American Economy: R.I.P.
The U.S. 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 U.S. 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 U.S. economy has ceased to create jobs in export industries and in industries that compete with imports. U.S. 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 U.S. 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 United States measures unemployment only among the active workforce, 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 U.S. 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 U.S. government's open borders policy denies unskilled jobs to the displaced members of the middle class.
When U.S. companies offshore their production for U.S. markets, the consequences for the U.S. economy are highly detrimental. One consequence is that foreign labor is substituted for U.S. labor, resulting in a shriveling of career opportunities and income growth in the United States. Another is that U.S. Gross Domestic Product is turned into imports. By converting U.S. brand names into imports, offshoring has a double whammy on the U.S. trade deficit. Simultaneously, imports rise by the amount of offshored production, and the supply of exportable manufactured goods declines by the same amount.
The United States now has a trade deficit with every part of the world. In 2006 (the latest annual data), the United States had a trade deficit totaling $838,271,000,000. The U.S. 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 the 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. With Africa, the it was $62,192,000,000.
Public worry for three decades about the U.S. 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 U.S. 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 U.S. trade deficit.
Moreover, the United States gets most of its oil from outside the Middle East, and the U.S. trade deficit reflects this fact. The U.S. deficit with Nigeria, Mexico and Venezuela is 3.3 times larger than the U.S. trade deficit with the Middle East, despite the fact that the United States sells more to Venezuela and 18 times more to Mexico than it does to Saudi Arabia.
What is striking about U.S. 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 U.S. 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 U.S. dependency on OPEC.
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 U.S. "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 United States has an $800 billion trade deficit?
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 and 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 U.S. 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 U.S. dollar can remain the world's 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 the least.
Foreigners accept U.S. 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 United States ensures the financing of its government budget deficit as the surplus dollars in foreign hands are invested in U.S. Treasuries and other dollar-denominated assets.
The ability of the U.S. dollar to retain its reserve currency status is eroding due to the continuous increases in U.S. 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, British pound, Canadian dollar, Thai baht and other currencies have been bid up. In the 21st century, the U.S. dollar has declined about 33 percent against other currencies. The U.S. dollar remains the reserve currency primarily due to habit and the lack of a clear alternative.
The jobs data and the absence of growth in real income for most of the population are inconsistent with reports of U.S. GDP and productivity growth. Economists take for granted that the workforce 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 workforce.
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 U.S. economics statistics has been impaired by offshoring. Houseman found that cost reductions achieved by U.S. firms shifting production offshore are being miscounted as GDP growth in the United States and that productivity gains achieved by U.S. firms when they move design, research and development offshore are showing up as increases in U.S. productivity. Obviously, production and productivity that occur abroad are not part of the U.S. domestic economy.
Houseman's discovery rated a BusinessWeek cover story last June 18, but her important findings seem already to have gone down the memory hole. The economics profession has overcommitted itself to the "benefits" of offshoring, globalism and the nonexistent "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 overturned U.S. policy in favor of a diverse and independent media and permitted a few mega-corporations to concentrate in their hands the ownership of the U.S. 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 the realization that Americans are losing their economic future along with their civil liberties and are on the verge of enserfment.
COPYRIGHT 2007 CREATORS SYNDICATE INC.
Entries(RSS)
1. The wheel of economic fortune turns, and what rose to the top must turn in time to the bottom. It turned for Athens, it turned for Carthage, it turned for Amalfi, it turned for Pisa, it turned for Florence, it turned for Genoa, it turned for Hapsburg and Bourbon Spain, it turned for Britain, it even turned for Venice, and it's probably now turning for Japan and America. The only reason it hasn't turned for Europe is because of better schools. Nothing fails better than success. Economic powerhouses rest on their laurels, build lumbering behemoth corporations and states, and so fail to update their products and burn dead wood. To blame rich CEOs is just a way not to face the music.
2. The USA in 1945 had no competitors. It was to be expected that, in time, the others would catch up.
3. Unemployed textile and furniture workers will form a Fascist party. It won't be called Fascist; it will be called "Populist".
"If only Longstreet had..."
I live near Charlotte, NC, which as been "immune" to recessionary cycles over the past three decades and has experienced a housing boom due to the influx of retirees or job-seekers from the Northeast, California, Ohio, Michigan and Floriday (not to mention a tsunami of Hispanic immigrants). Just this week a report came out stating that residential permits in Charlotte are down 23% from last year, and sales of existing units down for the past two quarters.
That's a bellwether, folks. Let's just say it's all finally coming home to roost.
Thanks, Dr. Roberts.
"Those who are discouraged and have given up are not counted as unemployed."
Try fighting the "You're overqualified" dodge. You can't say "But I work really hard."
Rublev:
What drives the housing market is the non-white invasion of the white world. The whole industry is linked tightly with that and the resultant white flight.
Why do Dr. Roberts' last two posts not come up on my computer? Is anyone else experiencing this?
PcH wrote:
"Rublev:
What drives the housing market is the non-white invasion of the white world. The whole industry is linked tightly with that and the resultant white flight."
This is so true. Ive witnessed it since 1990 around Nashville. Developers get rich off white Nashvillians leaving the city and Davidson County to live in ring counties. Subdivisions stretch for miles and miles out here in the ring counties. Those same people would have never left Nashville if it weren't for the Mexican Invasion and the declining behavior of black youth during the latter half of the crack epidemic of the late eighties and early nineties. The carjackings, the feelings of being in a foreign country, the alienation that took place ended up witnessing huge movements into ring counties. Now real estate agents show white and middle class black newcomers to the mid-state area ring county real estate FIRST before Nashville. Developers and contractors use cheap Mexican labor at eight to ten bucks an hour to build houses instead of ten to fourteen dollar an hour white and black labor, but charge every bit as much for the houses that are built, thus enriching themselves greatly.
