his position by building wealth, in the
aggregate saving could exceed investment, resulting in a decline
in aggregate demand and a fall in income for all. Offshoring has
the same logic. Each corporation can expect to gain more profits
from moving US jobs offshore, but the aggregate effect is a fall
in American consumer incomes and a reduction in the American
I have told this story many times. But policymakers, the media,
and economists seem unable to connect the dots.
Jobs offshoring has substantial implications for Social Security
and Medicare. The US has the least adequate social safety net of
any developed country. The two major components of the US social
safety net are Social Security and Medicare for the elderly.
Social Security and Medicare are financed by a payroll tax. The
combined tax is 15.3% of payrolls. For the past quarter of a
century the Social Security portion of the payroll tax has built
up a surplus of over $2 trillion. Recently, the Medicare portion
began running in the red.
Right-wing Republicans, free market ideologues, and the
left-wing have all indoctrinated themselves with incorrect
beliefs about Social Security and Medicare. The right-wing
claims that a safety net financed with 15.3% of payrolls is a
“Ponzi scheme” and an “unfunded liability.” If that is the case,
then so are veterans benefits, military pensions, and federal
pensions, all of which are financed by the income tax, the basis
for the payroll tax.
The left-wing claims that the rich do not pay high enough
payroll taxes, because the income subject to Social Security
payroll tax is capped at about $110,000. But the benefits are
also capped. Social Security is not supposed to be an income
redistribution scheme from rich to poor, and it is not supposed
to be a pension system for the rich. The pension paid is
supposed to correlate with the pre-retirement income level of
the retiree. Those who had higher wages or salaries and
consequently paid more in payroll taxes receive a larger Social
Security check than those who had lower wages and salaries and
paid less payroll taxes, although there is favoritism toward the
lower income earners who receive proportionally more in respect
to their payroll taxes than higher income earners.
There is no cap on income subject to the Medicare portion of the
payroll tax. Moreover, Medicare charges a Medicare Part B
premium that is deducted from the Social Security monthly check.
In addition, there is a further Part B premium based on
retirement age income. For example, someone working beyond
retirement age and making $250,000 per year pays about $3,800 in
Medicare Part B premium in addition to the Medicare portion of
the payroll tax of about $7,500. The annual premium he pays for
his “free” Medicare for which he has paid all his working life
with a payroll tax is about $11,300.
Moreover, Medicare by itself is insufficient coverage. To
actually have medical coverage, those covered by Medicare have
to purchase a supplementary private policy to cover the large
gaps in Medicare. Depending on the range of coverage, a
supplementary policy costs approximately $100 to $300 per month.
As the person making $250,000 per year is likely to go for the
most coverage, he will be paying about $14,900 (excluding
deductions and co-payments) per year for his “free” Medicare.
This is despite having paid the Medicare payroll tax each year
of his working life. A person who made $250,000 in taxable
income per year for 30 years would have paid $217,500 into
Medicare at the current Medicare payroll tax rate.
The right-wing’s notion that Social Security and Medicare are
handouts, part of the welfare state’s bread and circuses, and
the left-wing’s idea that the rich get a free ride are equally
(Note: $250,000 is the politicians’ dividing line between the
rich and everyone else. For a person making $50,000 a year, an
income five times larger can seem rich. However, a $250,000
annual income leaves a family or person far distant from the
lifestyle of the rich. Upper middle class incomes are generally
associated with high-tax, high-cost urban areas in states with
high income taxes. After federal income and payroll taxes, state
income and sales taxes, and property taxes, what appears to many
as a large income disappears. In New York City, the federal
income tax will take about 25% of the $250,000, New York state
will take about 9%, and New York City will take about 3.65%. The
combined city and state sales tax is 8.875%. The property tax is
high. The conclusion is that in New York City a $250,000 income
is reduced to $125,000 or thereabouts. Those who claim “the rich
don’t pay taxes” are not talking about $250,000 incomes.)
