The Decline and Fall of the American Economy: Offshoring Our Security
The United States has three large economic problems. The overarching one is that the U.S. dollar’s role as world reserve currency is wearing out from continuous and large trade deficits and from government budget deficits that have to be financed by foreigners because the U.S. savings rate is approximately zero. Judging by the dollar’s loss of value in relation to gold and to currencies such as the euro, Swiss franc, and Japanese yen, the U.S. dollar is losing its attractiveness as a currency in which to hold assets.
A second problem is the solvency of our financial institutions because of the crisis of subprime-mortgage derivatives and other ill-conceived leveraged derivatives. The extent of this crisis is not known. Financial-industry balance sheets and capital structures are impaired. If the troubled derivatives are in trillions of dollars, as news reports claim, the Federal Reserve bailout of one investment bank, Bear Sterns, is unlikely to have stopped the bleeding.
A third is that the U.S. economy has entered into recession. Normally, the Federal Reserve responds to recession by expanding credit through the banking system, relying on the growing supply of money to fuel consumer and investment demand. However, with the banking system impaired and with American consumers overloaded with credit-card and mortgage debt, that course of action alone might not be effective. Consequently, the Bush administration and Congress are handing out $600 “tax rebate” checks—which will likely be used to pay down existing credit-card debt.
Together, these three create a fourth problem. With the dollar declining in value against other currencies and with U.S. domestic inflation rising, U.S. government debt at low interest rates is not an attractive investment. Traditionally, financial panics result in a flight to Treasury bonds and bills, and this traditional response can sustain the Treasury market for a while. However, sooner or later, investors must realize that a low-interest, dollar-denominated security is not a good investment.
Can these problems be solved?
Perhaps the Federal Reserve can create the liquidity to stabilize the financial system or, in effect, purchase the troubled financial instruments. However, monetizing debt is inflationary.
Getting the U.S. economy going again might be more difficult; in the 21st century, it has been driven by the expansion of consumer debt, not by growth in real incomes, and most consumers lack the capacity to take on more debt in order to purchase more goods and services. Credit-card debt is high, and many Americans responded to the housing boom by refinancing their home mortgages and spending the equity that they had in their homes. This boost to consumer demand is no longer possible.
The dollar problem seems even less correctable. There appears to be no way that the United States can close her trade deficit. According to the February 28 issue of Manufacturing & Technology News, our imports exceed our industrial production. Even if we sold abroad every item manufactured on our soil, we would still have a trade deficit.
Globalism is often touted as the savior of the U.S. economy. This positive spin ignores the fundamental problems globalism poses. For example, globalism reduces GDP growth and drives down average wages.
A significant percentage of U.S. imports, especially those from China, is the offshored production that U.S. corporations sell to us at home. When a corporation closes facilities located here and moves them to China in order to benefit from lower labor costs, our GDP goes down, and China’s goes up. When the products manufactured offshore are brought back into America, imports rise by that amount. By offshoring their production for U.S. markets, American corporations have simultaneously increased U.S. imports and reduced U.S. goods available for export.
Offshoring has reduced the availability of good-paying jobs for middle-class Americans. It is not only manufacturing jobs that are being moved abroad, but software-engineering jobs, IT jobs, and a wide range of other professional occupations. Consequently, the ladders of upward mobility are being dismantled. Many of the professional jobs that remain are being filled with foreigners, especially engineers and IT professionals from India, who are brought in on work visas and paid less by U.S. employers, who falsely claim worker shortages. Many thousands of U.S. employees are discharged after being forced to train their foreign replacements. The pursuit of lower-cost foreign labor is eroding consumer purchasing power in the United States.
In the 21st century, all net new U.S. jobs have been in non-tradable domestic services, such as waitresses and bartenders, healthcare and social assistance, and wholesale and retail trade. The U.S. labor force is taking on the characteristics of a Third World economy. In 2007, we lost 374,000 jobs in goods-producing industries. Job growth was confined to domestic services. Waitresses and bartenders accounted for 29 percent of the 1,054,000 net new private-sector jobs in 2007. Healthcare and social assistance accounted for 45 percent of them. Wholesale and retail trade, together with transportation and utilities, accounted for 17 percent.
The Bush administration’s estimate of a $410 billion federal-budget deficit for the current fiscal year is based on an assumption of 2.7-percent economic growth; that estimate is unrealistic, however, since the economy has entered into recession. With consumers pressed and jobs declining, Americans do not have enough discretionary income to afford a tax increase. And the Republicans are determined to keep their wars going. Joseph Stiglitz, winner of the Nobel Prize in economics, estimates that the full cost of the wars in Iraq and Afghanistan is now a staggering three trillion dollars.
