By Paul Craig Roberts
12 September, 2007
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
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
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
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
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
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
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@yahoo.com
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