Social Security and Medicare have served the country well. They
protect the individual from his own mistakes, from crooked and
incompetent money managers, and from financial crises, and they
protect society from the moral dilemma of confronting large
numbers of fellow citizens who through fault or no fault of
their own cannot provide for their livelihood and medical care.
After the financial scandals and crisis of the past five years,
it is a stretch to believe that any but the astute can manage
their personal wealth, whether small or large, in today’s
situation of unregulated financial markets, zero interest rates,
currency uncertainty, and highly complex investment instruments
with computers programmed with mathematical models dominating
The argument that conceptually a person could do better by
investing his payroll taxes in the stock market is a poor basis
for old age security policy. The person can do better as long as
he or she doesn’t fall into the hands of a Bernie Madoff or a
Goldman Sachs, doesn’t receive zero interest on his bonds
because the Federal Reserve has to bail out the “too big to fail
banks,” doesn’t experience a decline in currency value due to
monetization of enormous federal deficits, and doesn’t
experience a bear market as he approaches retirement.
The right-wing ideologues who try to scare old age security out
of existence go on and on about rising medical costs, about an
aging population living longer, declining birthrates and a
worsening ratio of workers to retirees, about people learning to
rely on handouts rather than their own means, and about
Washington’s rising unfunded liabilities.
Scare projections are designed to scare, and most are untenable.
For example, longevity was a product of rising incomes, good
diet, and antibiotics. Today only the upper crust have rising
incomes. Antibiotics are wearing out from abuse and rising
immunity of bacteria. Diet is compromised in ways still poorly
understood as a result of GMOs, pesticides, herbicides, pumping
chicken, pork, and beef full of antibiotics and hormones and
feeding the animals GMO grains and also possibly infected animal
byproducts, and pumping our water full of fluoride. A variety of
destructive activities and behaviors are causing ecological
damage. Longevity might have been a short-term benefit of
irreproducible conditions considering the mounting ecological
damage and the rise of superbugs, stress, and tainted food and
The projection of an aging population might also be wrong.
Clearly, the post-World War II baby boomers are aging, but do
the projections take into account the legislated 1965
immigration increases plus the illegal influx from Mexico and
points south of young people with high birth rates? How can it
be that a country with allegedly 30 million illegal immigrants,
whose children born in the US are citizens, has a declining
How do we know that the illegal population will not continue to
There are so many Spanish speaking people in the US today that
if a person calls any of his utility companies, whether
telephone, Internet, water, electricity, TV, or any of his
credit card companies, or his bank, he has to select English or
Spanish. Obviously, as
anti-immigration sites make clear, the US population is changing
in its national origin, and there appears to be no sign of an
aging Hispanic population. How many old Spanish speaking people
do you see in the US compared to the young?
When confronted with this apparent fact, the response is: “why
will the Hispanics pay for the aging white population?” The
answer is: because they are in the same payroll tax system and
the taxes will be withheld from their wages and salaries just as
they are from everyone else’s.
It is possible that if Hispanics in the US have suffered years
of hostility, accusations, and hatred from “the ice people,”
once Hispanics are sufficiently numerous to control the
legislature, assuming one still exists, or to take over the
executive branch, the only seat of power, they may in
retribution cut off the aging whites. But if so, the whites will
have brought it on themselves.
Whatever the scare projections that are mustered to undermine
the public provision of old age security, the real financial
danger is never mentioned. The only significant financial danger
to Social Security and Medicare is the offshoring of American
jobs and GDP. A country without a job base is without a payroll
tax base. If the only jobs that the 21st century “world’s only
superpower” economy can create are for waitresses, bartenders,
and health care and social assistance (hospital orderlies and
practical nurses), payroll tax revenues will be less than if the
US still had 20 million workers and rising in well-paid
manufacturing jobs instead of 11 million.