Foreigners have been financing our trade deficit by using export earnings to purchase existing U.S. assets, acquiring ownership over a larger percentage of U.S. equities, companies, bonds, and real estate. They have even acquired long-term leases (99 years) on the revenues from several state toll roads. The Chinese have purchased U.S. iron deposits. With each passing year, the United States owns less of herself. By acquiring our assets, foreigners also acquire the income streams generated by them—profits, capital gains, rents, dividends, tolls, and interest. These diverted income streams, in turn, increase the U.S. current-account deficit.
The idea that the United States is a “superpower,” when she is dependent on China and Japan to finance her wars in Afghanistan and Iraq, is nonsensical. The United States is too dependent on foreign finance to retain her role as holder of the world’s reserve currency, an important source of U.S. power.
Libertarians and free-market economists mistake offshoring for free trade and, therefore, assume that offshoring is beneficial. Offshoring is not trade at all; it is international labor arbitrage. Trade takes place when, for example, U.S. industries compete against Chinese industries in domestic and foreign markets. Free trade is based on different countries specializing in areas in which they have comparative advantage.
Offshoring is based on the desire for absolute advantage by achieving lowest factor cost. U.S. corporations move their production to China in order to maximize profits by minimizing labor and compliance costs.
Offshoring was not possible on a significant scale until the collapse of world socialism and the advent of high-speed internet access, which opened large excess supplies of Chinese and Indian labor to First World corporations. Today, many American brand-name manufactured goods are made abroad in whole or in part for U.S. markets, and a wide range of professional services can be supplied to U.S. offices from foreigners via the internet and H1B, L1, and other work visas. Young people from Russia, Ukraine, Rumania, Thailand, and elsewhere are brought in on short-term J9 and J4 visas and supplied as contract labor to supermarkets, resort-area cleaning services, and restaurants. It is becoming increasingly difficult for Americans of all ages to find a job of any kind.
Offshoring, the internet, and work visas have forced American labor into direct competition with foreign labor. This is different from trade competition in which U.S. labor competes with foreign labor in manufactured product markets. In foreign trade, U.S. labor, working with better technology and business know-how, was more productive than foreign labor and remained competitive despite higher U.S. wage rates. Today, offshoring provides Chinese or other foreign labor with the same technology and business acumen. This gives the advantage to the lower-wage countries and has halted growth in U.S. real wages despite productivity growth.
In pursuit of higher profits, Wall Street pressures corporations to move facilities offshore, and in pursuit of price advantages, large retailers, such as Wal-Mart, pressure their U.S. suppliers to go offshore. Some economists tout Wal-Mart’s lower prices as the payoff to Americans for their lost jobs. However, when the lower prices are offset by lower incomes and the dollar’s decline, the overall effect of offshoring is adverse. Wal-Mart’s “always low prices” can only last so long as China keeps her currency pegged to the U.S. dollar. Sooner or later, if the dollar continues to decline, China may abandon the currency peg (Beijing has recently adopted a moving peg and is allowing its currency to appreciate gradually against the dollar), and the United States will find herself dependent on expensive foreign-manufactured goods she cannot afford.
John Williams, proprietor of Shadow Government Statistics, has been following U.S. economic indicators for decades. He notes that each administration has tinkered with the official statistics in order to make itself look a bit better; the cumulative effect over the decades is that the statistics greatly understate the problems. Williams finds that the real rates of inflation and unemployment are about twice the reported rates.
[amazonify]0307396061[/amazonify]Before his resignation in March, David M. Walker, head of the U.S. Government Accountability Office, revealed that the unfunded liabilities of the U.S. government total $53 trillion. Our declining economy has no possibility of paying such an enormous sum. Hubris has blinded Washington to the severity of our economic problems. In truth, it owes the world.
Paul Craig Roberts was assistant secretary of the U.S. Treasury in the Reagan administration and an associate editor at the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies and senior research fellow at the Hoover Institution.
This article first appeared in the June 2008 issue of Chronicles: A Magazine of American Culture.
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These problems can in Fact be treated and corrected fairly easily but only if the fundamental misperceptions under which we currently operate are addressed and adjusted. But we don't like facts, we prefer what is true or what might be *potentially, so let's 'see', let's try it. Wasn't there an article on this board somehwere 'Curiosity As A Social Force'. But what is true in its fullest sense does INCLUDE facts or the 'reality', so to speak we can't seem to stomach too much of - which is rather odd - since precisely that is what allows problems to be solved. Reality as it were doesn't, "suck" - misperceptions that kill you or send you over a cliff really do "suck".
