[NYTr] As the Empire Slips: Greenspan & the Economy of Greed

[All the News That Doesn't Fit]

Counterpunch - Sep 20, 2007
http://www.counterpunch.org/roberts09202007.html

As the Empire Slips:

Greenspan and the Economy of Greed

By PAUL CRAIG ROBERTS

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 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 ]