Regardless of Medicare’s financing, the death knell for the
elderly was the legality of abortion. If the yet to be born are
an insufferable burden, imagine the cost of the elderly. As far
as the state is concerned, once you stop producing income and
payroll tax revenues for the state, it is time for you to die.
Washington would rather enact euthanasia than to pay back the
$2+ trillion in the Social Security trust fund that Washington
spent, leaving only non-marketable IOUs in the account.
Readers might think that Americans would never stand for death
by injection for the elderly once the qualified age is reached.
But why would they not? They have accepted millions of aborted
babies, and Americans, including the elderly, have stood for
Washington’s murder, maiming and displacement of millions of
Muslim men, women, and children in 7 countries over the past 11
years and are yet to show any signs of remorse for their
complicity in mass murder. Next month tens of millions of
Americans will vote for Mitt Romney who believes Obama isn’t
killing Muslims fast enough.
The new “Obamneycare” health legislation does have “death
panels.” They are not called that, and they do not make formal
decisions to terminate lives. But it comes to almost the same
thing. Various panels, committees, or bureaucratic departments
are empowered to make decisions about “effective care.” It has
long been known that most health care costs are associated with
the last year of life. Cost and age will be elements in
determining standards of care. The greater the weight assigned
to cost, the more care will be withheld. In effect, the
“effective care” panel is a “death panel.”
Prior to the advent of the new “health care” system, Medicare
and or hospitals are already shifting costs to Medicare
patients. To avoid penalties and fraud allegations for
“medically unnecessary hospitalizations,” rather than formally
admit Medicare patients as inpatients, hospital administrators
classify them as outpatients “under observation.”
According to a Brown University analysis of Medicare records in
2007, 2008, and 2009, the ratio of Medicare observation patients
to those admitted as inpatients rose by 34 percent.
Being classified an outpatient under observation eliminates
medicare coverages, especially for post-operative or
post-accident rehabilitation care, leaving Medicare patients
with bills in the tens of thousands of dollars (AARP Bulletin,
Other costs are being shifted to doctors and to hospitals.
Medicare pays fixed prices for each covered procedure or test,
and these prices can be as low as half of the billed prices.
During a period when costs incurred by providers of health care
have been rising, Medicare has been cutting the amounts it pays
As the payroll tax is commingled with general tax revenues,
Social Security and Medicare payroll tax collections can be
diverted to other purposes and, thus, are always subject to
competing budgetary demands, such as the previous 11 years of
gratuitous wars and the bailouts of “banks too big to fail,” or
to deficit reduction demands as the government consistently
overspends all revenue sources.
A national health service is the only way to control health
costs and provide the population with health care coverage. A
national health system takes the many levels of profits out of
the system and also reams of compliance and liability costs. A
national health system can coexist with a private system for
those who can afford it or whose employers are sufficiently
profitable to provide it.
As Jarad Diamond reveals in his book, Collapse, societies fail,
if not because of their moral bankruptcy, then because their
rulers are only capable of short-term thinking. The future is
beyond their interest. The US offshored its economy, because it
worked short-term for corporate executives (rewarded with
multi-million dollar performance bonuses), Wall Street (rewarded
with profits), shareholders (rewarded with capital gains), and
politicians (rewarded with corporate and Wall Street campaign
Incompetent free market economists confused jobs offshoring with
free trade. They said the country would and was benefiting by
giving its manufacturing, industrial, and tradable professional
service jobs to China and India, that the US was ridding itself
of “dirty fingernail jobs” and would soon be flush with highly
paid high-tech jobs and highly paid financial service jobs.
None of these promises or predictions were true. Nowhere in the
government’s jobs statistics are there any of these promised
replacement jobs. The economists who provided cover for the
destruction of the US economy were rewarded by the corporations
with speaking fees, grants for their university departments, and
newspaper columns paid for by corporate advertisers. Those few
who told the truth were expelled from the corporate media that
Bill and Hilary Clinton allowed to be monopolized (for campaign
contributions, of course).