Marx made such a mistake in his wanting to believe that a derivative of truth either was or could be truth in its fuller sense, when for example he believed we are only the material of labor. Conversely the social forces he was responding to or perhaps attempting to counter-balance believed another derivative of truth, namely that we are only the material of capital (or money). Basically what both these derivative notions are attempting to explain is what are we human beings 'like' and not addressing what ARE we human beings.
So socialism vanished as PCR points out in the above article leaving wide-open the doors (for a while) of offshoring. After all the imbalance tipped again in the direction of capital (or money.) But money itself is in its fullness a symbol/Fact. If it becomes worthless or isn't worth much anymore or anything at all it becomes clear that it too was a derivative of the truth mistaken for truth. What nonetheless remains is you & me or us human beings and the more germane question again, what ARE we? And remains no longer merely the derivative of truth, what are we 'like'?
We're individual and communal and we're also all of the things that we are 'like' and not any one of them as if that were some 'key' or answer in knowing us. Even if we ourselves become convinced or brainwashed that money is everything, or work is everything, or humor is everything etc. etc. Since it is not the truth in its fuller sense but only some derivative of truth, good old *reality will catch up and show us the error of our ways vis a vis reminding us that we're of course more than just that.
Since the misperception or imbalance toward money seems to have 'won' over the misperception or imbalnce toward labor in this see-saw match of misperceptions we MUST stabalize and secure the value of our symbol/FACT (with little or NO inflation) by returning it to the gold and precious metals standard.
As for our politics we can no longer afford the fantasy or illusion that all we need to do is PRETEND to be a nation while frankly speaking BEHAVING 'as if' we do not even exist in this world. ... We are NOT virtual in reality, we are actual/real. The truth, to be true and not a derivative of itself is both true & ACUTAL, both potential & FACTS.
If we are too big to be a country or nation and NO LONGER even can secure our own borders, we're real not virtual, and so in Fact we are no longer a nation. If we owe everyone else in the world money and have to borrow to put the parts in the rifles of our soldiers in some remote part of the world rather than even being able to secure our own borders then we are NOT a 'superpower,' any longer.
We exist. We can't just keep *imagining what it is we can do, or want to do and simply by flapping our lips i.e. 'oh, we're a superpower. we're the richest nation in the world. we're this or that.' and make it so. It's NOT possible. Imagination is good, but again it's only another derivative of truth not the fuller or 'whole' truth in the arena of thinking.
The biggest TAX is inflation. Every 10 years (some say really every 5) you need 2 dollars to buy what 1 did 10 (or 5) years earlier.
We must secure the currency and the only Actual way to do it is putting it back again on a gold and precious metals standard.
After that in EVERYTHING we do we MUST remember not to be fooled by derivative aspects of the truth 'as if' they were the 'whole' or fuller truth itself.
Here's an example using a metaphor. If the fuller or whole truth were a bicycle wheel the round steel frame, all the spokes leading from the hub of the wheel back and forth from the center to where the rubber around the steel frame filled with air meets the road and so forth [even though we know even the wheel isn't the whole truth, this is just an example]. So if that was the truth, a derivative of the truth would be like 'saying' you know without that hub at the center this wheel wouldn't work. So that hub is the truth, let's pretend that and act on it. Or, you see those six spokes where they're situated - there's no wheel without those, they're the truth, let's pretend that and act on it. Or God knows, it's rubber and where the rubber meets the road is REALLY what's important, that is the truth so let's pretend that and act on it.
The point I'm making is that our misperceptions are fundamental. But as long as we are using the symbol/Fact of money, we can no longer afford to think 'capital' is everything so lets just prints ourselfs up a whole bunch of it boss?! After all that's the mostest'important spoke in the wheel and everyone says so...
Let me clarify one thing: Marx was a Humanist and NEVER saw people as just one thing, e.g., the material of labor. Marx wanted to demonstrate that not only cultures but economic systems had a profound effect on how people think, reason, develop ethical systems and behave toward one another. As such we are creatures that respond to our enviroment (nothing new here), including the economic environment.
And yes to call the USA a superpower is absurd especially when corporate America is having a going-out-of-business sale and Wall Street is concerned more about where it makes its profits than about where it lives.
