American Economy - R.I.P.
By Paul Craig Roberts
9-11-7

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, and 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>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 has likewise let the story go, because in the 1990s the Clinton administration and Congress overturned US policy in favor of a diverse and independent media and 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.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.

________
I am like many in the US right now..trying to recover from an unexpected job loss one year ago...my income has been cut in half....and after literally 100's of resumes and dozens of interviews....still have not found my way in this great Bush economy....Many of you probably "buy" the company line that unemployment is 4% like they say on the news...for a real barometer talk to the local bartender...like Brian in a small town near here in Wisconsin...he knows that the unemployment rate is more than 12 - 15 % ....because many people are falling out of the statistics...take off the blinders folks...look at the reality ....

it's tough out there right now for a lot of people. when i hear people say that the economy is great right now it makes me wonder when the last time they payed attention to anything around them. housing is stale in my state. the people that have a home have lost equity in the homes that they have because home values and property values have dipped significantly. people that are trying to sell homes are drastically reducing their asking prices so that they will sell and the people that need homes can't afford them even at the reduced prices. jobs are scarce and there are many people that are out of work. the company i work for is getting ready to lay some people off and that is after we find out if we go on strike.

The American public pay attention. That’s funny as long as they have their computers to play games, DVDs to watch movies and American Idol they think they're set........

All smoke n mirrors, great distractions and their buying right into it while there freedoms, wealth and country get taken away they set idol oblivious to it all.

Dang Davinci, You popped the cork there. What happened to 'speak no evil' that you had going there for a while.

I wish I had not read this post of yours. It is unfortunately very accurate as I understand things. Since it is so accurate I'll buy into a Fed policy issue for you here (feeling generous).

The Federal Reserve is taking steps to keep the American currency strong. In keeping the currency strong they make trade in American dollars attractive. Not to do that would be a problem for our economy. Outsiders invest in the American bonds and markets. So long as the currency is strong then this will continue to happen.

When the Fed behaves in this manner it is good for the individuals and groups who have large amounts of wealth, particularly in stocks and bonds. So by protecting the currency they are protecting the wealthy. They also protect the bond investors by assuring a margin of return on investment. Keep inflation under check, keep interest rates predictable, and keep the bond yields predictable, then you protect the wealthiest individuals and groups.

However by keeping the currency strong they limit our ability to compete in a global market on the basis of price. As this process continues long enough then eventually the local businesses take the hit. Manufacturing all goes off shore. Engineering goes with it. When those are well gone the work opportunities are all in the service industries.

This occurs in all the industries. At some point there has to be a meltdown of sorts. A country can not import everything and give nothing back except currency. Balancing the currency value will mitigate some of it, but the immediate effect will be huge loss of purchasing power. People will be poorer (their dollars worth less in a global economy).

In addition to this problem, other countries, most notably China, influence their currency in the opposite fashion in order to improve their competitiveness. By artificially holding their currency down they are able to gain larger and larger market share, all the while buying into the American investment pool.

The fox is minding the chicken coop here and nobody is paying much attention.

If we can not get some more savvy players watching and managing the American trade issues and currency issues, we will have more significant problems soon.

speak no evil?...dont like being called a liar I guess...

all you have to do is walk thru the grocery store these days...a small can of mushrooms
that cost 50 cents 6 mons ago is now $1.25 ....and everything else is going up...this
is the hidden tax that is the result of printing money from nothing...if we have more
radical hyperinflation...then people will wake up...course that will be the time for
a distraction...like another war or something...

i think iran is only a hop across a sand dune.

Liar? I didn't see you lie about anything. I was wondering why you kept so quiet so long.

Yeah, another distraction. I think it is time to reread 1984.

I'm more interested in rereading WW3 though. I don't think anyone else ever read that book. But is gives a little interesting perspective on the present day. It was written in the 70s.

Our economy is in a tough crunch. Ten years ago I knew what they were doing to modify things and why. Now things are a lot more unclear. I was anti-protectionist for quite some time, but I'm changing my stripes on that score. I see more and more people unable to do the simplest manufacturing task, and unable to manage their way out of a paper sack. Its disturbing.

Where there once were families with a heritage to engage in one sort of business, now the fathers retire and the business goes to nothing. The children are starting in a new world with no career path defined. Whatever their parents did for a living is likely to be gone to another part of the world.

The fact that a young person can make as much as a waiter in a restaurant as working construction or manufacturing is largely because of the cheap labor issues in construction and manufacturing. Construction companies try to build things cheaper and to do so they hire lower paid workers, many from across the borders. Manufacturing companies simply close. To compete they have to pay very low wages or highly automate their processes, which is capital intensive.

Start-up whiz kids get brilliant ideas to build a new cog and nobody can afford to buy them, or if they can afford to, they prefer not, and will look for an overseas manufacturer to build the same thing. Even the oil industry is unforgiving. With the roller coaster cost of oil, an oil field service company is in good one day and out the next.

A boom in internet bits and bytes is not going to solve the problem.

couldnt agree with you more Philosopher...a few tariffs wouldnt hurt as a place to start..

what has always puzzled me is this...we beat the war drums and continue to talk
about a long war that may take years...but dont we get much of our military's spare
parts from overseas?....I dont think that is a good thing...

I feel for the younger generation today....like you said..what professions are there for
them to choose from anymore...even our service economy will end when no one can
afford to buy anything...

Well this revelation is not hard to grasp...

*****************************************************************
Pol/Econ: Economy in Bigger Trouble than Reported

Monday, 10 September 2007 Written by Garrett Johnson

The big news from Friday spooked the markets.
A report released Friday by the Labour Department showed the country's payrolls shrank by 4,000 in August. It was the first decline in jobs since August 2003.
4,000 jobs isn't a lot...unless you were expecting +120,000 jobs like Wall Street was. But the real bad news was buried in the details.

You had to dig to find out that June's payroll numbers were revised from 132,000 to 69,000, and July's numbers were dropped from 92,000 to 68,000. But even that doesn't address the real trouble.

The August employment numbers looked better than they actually were for two reason:

#1) Nearly 600,000 people were simply dropped from the labor force. That's not unprecedented during a recession, but it is unprecedented when the economy is supposedly "strong" like the Federal Reserve and White House tells us it is.

If those people had not been dropped from the labor force then the unemployment rate would have spiked up.

#2) The BLS (Bureau of Labour Statistics) added 120,000 jobs through their Birth/Death Model. The Birth/Death Model is supposed to catch jobs that are created by the "birth" of businesses not surveyed in the payroll survey. The number of jobs included in this model are estimates based on past data.

In other words, the BLS tries to apply data to the present based on data from a year ago. The August Birth/Death Model added 11,000 financial jobs and 15,000 construction jobs.

Let's apply a little common sense here: does anyone really believe that 11,000 more financial jobs were created last month while the entire credit industry was seizing up? Does anyone really believe that the construction industry was adding more jobs while the real estate market was contracting?

link to rest and charts:

http://www.bitsofnews.com/content/view/6067/