[NYTr] American Economy: R.I.P.

[All the News That Doesn't Fit]

Counterpunch - Sep 12, 2007
http://www.counterpunch.org/roberts09122007.html


American Economy: R.I.P.

By PAUL CRAIG ROBERTS

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. 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 have likewise let the story go, because in the 1990s the
Clinton administration and Congress 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.He can be reached at:
PaulCraigRoberts at yahoo.com ]