How Can America Create Wealth If Our Industrial Base Is Destroyed?

The Economic Collapse ^ | 03/26/2011 | Michael Snyder

[SeekAndFind]

Any economy that constantly consumes far more wealth than it produces is eventually going to be in for a very hard fall. Many point to relatively stable GDP numbers as evidence that the U.S. economy is doing okay, but the truth is that we have had to borrow increasingly massive amounts of money to keep GDP numbers up at that level. The U.S. government is going to run an all-time record deficit of about 1.65 trillion dollars this year and average household debt in the United States has now reached a level of 136% of average household income. But borrowing endless amounts of money and consuming massive amounts of wealth with that borrowed money is a road that leads to economic oblivion. The only way to have a healthy economy in the long run is to create wealth. But how can America create wealth if our industrial base is being absolutely destroyed? According to Forbes, the United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001. Hundreds of formerly thriving industries in the United States are being totally wiped out. China uses every trick in the book to win trade battles. They deeply subsidize their domestic industries, they openly steal technology, they blatantly manipulate currency rates and they allow their citizens to be paid slave labor wages. So yes, the products coming from China are cheaper, but in the process tens of thousands of factories in the U.S. are shutting down, millions of jobs are being lost and the ability of America to create wealth is being compromised.

In 2010, the U.S. trade deficit was just a whisker under $500 billion. Much of that trade deficit was with China.

During 2010, we spent $365 billion on goods from China while they only spent $92 billion on goods from us.

Does a 4 to 1 ratio sound like a "fair and balanced" trade relationship to anyone out there?

Our trade deficit with China in 2010 was the largest trade deficit that one country has ever had with another country in the history of the world.

In fact, the U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

Needless to say, that is not a good trend.

Our industrial base and our ability to create wealth is being wiped out so rapidly that it has now become a very serious threat to our national security.

According to Forbes, there is only one steel plant inside the United States that is still capable of producing steel of high enough quality to meet the needs of the U.S. military, and even that plant has been bought by a European company.

Meanwhile, China produced 11 times as much steel as America did last year.

Not only that, China is now the number one supplier of components that are critical to the operation of U.S. defense systems.

How in the world did we let that happen?

So what happens if we have a conflict with China someday?

But of more immediate concern is the loss of jobs that the destruction of our industrial base is causing.

For example, the Ivex Packaging Paper plant in Joliet, Illinois just announced that it is shutting down for good after 97 years in business. 79 good jobs will be lost. Meanwhile, China has become the number one producer of paper products in the entire world.

But China is not just wiping the floor with us when it comes to things like steel and paper.

The truth is that China has now become the world's largest exporter of high technology products. Back in 1998, the United States had 25 percent of the world’s high tech export market and China had just 10 percent. Ten years later, the United States had less than 15 percent and China's share had soared to 20 percent.

So how is China doing it? Well, as noted above, they are pulling every trick that they can think of.

Most Americans think that we have "free trade" with nations such as China. That is a complete and total lie and anyone that believes that we have "free trade" with China does not know what they are talking about.

China subsidizes their domestic industries to such an extreme extent that many global industries no longer even come close to resembling "free markets" as a recent story in Forbes noted....

According to a story in the January 20, 2009 New York Times, government subsidies so thoroughly disrupted pricing in the global market for antibiotics that many western producers had to either move facilities to Asia or exit the business entirely. The reason this might matter to intelligence analysts is that the last U.S. source of key ingredients for antibiotics — a Bristol-Myers Squibb plant in East Syracuse, New York — has now closed, leaving the U.S. dependent on foreign sources in a future conflict.

Our politicians and our business leaders have pursued economic policies that are so self-destructive that it defies explanation.

How in the world could anyone be so stupid?

Since 2001, over 42,000 U.S. factories have closed down for good. Millions of jobs have been lost. The ability of the once great American economic machine to create wealth has been neutered.

The business environment in America is completely and totally pathetic at this point. The number of small businesses that are being created is also way, way down.

According to the U.S. Census Bureau, only 403,765 small businesses were created in the 12 months that ended in March 2009. That was down 17.3% from the previous year, and it was the smallest number of small businesses created since records began being kept in 1977.

The truth is that the U.S. economy is dying.

We continue to consume about the same amount of wealth that we always have, but our net worth is declining.

According to the Federal Reserve, more than two-thirds of Americans have seen their net worth decline during this economic downturn. In fact, the Fed says that between 2007 and 2009, the wealth of the average American family declined by 23%.

So if it seems like your family and everyone around you is getting poorer, that is because it really is happening.

We really are becoming poorer as a nation.