It's nice that someone has finally pointed out that American labor cannot compete in the Internet Age. Workers in other countries have brains and hands and with computers employers can train them and supervise them at a distance. In a way this is exploitative of America in that the company and its stay-at-home executives retain the protection of America's military, the advantages of it's legal system, it's superior roads, schools, hospitals, and the like. This is especially dramatic in the case of the combat veteran ("Born in the USA") who comes home to find the corporation whose homeland he risked his life defending won't give him a job. But let's put that aside for the moment.
Now I wonder whether offshoring actually hurts America's balance sheet: Suppose XYZ corporation outsources 1000 jobs, saving $10 million yearly. XYZ makes an additional $10 million in profitwhile XYZ's former workers lose, say, $15 million in wages. Also XYZ's workers now have 1000 man-years of time they didn't have before. Let's suppose they find jobs that pay a total of $10 million less than they were making before - exactly the amount the company saved by laying them off. That is, they are working for foreigner;s wages. So the workers have lost $10 million while the company has gained $10 million in profit. But now suppose the profits are distributed to the shareholders and the government (corporate income tax.) So long as the shareholders are other Americans, the country breaks even. But if the workers are not to suffer a decline in standard of living the government will have to do some redistribution of wealth. (Others are invited to correct this analysis.)
Consider medical care. As it gets harder and harder for workers to find salaried jobs with medical benefits, they will be ever more tempted to support socialized medicine in one form or another. Despite the BS you hear on NPR, socialized medicine is only good if you need a band-aid and a pamphlet. If you have heart trouble or cancer you're better off in the USA than in Canada, Britain, or Sweden.
Some libertarians and some leftists, for their separate reasons, have no problem with American workers losing their cars, TVs, stereos, air conditioning, and baseball tickets. The libertarians believe in no free lunches for the ungifted, while the leftists believe it's okay to lift impoverished foreign workers at the expense of better off American workers. But the rest of us need to consider that to a great extent we're all in it together, and, at any rate, social peace and Christian charity require that American workers not be forced to live in 3rd world shanty towns because that's all their labor is 'objectively' worth. Finally, remember that we're a democracy and, like it or not, those workers can vote in socialism if they choose to.
many of the points he makes in this article are very valid, and i am not going to pretend to out econo-think a former treasury official/wsj editor, but, some thougts... in a truly free globalized economy, things tend to balance out. the trade defict has already been lessened by the cheaper dollar ie our goods are cheaper (my father, a uaw machinist, was called back to work from being laid off a year ago and the small plant is chugging along). i doubt very much that we will "find ourselves dependant on foriegn goods that we will no longer aford". as the price of the foriegn goods goes up, there will be more and more incentive to base production in country to undercut the rising prices of china or whoever. the trade defict is a capital surplus. yes, the solvency of our financial instutions (caused by complex dervivatives) is a problem, but it was in part created by certain captial requirements on (private!) banks that in turn forced them to get around these with the so called "shadow banking system". and yes, the fed (which, despite the late start, has been doing a great job with this subprime thing) has had to inflate the currency to avert a catasrophe, but, as i believe the author knows, the dollar will remain the world reserve for two reasons, a dollar run would be mutally assured destruction, and, as Milton Friedom so elegantly put it, "the dollar is free of polital risk". as for the foolish war and other things that lead to that frieghting 53 trillion dollar number, all i can say is, i hope our officails become more purdent and i hope more prudent officals get elected. the US has had the free market know how advantage for so long as the rest of the world catched up there will be growing pains (AGE of Turbelence) but, in the end, a stronger world ecocnomy will make everyone more prosperous and lift millions out of dire poverty
Our hubris begins at the top and is facilitated by one thing:
8000 Nukes, 16 carrier groups, world's largest air force.
Push come to shove, our elite thinks they can tell the world to "stick it" when it comes to us paying anybody back because of our gigantic military. We think our gigantic military makes nothing binding really applicable to us. We will be finding out otherwise in the next 50 years or so, but the current elite will be dead and gone by the time that these things really come to pass.
Sometimes I think its a shame that post-retirement age cannot last several decades longer than it does, so the Bush'es and the Kennedy's and the Greenspan's, and the Walton's, and the CEO's, and the free trader's can see the hell that they will have wrought by roughly 2035-2040 or so, when we really will start a second-world slide if we dont change things very soon now. They will not be here though.
