Wall Street permabulls and right-wing partisans often intimate that any talk about the U.S. economy having serious structural problems is likely sour grapes from those on the left.
But the truth is, anyone who has actually sat down and objectively examined the data -- e.g., total debt levels that are a record three-plus times the level of gross domestic product -- can't help but see that, economically speaking at least, America and its citizens have been living on borrowed time for far too long.
For some, that is still not good enough; they argue that politics remains the driving factor. Yet one individual who can't by any stretch of the imagination be characterized as a left-wing demagogue but who nonetheless disagrees with the proposition that all is well in America is Paul Craig Roberts.
In "American Economy: R.I.P.," the former Assistant Secretary of the Treasury in the Reagan administration, Associate Editor of the Wall Street Journal editorial page, and Contributing Editor of National Review argues that the worst is yet to come.
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. 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 as unemployed.
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 financial services.
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 same amount.
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 $838,271,000,000.
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 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 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 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, 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 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 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: http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=20&area_id=3 and http://www.bls.gov/news.release/empsit.t14.htm
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 explanations.
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, 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 “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 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 enserfment.
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Dereck
Posted by: Dereck Coatney | September 13, 2007 at 09:18 PM
those ripples are indicators of what American leaders fear the most and that is that the Bernays age has reached it's upper limit and has begun to blow up in their faces
credit not in the banks but the personal credit of all Americans the real driving force of AMerica's economy is dried up they owe more than they can afford and thus the end of the age of consumerism has begun
It can not be fixed as already there is approx. 500 trillion of money in the form of papper(derivatives etc..) and only approx. 50 trillion of real assets covering them couple this to the American indevidual person debts and local govts. debts
and we begin to see a picture one of an epic American nightmare
The fed is left with printing USD 24/7 and only hyper inflation the resulting solution
the gig is up you will soon see a serious run on the banks ww3 is in view there is little prospect to come out of this coming depression without a new deal where usury fees are outlawed short of this we are faced with riots all across America
the fed itself may well be dismantled
to those that believe this can't be and American could never go bankrupt I respond watch and learn
ultimately I believe this has been ochestrated by the American elites who want to gain control of the country dismantle most of the Constitution and hitch America with MExico and Canada they have little faith in regular Americans they know as do I AMericans have been subjected to 50 years of radio fallout and the survey I saw states that 25% of all Americans were born retarded and their offspring will have the same DNA this due to all the radio fall out in America
that beens blowing in the winds for 50 years and has contaminated America
It saddens me to great lengths that America is long past it's apex it is living far beyond its means
consuming $800 billion more than it produces
these bad times will usher in 20 years of wars we are already 6 years into it
as America today has a predominently Industrial war complexe bussiness model there is simply no other way
to look at this problem other than a military one
as to ponder another way would end in ruins
America's cities many of which resemble bombed out cities all the industry that made America strong either in drastic decline or gone all together
suicidal polices of outsourcing ans in sourcing
20 million illegals It has to be contrived nothing else can explain the coming total destruction that approaches though the American people are oblivious to this coming calamity they know something is wrong
and soon will be in the streets rioting
for once the hyptnotized people are deprived of their
toys that the bernays dogma convinced them they needed
they will truely become insane
Posted by: daveDave | September 14, 2007 at 04:36 AM
We should be aware that these economic problems were not the result of free market capitalism, they were caused by corporatism. When big business and big corporations work in concert to better themselves at the expense of the people, this is not capitalism. Gov't is supposed to be the referee in the marketplace, not a participant. Corporatism allows the guns of gov't to be used on behalf of special interest groups to eliminate competition, protect them from liability and in some cases, mandate the use of their products.
Outsourcing has allowed gov't to export inflation and import deflation, thereby helping both gov't and big corporations to look good in the short run. This only works for a little while. Once you burn all of the furniture, you can no longer heat the house.
The fact that we have a Central Bank and central economic planning precludes us from having true free market capitalism. This has been the case for many years, it's just coming home to roost now.
Posted by: Wayne | September 17, 2007 at 09:55 PM
Has anyone been listening to LaRouche and his "New Bretton Woods" proposal to solve this crisis?
Posted by: khoan | September 22, 2007 at 07:36 AM