We can see evidence of this all around us. Just consider a few of the examples that have been in the news in recent days....

*One school district in the Chicago area is laying off 363 teachers.

*The U.S. Postal Service is offering $20,000 buyouts to thousands of workers as they attempt to slash 7,500 good paying jobs.

*The city of Detroit, once a shining example of middle class America, is now a rotting cesspool of economic decline and it saw its population decline by 25 percent over the decade that recently ended.

Americans are not feeling the full impact of America's industrial decline yet because we have been filling the gap in wealth creation with massive amounts of debt.

In the years since 1975, the United States had run a total trade deficit of 7.5 trillion dollars with the rest of the world. That 7.5 trillion dollars could have gone to support U.S. businesses and U.S. workers, but instead it left the country and went into the hands of foreigners that do not pay taxes.

Therefore, the U.S. government, state governments and our local governments have had to borrow massive amounts of money to make up the difference.

Most people do not realize it, but the destruction of America's industrial base has played a very significant role in the government debt crisis we are facing today.

In addition, the millions upon millions of workers that have lost their jobs as America's industrial base has been destroyed are now a drain on the system. Instead of creating wealth and being involved in economically productive activity, millions of American workers are now totally dependent on the U.S. government for survival.

Do you think that it is just some sort of accident that we have 44 million Americans on food stamps?

Don't you think that a large percentage of those people would actually like to have good jobs that would enable them to sufficiently feed their families?

If we continue on the path that we are currently on we are not going to have much of an economy left.

Not that all trade is bad. Certainly not. For example, trade with Canada is generally a very good thing.

However, the horribly unbalanced and unfair trade relationships that we have with nations such as China are ripping our industrial base apart. Our politicians have not been telling us the truth about what the "global economy" will mean for American workers. Most U.S. workers never realized that globalism would mean that they would be competing for jobs with workers willing to work for one-tenth the pay on the other side of the globe.

Those people that believe that we can indefinitely maintain an economy where we consume far more wealth than we create are completely and totally delusional.

Until the American people wake up and start demanding change from our politicians on these issues, 50,000 (or more) manufacturing jobs will continue to fly out the doors every single month and even more Americans will become dependent on government welfare.

Is that what you want?

[Uncle Miltie]

Comparative advantage was first described by Robert Torrens in 1815 in an essay on the Corn Laws. He concluded it was to England’s advantage to trade with Portugal in return for grain, even though it might be possible to produce that grain more cheaply in England than Portugal.

However, the concept is usually attributed to David Ricardo who explained it in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal.[4] In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other.

http://en.wikipedia.org/wiki/Comparative_advantage

And Mate.

[EBH]

Heard a very controversial presentation this morning on the radio...but the guy had a point and while it upset me to have to admit to agreeing with him, it left me with one thought...

Just look at the damage the liberals have done to our educational system, family system and ethics.

They guy basically was saying we no longer have the systems culturally to produce innovative leaders. That as America moves forward, in order to stay ahead of the globe, we will need to import the virtue of leadership.

While he ticked me off listening to him, it was the question and answer session afterward that brought to light what he was trying to say. And I think a few liberals got more ticked off than I did!

I chuckled as he talked about Me Inc. He sort of sounded like a character from Ayn Rand’s Atlas Shrugged.

---

March 25, 2011 featuring Ratanjit S. Sondhe, Founder and CEO, Discoverhelp Inc.

Ratanjit S. Sondhe, Founder and CEO, Discoverhelp Inc., speaks about creating our own immigrants in the United States for a better global economy.

Podcast: http://www.cityclub.org/mediacenter/cityclubpodcast/Podcastpsting/tabid/194/Default.aspx

[Uncle Miltie]

"ultimatly all true created wealth comes from the land"

I have a theory (a personal one, not a proved one) that created wealth comes from the productivity of capital (which includes the ability to buy the land of which you speak) and the productivity of labor.

If you look through a list of the billionaires on the planet, I don't think you'll find many who primarily created wealth from the ownership, acquisition, or application of business models to dirt (excepting Saudi Sheiks, who do support your point).

The rest had good ideas and executed well upon them.

I think. I may be wrong.

[driftdiver]

“No, the fact that only governments these days can get in the way of the application of our good IP to cause starvation proves (not disproves) my main point. “

Nope

“Your (and others’) secondary point about the theft of IP is a serious problem that needs to be addressed”

So you’re gonna change human nature, entire cultures, eliminate greed and supersede national interests all in one fell swoop. Just so you can send more jobs overseas.

“But that hasn’t stopped much of America from becoming very wealthy selling IP.”