People who stayed in some areas of Nashville too long (like the former Antioch, now called "Hispanioc") see their property values go down and thus dont make much when they sell their house. The wealthy in Nashville, of course, are unaffected because they live in gated-fortress communities, or the new high rise buildings with card-entries and private security.
I beat this drum to death, but I'll bang it once more. When we move factories and other production facilities overseas we move livlihoods for productive, non-criminal, working citizens overseas and make poor those same "good people". It hurts the birthrate of those here, as working class birthrates have slipped below replacement. To replace these white and black working members of the population who are not being born, we import hispanics who are socializing to lower-class black norms, and will no doubt cost us in social services and crime (hispanic gangs are getting pretty legion in Nashville if taggings are an indicator). You are trading the old good citizenry for a new one that isn't even patriotic to this nation, but to another nation (evidenced by the fact that many of them wear clothing emblazoned with foreign flags). We also are sending real wealth in the form of productive capacity (i.e. factories) to the rest of the planet. Places with many factories can generate alot of wealth, places bereft of factories cannot. "Stuff" is wealth, and we are losing our ability to make "stuff".
One final thought in the form of a question, can any of you IMAGINE how screwed this country would be if all of our nukes and carrier groups mystically dissapeared? I mean, if it weren't for our large military, we'd already be slipping into second-rate status as a nation. Its truly amazing how short-sighted the "elite" of this nation are if they are in any way patriotic, but then again maybe they are not and will simply move if things get really bad here. Stock and bond ownership is transnational, so they can simply move their wealth to wherever things are pleasant if it really falls apart here in thirty or forty years. I think allowing our wealthy to move behind gates into secure communities with private security was a big mistake. It ensures a feudal mentality as they see the Joes and Janes of the heartland as cannon fodder economically and personally.
Excellent commentary Miles, as I've seen from you all over the blogosphere. And to answer your question, yes I can imagine a near-future America without its only remaining advantage, our superior weapons systems. Because I suspect its only a matter of time before our traitorous leaders sell ownership of our military industrial complex to the likes of China...
http://www.tradealert.us/view_art.asp?Prod_ID=2649
Our ruling elites definitely have plans in place to escape this country when the collapse occurs. Dick Cheney reportedly owns a large, remote private island somewhere in the world, and the Decider bought a sprawling ranchero in Paraguay a year or so ago. They will of course escape the consequences of their own actions, as the ruling elites always do.
This is the very best concise analysis of the present U.S. economic situation that I know; the key data that Dr. Roberts provides are overwhelming. It brings into clear focus a picture far bleaker than until quite recently one could have imagined.
P.S. It is interesting how random natural events can sometimes reveal a deep flaw in a system that would otherwise remain hidden under many layers of hubris and contentions. Here is an excerpt from the interview that French demographer and historian Dr. Emmanuel Todd gave to Le Figaro two years ago, http://www.truthout.org/docs_2005/091205H.shtml
related to the hurricane Katrina disaster in New Orleans, tying well into Dr. Roberts' keen analysis.
"...
Q: Is American household consumption artificially stimulated?
A: The American economy is at the heart of a globalized economic system, and the United States acts as a remarkable financial pump, importing capital to the tune of 700 to 800 billion dollars a year. These funds, after redistribution, finance the consumption of imported goods - a truly dynamic sector. What has characterized the United States for years is the tendency to swell the monstrous trade deficit, which is now close to 700 billion dollars. The great weakness of this economic system is that it does not rest on a foundation of real domestic industrial capacity.
American industry has been bled dry and it's the industrial decline that above all explains the negligence of a nation confronted with a crisis situation: to manage a natural catastrophe, you don't need sophisticated financial techniques, call options that fall due on such and such a date, tax consultants, or lawyers specialized in funds extortion at a global level, but you do need materiel, engineers, and technicians, as well as a feeling of collective solidarity. A natural catastrophe on national territory confronts a country with its deepest identity, with its capacities for technical and social response. Now, if the American population can very well agree to consume together - the rate of household savings being virtually nil - in terms of material production, of long-term prevention and planning, it has proven itself to be disastrous. The storm has shown the limits of a virtual economy that identifies the world as a vast video game.
..."
Check now this...
http://www.atimes.com/atimes/Global_Economy/II20Dj01.html
US rate cuts: Like a blow to the head
The US Federal Reserve's cuts of 50 basis points in both the Federal Funds target rate and the discount rate are a clear indication that it feels the surface calm that has returned to world equity markets is illusory. The move sent the greenback into a tailspin, while stocks surged. The cuts also put China, with its massive wad of cash kept as US dollars, in a fix. But the Fed, despite the debasement of its own currency and the defrauding of its lenders, can be expected to keep the party going with more cuts next month. - Julian Delasantellis (Sep 19, '07)
"... The contrast between Tuesday's meeting result and the sunny optimism of the previous Fed meeting on August 7 is breathtaking; it is far and away the most ominous portent of the future prospects of the US economy since the current "subprime crisis" broke into the market's consciousness earlier this year.
Comparing the results of the August meeting with Tuesday's is like going to the doctor wanting to have a hangnail removed and having the physician start his conversation by asking how you feel about cremation.
..."
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