Quote: "Let me clarify one thing: Marx was a Humanist and NEVER saw people as just one thing, e.g., the material of labor. Marx wanted to demonstrate that not only cultures but economic systems had a profound effect on how people think, reason, develop ethical systems and behave toward one another." -KMarx
I post the above quote from 'kmarx' [probably of KMart] because he unwittingly-?-is the quintessential example of why marx's technical mistakes and imbalances 'went over' with people. He doesn't say 'well Marx's imbalance or mistake was an attempt at counter-balancing the social imbalance and mistake of his time,' as I do, almost apologizing for marxian error and its own imbalance.
Instead he points out the irrelevantly obvious, that marx was a humanist (warm and fuzzy and multi-faceted, like human beings, and to some extent panda bears) etc. Rather than exploring wherein his mistake was catastrophic. The central tenent of his own economic theory was that in economics (i.e. not in other areas of his and/or our 'tender' humanism), we need to view ourselves not as the material of or for capital but rather of labor. Then in a sort of reverse anti-capital metaphysics, pretending it wasn't metaphysics but scientific just like his opponents, marx (unwittingly-?-) created another metaphysics to 'believe' in and equally one-sided.
Of course there's nothing especially 'new' in what I posted above in my post #1 - the point I was making 'doh-doh' is that it is NOT yet properly understood; unless it is understood now (at least among the real elite). BECAUSE the hybrid or unholy marriage was made between two monsters marxism + capitalism = State Capitalism (or socialism for the rich), the *establishment especially doesn't want anyone talking about it. That's why the trotskyite christopher hitchens is such a darling of the [trotskyite-in-part] establishment.
You know I'm realizing having said 'doh-doh' and I apologize he's not such a doh-doh he's rather a 'believer' not wanting to lose his belief in marx's metaphysics, or he's a party leader not wanting to lose the party faithful? Whichever it is it is pathetic. OR worse but not so 'pathetic' he's *establishment. He's what you call a 'winner.'
'You know,' elbow-elbow, 'now there's a 'real' winner.' (like w. bush)
Just chat a little bit with the people who survived the practical application of (whether its intent was humanistic or not) marx's *new culture in Cambodia as practiced therein by their khemer rouge. How about russia or chat with the chinese except in all these places most of the ones you also want to speak to are dead. So much for spur of the moment new cultures than aren't slow evolutions.
I'd say to anyone who has read this far - go back up, and read my post #1; someone doesn't want you looking at that too much.
Sure there may be nothing new under the sun, i agree - though how much of it is understood? And to think I was yet trashed in this late day and age by a kmarx wannabe - and on THIS site no less. wow. Who says conservatives aren't tolerant?
Even if there was a worker shortage in the Tech field, this should never be used as an excuse to import hindu and chinese scab tech labor into America.
Wages were rising in the tech fields precisely because of a shortage of workers. Labor shortages are a wonderfull thing. They drive wages up and transfer power back to American workers. This is why Bill Gates fought tooth and nail to glut the tech labor market with hindu legal immigrant scab workers.
If we concede the labor shortge point-that labor scarcities are a bad thing-to our enmy-Bill Gates- then when there truely is a labor scarcity,the hindus and chinese will be imported -LEGALLY-by the thousands. This will result in the racial dispossession of NATIVE BORN WHITE CHRISTIAN AMERICA street by street,town by town city by city...no end in sight. This is exactly what has been happening since 1972 when the firwst wave of hindu and chinese scab workers were imported.
This is the fundamental issue. Paul Craig Roberts avoids the race replacement side of the labor shortage issue becuase it would offend the LEGAL immigrant transvestite-I'm not making this up-Alexnader Cockburn who allows both both hispanic and asian racialist to wage race war against Native Born White Christian Americans on the Counterpunch website. The atttacks on Native Born White American Christians on Counterpunch are quite vicious.
I condemn Paul Craig Roberts for suppresing this issue in his writings. In doing this ,he forms an alliance with the mortal enemy of Native Born White American Chritians.
Bring back the Chinese Exclusion act.
Leftist Alexander Cockburn owner of the Counterpunch website has on many occasions in the pages of the Nation magazine staed that labor shortages are bad because California agribusiness would be able to have low wage -slave if we are honest- and as consequnce California's economy would collapse. Amazing , a well known leftist making the case for slave labor. Alexander Cockburn is an evil man.
Paul Craig Roberts, the econmic dispossession of Native Born White Christian Amreicans through post 1965 legal immigration is inseparable from the economic dispossession of Native Born White Christian Americans through post 1965 legal immigration. You are a fraud for suppressing this obvious fact.