Much of the people ‘becoming wealthy’ are American companies which are owned or controlled by foreign nationals. Which means the bulk of the wealth is not controlled by Americans. The American economy is becoming weaker as those of China and India are exploding. Thats what happens when you ship production overseas.

The idea that we’ll continue to grow just on intellectual production is naive at best.

[NVDave]

Yea. Right.

The Chinese (and Indians) are known for respecting “intellectual property.”

Riiiiight.

http://www.minyanville.com/businessmarkets/articles/china-emerging-markets-free-trade-emerging/3/24/2011/id/33561

[Uncle Miltie]

"You can't eat ideas."

Yes, you can effectively eat ideas. See above.

[Jim Noble]

What?

You don’t think green jobs and edgy urban gay artists, plus money frauds, is gonna git ‘er done?

Thoughtcrime.

[TSgt]

When times get tough you can cut out all the services you want but if you can’t build a tractor you’re screwed.

Not everyone goes to college, we need manufacturing jobs for those who don’t.

Of course that would mean unions and big government need to get the hell out of the way.

[BikerJoe]

Re: Comparative advantage, etc.

It's hardly mate. Citing England (a lost empire and a small country with relatively few natural resources, kinda like NK) isn't what I'd consider a good example, given their history during the 20th century.

You sound like one of those "Creative Class" people. There are 300+ million people in this country, and they can't all be designers and marketers. I guess some will have to cut the grass of their betters.

Besides, see the posts above about designers and engineers being close to where their designs are produced. This is a well-known principle in engineering. The whole "engineering can be done in one country and manufacturing in another" is largely an MBA fallacy and is fraught with problems (like most engineering organizations left in the U.S. want to be near well-serviced airports, because of "all the travel they have to do".)

[Jim Noble]

“We can make stuff: Intellectual stuff.”

Yeah, 10% of us can - max.

The other 90% need sh*t to do,

[Uncle Miltie]

Nations without large standing armies cannot thrive. Japan.

Nations without agricultural bases cannot thrive. Singapore.

Nations without vast colonies cannot thrive. United States.

Nations without large navies cannot thrive. Germany.

"Nations without manufacturing bases cannot thrive." Not yet disproved.

[Jonty30]

You could make stuff, if your education system was number 1 in the world instead somewhere between doltish and imbecilic.

I don’t think Americans are aware of how badly your politicians have been bought and paid for. Many of them will be all right.

You won’t.

[meadsjn]

"We need to do it ALL, ourselves"

I salute your Juche philosophy, comrade.

Hey, being independent is a conservative thing, right? Why should it be any different as a nation?

It isn't any different for nations. A self-sustaining US economy is the conservative ideal.

Global communism via the Democrats, and global anti-American Free Traitor BS, are two sides of the same global communist redistributionist coin.

The only difference is which set of communists are bleeding the residual wealth from Amercian citizens. That's why the commie Democrats and the commie RINOs are hell-bent on destroying any candidate running on pro-American, commonsense, Constitutional conservative principles.

[Uncle Miltie]

"America doesn’t create wealth; Americans do."?

Yes. Seriously, let's do have an argument about the wealth destroying effects of 0bamanomics. That would be much more productive.

If we can reverse 0bamanomics, Americans will figure out whether to make stuff, cut code, produce pharmaceuticals, etc. But with 0bamanomics, government dictat, maldistribution of capital and cronyism will rule.

There's where we should focus our efforts as Conservatives. We'll all agree, cohere, defeat, and move on.

At that point, the market will take over, and we can produce whatever widgets our entreprenuers can make a buck on.

[FrogMom]

Then our industrial base wouldn’t be destroyed.

Of course, if you get government out of the way, we could soar. Without that, our base is destroyed and we cannot create wealth.

[Cringing Negativism Network]

Mind if we call you Miltster?

:)

“Free trade” has become a shrinking cult, like Jim Jones’ tragic cult became.

More and more people are recognizing the harm being done to America in the (mis-)name of “free trade”.

Some koolaid?...

[Uncle Miltie]

Who among you is going to force my daughter into a manufacturing job when she prefers to create genetically targeted pharmaceuticals?

If you cannot bring yourself to use the force of government against my daughter, whose child are you going to use the force of government against, so that you get the talismanic manufacturing base you dictate?

[Uncle Miltie]

Or, can we rather agree that Freedom of the individual is paramount, and manufacturing bigots should bugger off?

[driftdiver]

“Who among you is going to force my daughter into a manufacturing job when she prefers to create genetically targeted pharmaceuticals?”

There won’t be any jobs for her in pharma so I hope starting one from scratch goes well.

[Uncle Miltie]

"Nope"

I'm totally stuned by the intellectual force of that argument.