The future of old age security in the United States has been
lost, because the job base has been given away to foreigners in
order to maximize incomes in the short-run for the few
The misrepresentation of jobs offshoring as free trade has
destroyed the prospects of cities, counties, and states along
with those of unions and millions of Americans who once had a
secure future. It has destroyed the prospects of class after
class of university graduates burdened with student loans who
expected to step into the jobs that have been offshored or
filled by H-1B visa holders from abroad.
The American work force has been forsaken by the corporations
and by Washington, and this means that Social Security and
Medicare have also been forsaken.
As I predicted in the early years of this new century, “the
United States will be a third world country in 20 years.” We
might get there even sooner as Washington exhausts what little
is left of American wealth in gratuitous wars in service to
Israel and the US Military/Security Complex, in unaffordable
military buildups in futile hopes of establishing hegemony over
China and Russia, and in negative interest rates from the
Federal Reserve’s effort to drive up the book value of debt
instruments on the balance sheets of financial institutions.
In 1817 Percy Bysshe Shelly forecast America’s future:
“I met a traveler from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip and sneer of cold command,
Tell that its sculptor well those passions read,
Which yet survive, stampt on these lifeless things,
The hand that mockt them and the heart that fed:
On the pedestal these words appear:
‘My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.”
Writing in the
October 15 online
CounterPunch, John V. Walsh,
relying on charts prepared by economics professor Mark J. Perry
at the University of Michigan and blogger John Hunter, concludes
that it is a myth that US manufacturing is in decline.
Walsh says that the loss of US manufacturing jobs is due to
automation, not to offshoring. Think about this for a moment.
Perry’s graph on which Walsh relies shows the sharp drop in US
manufacturing employment to be a 21st century experience.
However, automation has been around for a long time. The notion
that its effect on employment only showed up in the new 21st
century needs an explanation that is not provided. The steep
drop in US manufacturing employment that began in 2000 does
correspond with the date at which jobs offshoring began to bite
Why does automation not also affect Chinese manufacturing,
especially as most of the Chinese manufacturing technology came
from the US as US corporations offshored their production for
the US market? If Chinese manufacturing is not up to date with
automation, like the US is assumed to be, how do the Chinese,
even with cheap labor, undersell US automated factories? How did
Chinese manufacturing employment increase in a mere four years
by an amount equal to the total manufacturing employment in the
The US Bureau of Economic Analysis shows only 11.2 million full
time US manufacturing jobs in 2010. The US Bureau of Labor
Statistics shows 11.7 million US manufacturing jobs in 2011,
down from 15.3 million in 2002.
In contrast, China, an industrial and manufacturing backwater
for most of my life, had 112 million manufacturing jobs in 2006.
In a mere four years (2002-2006), the increase in China’s
manufacturing employment was as large as today’s total
employment in US manufacturing. As of 2006, China’s
manufacturing employment was about 10 times the current US
manufacturing employment. The Chinese population is about 4
times larger than the US population, but China’s manufacturing
population is proportionately greater--10 times larger. Indeed,
Chinese manufacturing employees almost equal the total number of
employees in all occupations in the US (Manufacturing and
Technology News, December 15, 2009).
Obviously, something is wrong with Walsh’s article or the graphs
on which he relied.
America’s manufacturing prowess cannot be found in the
statistical data. The US is primarily an exporter of
Agricultural commodities. The US imports almost twice the amount
of manufactured goods as it exports. Indeed, according to the US
Census Bureau Statistical Abstract of the US
US imports of manufactured goods are 5.5 times larger than US
imports of crude oil and 4 times larger than all imports of
mineral fuel. Yet, we hear about energy dependency, not
As of 2010 the “superpower” US economy still had a trade surplus
in airplanes and airplane parts and a small $6 billion surplus
in scientific instruments, but that is about all.
