America�s hegemonic status slipping away
By Paul Craig Roberts
Online Journal Guest Writer
Sep 21, 2007, 01:54
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
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
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. [Sloan Foundation
President Ralph Gomory: Transferring Production Offshore Is Not Free Trade,
By Richard McCormack]
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
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.
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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