American economy: R.I.P.
By Paul Craig Roberts
Online Journal Guest Writer
Sep 11, 2007, 00:36
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, and 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
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
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
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
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 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
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
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: Bureau
of Economic Analysis: U.S. International Transactions Accounts Data and Bureau of Labor
Statistics. Employees on nonfarm payrolls by industry sector and selected
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
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, [The
Real Cost Of Offshoring, by Michael Mandel] 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
Houseman�s discovery is too much of a threat to economists� human capital,
corporate research grants, and free market ideology.
The media has likewise let the story go, because in the
1990s the Clinton administration and Congress overturned US policy in favor of
a diverse and independent media and 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
[See also: National Data, Immigrant
Displacement Of American Workers Booms Amid The Job Bust, By Edwin S. Rubenstein]
Craig Roberts [email him] 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. Click here for Peter
Brimelow�s Forbes Magazine interview with Roberts about the recent epidemic of
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