In ADP equipment and office machinery, the US exported $22.2
billion in 2010 (latest information at time of writing), down
from $44.6 billion in 2000. US imports in 2010 of ADP equipment
and office machinery were $113.5 billion, or 5.1 times exports.
The US cannot even make its own clothes and shoes. In 2010
footwear imports are 28.7 times exports. Clothing imports are
24.6 times exports.
Electrical machinery exports were $77 billion; imports were $120
Exports of power generating machinery were $33 billion; imports
were $42 billion.
Exports of television, VCRs were $21.5 billion; imports were
US exports of vehicles was $88 billion; imports were $179
US news reports of thousands upon thousands of discharged US
workers never cite their replacement by automation. The news
story is always that the plant is being closed and the jobs
moved abroad. Any review of America’s former manufacturing
centers verifies this. Boarded up plants and cities and towns in
decline are the remains of America’s formerly world dominant
The loss of the US post-war trade surplus in manufacturing has
left the US with a huge trade deficit. The charts on which Walsh
relied left him unaware of the fact that China has a large trade
surplus with the US, and the US has a large trade deficit not
only with China but with the world.
The fact that the US has to import not only manufactured goods,
but also high-technology products from China, an inconceivable
outcome during the second half of the 20th century, is powerful
testimony to the decline of the US as a manufacturing
It took some doing to obscure the facts and to present the US as
a rival to China in manufacturing prowess. How did it happen?
The fault might lie in the way statistical information is
collected and presented. Apple, for example, is a US
corporation. It reports its worldwide earnings to the IRS. Its
manufacturing is counted as US manufacturing as it is a US
corporation. However, Apple doesn’t produce a single computer in
the US. They are produced in China. The employment that Apple
reports is in China. The Chinese are employed by an American
company, but they are not Americans. The Chinese incomes that
Apple provides do not support the American consumer market or
provide the tax base for cities and states. The Chinese incomes
do not provide ladders of upward mobility or careers for
The wages Apple pays are in China. The consumer incomes and GDP
that Apple generates are in China. When Apple’s computers come
back to America to be sold they come in as imports. But Apple’s
manufacturing and employment are reported as the output and
employment of an American company.
When statistics and the methods by which they are compiled were
put into effect, countries did not offshore their production for
their domestic markets. Foreign investments were made for
selling abroad, not for selling in the home market. With the
advent of offshoring, counting the employment and output of US
firms that are producing abroad for their domestic market as an
indication of the strength of US manufacturing is very
misleading. Apple, for example, has done more to boost China’s
GDP than to boost America’s GDP. This is true of every US
corporation that offshores its production for US consumers.
In recent years the percentage of the work forces of large US
corporations that is foreign sourced has risen rapidly. Some of
the overseas hiring reflects traditional foreign investment in
which a company builds abroad in order to sell abroad, but much
of the hiring reflects offshored production for US markets.
The US has been able to survive the large trade deficits
produced by jobs offshoring, because the US dollar is the
world reserve currency. Being the world reserve currency, the US
does not have to earn foreign currencies with exports in order
to pay for its imports. However, as these trade deficits persist
and the buildup of foreign holdings of dollar paper assets
rises, there is a diminishing willingness of foreigners to trade
real goods and services for financial assets denominated in a
fiat currency whose value is diminishing with the ever-growing
Thus, the basic notion of globalism--that a country’s
corporations can produce goods and services in any country for
home markets--is false.
Walsh is correct that China is not to blame for the decline in
US manufacturing. Offshoring is to blame, and, thus, the blame
lies with US corporations, policymakers, and the economists and
financial media who shill for “globalism.” The decision was made
to sacrifice the US economy to the short-term profits of the
few. A country so poorly led can do nothing but decline.
Craig Roberts was Assistant Secretary of the Treasury for
Economic Policy and associate editor of the Wall Street Journal.
He was columnist for Business Week, Scripps Howard News Service,
and Creators Syndicate. He has had many university appointments.
His internet columns have attracted a worldwide following.
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