The fading American economy
By Paul Craig Roberts
Online Journal Contributing Writer
Apr 10, 2008, 00:14
According to the Bureau
of Labor Statistics, the US economy lost 80,000 private
sector jobs in March, half of which were in manufacturing. Today 13,643,000
Americans are employed in manufacturing, of which 9,849,000 are production
Government employs 22,387,000 Americans, 8,744,000 more than
manufacturing. Even the category leisure and hospitality employs 13,682,000
Americans, slightly more than manufacturing. There are as many waitresses and
bartenders as production workers.
Wholesale and retail trade employ 21,467,000 Americans.
Professional and business services employ 18,036,000 Americans of which
8,368,000 are in administrative and waste services. Education and health
services employ 18,699,000 Americans.
Financial activities employ 8,228,000 Americans. The
information sector employs 3,010,000. Transportation and warehousing employ
4,532,000. Construction employs 7,338,000, and natural resources, mining and
logging employ 751,000. Other services such as repair, laundry, and membership
associations employ 5,516,000 Americans.
This is the portrait of the US economy according to the
Bureau of Labor Statistics. It is an economy in which government is the largest
employer. Manufacturing employment comprises just under 10 percent of total
employment and about 12 percent of private sector employment. Everything else
is services, and not particularly high level services.
Is this a portrait of a super economy?
To help answer the question, consider that US imports in 2007
were 17 percent of US GDP, according to the National Income and Product Account
tables provided by the Bureau of Economic Affairs. In contrast, the BEA
industry tables show that in 2006 (2007 data not yet available) US
manufacturing comprised only 11.7 percent of US GDP.
If US imports actually exceed total US manufacturing output
by 5 percent of GDP, it does not seem possible that the US can close its
massive trade deficit. Even if every item manufactured in the US were exported,
the US would still have a large trade deficit.
The NIPA and industry tables from which the percentages come
are not calculated identically, and I do not know to what extent differences
might exaggerate the differences between the percentages. However, it seems
unlikely that mere calculation differences would account for US imports
exceeding US manufacturing output.
If the US cannot close its trade deficit, it is unlikely
that the US dollar can remain the world reserve currency.
If the dollar were to lose the reserve currency role, the US government would
not be able to finance its annual
red ink budget by borrowing from foreigners, as the US saving rate is about
zero, and the US would not be able to pay its import bill in its own currency.
The rest of the world continues to hold depreciating US currency, because the
dollar is the world reserve currency. The dollar is certainly not a good
investment having declined dramatically against other traded currencies.
From March 2007 to March 2008 the US economy created 1.5
million new jobs (in services). Legal and illegal immigration and work visas
for foreigners exceed US job creation.
During the current school year, 3.3 million high school students
are expected to graduate. If we assume that half will go on to college, that
leaves 1.6 million entering the work force. College enrollment in 2007 totaled
18 million. If we assume 20 percent graduate, that makes another 3.6 million
job seekers for a total of 5.2 million. Clearly, immigration, work visas, and
high school and college graduates exceed the 1.5 million jobs created by the
economy. Unless retirements opened up enough jobs for graduates, the
unemployment rate has to rise.
The US unemployment rate is creeping up, and according to John Williams,
the official unemployment rate greatly understates the real rate of
unemployment. Williams has followed the changes that government has made to the
official indices over the years in order to spin a more politically palatable
picture. Williams uses the original methodology prior to the decades of spin.
The original way of measuring unemployment indicates the current rate of
unemployment in the US to be 13 percent, much higher than the 5.1 percent
Williams also calculates the CPI according to the same way
it was officially calculated prior to the recent decades of spin. Williams
estimates the current CPI at 12 percent, three times higher than the official 4
that upward growth biases built into GDP modeling since the early 1980s "have
rendered this important series nearly worthless as an indicator of economic
activity." Williams estimates that US GDP growth has been in negative
territory during almost all of the 21st century. The notion that the US is just
now entering a recession is nonsense if we have in fact been in recession for
most of the 21st century.
America�s post-World War II economic dominance was based on
the destruction of other economies by war and socialism. It is a different
world now, and Americans have given little thought to the economic challenges
of the 21st century.
Craig Roberts [email him] was
Assistant Secretary of the Treasury during President Reagan�s first term. He
was Associate Editor of the Wall Street Journal. He has held numerous academic
appointments, including the William E. Simon Chair, Center for Strategic
and International Studies, Georgetown University, and Senior Research Fellow,
Hoover Institution, Stanford University. He was awarded the Legion of Honor by
French President Francois Mitterrand. 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
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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