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?

[FrogMom]

Simple answer - we can’t.

[Uncle Miltie]

A: By producing the intellectual property that the factory minions elsewhere in the world buy or license from us.

Value comes from ideas, these days.

Microsoft. Apple. Google. Oracle.

Even among big industrial concerns, the value of the idea is paramount.

Farmers buy tractors and combines in part based on the value of the software and sensors embedded in them. Did you know that fertilizers are applied by the square yard depending on whether last year’s combine reported poor yeilds for that square yard? Or that video cameras and a computer decide for each plant they view whether to spray an herbicide on that plant because it was identified as a weed?

Why aren’t people starving in the world anymore? Because we put more land into production? No. Because we Americans engineered more effective plants, and because our computing industry effectively eliminated rotting in the supply chain.

We can make stuff: Intellectual stuff.

[oh8eleven]

Green jobs ... you know ... WTF.

[driftdiver]

You’re missing the point of this whole exercise which is to redistribute our wealth, not create more.

[BikerJoe]

We can make stuff: Intellectual stuff.

Which is promptly stolen by our competitors because they could care less about IP rights.

We need to do it ALL, ourselves. In a pinch, they'll need our ideas less than we'll need their production, so whose really dependent on whom?

[driftdiver]

Millions of people are starving.

[mazda77]

Wrong, get the government out of the way and we can create anything. Much of the industrial base is old and has not been updated or modernized so a complete restart would have to be initiated without taxes on such. In that light, the midwest would be radically challenged by the population and technology shifts to the southwest and south.

[Uncle Miltie]

Almost always because of mal-government. Not because of lack of food availability world-wide.

[NetLiberty]

We can make stuff: Intellectual stuff.

I used to think this way, but as a country we also don't have a monopoly on design and creativity. China, India and other growing nations are also getting into the design and intellectual property game, and the winners will be those countries who have both design capabilities and an integrated design and manufacturing base, preferably within the same company. Not enough to just design something and throw it over to China--the most agile players of the future are designers who are also close to the manufacturing process. Outsourcing has hidden costs, and designers who are close to their manufacturing processes have substantially increased efficiencies.

Couple of good links for on this topic for background reading:

http://www.theatlantic.com/business/archive/2011/02/we-still-make-stuff-in-san-francisco/70946/

http://www.latimes.com/business/la-fi-hiltzik-20110215,0,442445.column

[Uncle Miltie]

"We need to do it ALL, ourselves"

I salute your Juche philosophy, comrade.

[driftdiver]

Sure its usually because of mismanagement but it shows your premise if false.

Its much easier and cheaper to steal intellectual property than to create it. China and India are actively seeking to acquire knowledge in any way they can.

[Uncle Miltie]

Background from the L.A. Times and The Atlantic?

Thanks, but I’ll skip those publications.

If you want to have an argument about the stupidity of our public schools making us long-term non-competitive in IP, I would agree.

[Minus_The_Bear]

You can't eat ideas.

Most young Americans don't respect copyright or intellectual property rights.

Nations without manufacturing bases cannot thrive.

[Walts Ice Pick]

America doesn’t create wealth; Americans do. The distinction is important.

[BikerJoe]

"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?

[Uncle Miltie]

"Sure its usually because of mismanagement but it shows your premise if false."

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.

Your (and others') secondary point about the theft of IP is a serious problem that needs to be addressed. But that hasn't stopped much of America from becoming very wealthy selling IP.

[Enough is ENOUGH]

Why isn’t this one of the many main issues actively being attacked in Washington by the conservatives we voted in?

[Uncle Miltie]

Check.

[sbark]

ultimatly all true created wealth comes from the land.

That is why the left is so hell bent on denying us energy development.

One can ask then why is the left not constricting Agric and food as much as energy-———because if they shut down energy they shut down Agric, transportation, construction etc....

Our energy policy is dictated to us by a element of the population similar in size and ideology as the Soviet Commies in 1920’s.......and they really do have a concrete plan.