The Jobbing of Americans

Insight Magazine ^ | July 3, 2003 | Paul Craig Roberts

[cp124]

The Jobbing of Americans Posted July 3, 2003

By Paul Craig Roberts The United States continues to lose jobs. Since President George W. Bush has been in office, 2.5 million manufacturing jobs and nearly 600,000 service jobs have been lost for a total decline in private-sector employment of 3.1 million. The unemployment rate has risen to 6.1 percent. If this is recovery, what is going on?

Pundits call it "the jobless recovery." The economy is growing, but jobs are not. Why? One economist recently blamed the absence of job growth on high U.S. productivity. Those who are working are so productive, he said, that their output meets demand, making additional jobs superfluous. His solution, apparently, is to make people less productive.

I think that the jobless recovery is an illusion and that the U.S. economy is creating jobs - but not for Americans. Those 2.5 million manufacturing jobs have not been lost. They have been moved offshore and given to foreigners who work for less money. The service economy was supposed to take the place of the lost manufacturing economy. Alas, those jobs, too, are being created for foreigners. It turns out it's even easier to move service jobs abroad. For example, 170,000 computer-system-design jobs recently have been shifted abroad. Keeping knowledge-based jobs in the United States is proving as difficult as keeping manufacturing jobs.

Outsourcing, offshore production, work visas and the Internet make it easy for U.S. companies to substitute cheaper foreign employees for U.S. employees. Entrepreneurs in India have created firms that specialize in supplying skilled labor to U.S. corporations. The growth in the U.S. economy thus brings about a growth in foreign employment, not in U.S. employment. If this analysis is correct, U.S. job-seekers no longer will be able to tell the difference between recovery and recession. In the old economy, people lost jobs when the Federal Reserve caused a recession by curtailing the growth of money and credit. In the new economy, they lose their jobs because foreigners work for less.

This development has produced a disconnect between economic policy and employment. The Fed's low interest rates and Bush's tax cuts cannot bridge the difference between wages and salaries in the United States versus those in China and India.

When U.S. companies move their production for U.S. markets offshore, U.S. incomes and gross domestic product decline and foreign income rises. When the offshore production is shipped to the United States to meet consumer demand, it becomes imports.

A country that produces offshore for its home market is going to have a big import bill, as those goods come on top of goods that foreign companies export. In 2002, the United States had a trade deficit in goods of $484 billion and a current account deficit of $503 billion.

With production and employment moving out of the United States, the ability of the nation to pay for its imports with exports declines. In the end, there is nothing to bring about a balance between imports and exports except a collapse in the dollar's value. When that happens, cheap goods from abroad become expensive, and the living standard of an import-dependent population drops.

During the short period of time Bush has been in office, the dollar has lost 27 percent of its value in relation to the new European currency, the euro. Considering that European economies are not doing well and that the euro is an untested currency, the dollar's decline is not a good sign.

When we import $500 billion more than we export, foreigners must finance our deficit. They do this by using the dollars we pay them to purchase our assets, or they lend the money back to us by purchasing government or corporate bonds. Either way, Americans lose to foreigners the future income streams from stocks, real estate and bonds, and this worsens our current-account deficit in subsequent years.

Foreigners' willingness to finance our current account deficit with their direct investment in the United States has declined from $335.6 billion in 2000 to $52.6 billion in 2002, a decrease of 84 percent. This dramatic drop in the willingness of foreigners to hold U.S. dollar assets is the likely explanation for the drop in the dollar's value.

If U.S. companies cannot profitably employ costly U.S. labor to produce for U.S. consumers, it is unlikely U.S. companies will be able to export a lot of goods made with U.S. labor. As our manufacturing sector moves abroad, our ability to trade declines as we produce fewer products to offer in exchange for our imports.

The dollar is the world's reserve currency, which gives us the ability to finance trade deficits that no other country could afford. When an alternative reserve currency appears, the United States will undergo wrenching economic, social and political adjustments.

Meanwhile, a rising stock market is consistent with "jobless recovery" as the lower labor costs of foreign employees drive profits. The growing gap between average incomes and executive compensation will handicap the Republican Party and weaken its resistance to a leftward turn in American politics.

Paul Craig Roberts is a Florida-based columnist whose syndicated columns focus on economics, culture, politics and issues of political liberty. He served as assistant secretary of the U.S. Treasury under the first administration of Ronald Reagan.

[P.O.E.]

India vs. China:

Two systems, one grand rivalry

(from the Economist a few weeks back.

[Old Professer]

A quick Google search on "dictionary definition coolie" gives many entries; one says that the term came from the Hindi or Telegu word, "kuli" which means day laborer or slave. From there, this site goes on to belabor the conclusion that the condition of slaves throughout history was determined mainly by the evil Europeans and of course in later years, the Americas.

Of course, this puts us way off-topic.

[cp124]

What jobs are gained by outsourcing to India?

[harpseal]

There is one solution which should satisfy the free traders and the dogmas of free market ideology. American workers can get free medical care, free education, public transportation, food stamps and subsidized housing. After that they will be able to work for wages competitive with China and India. This is the way to avoid protective tariffs and secure the profits for the investors while keeping jobs in America. What do you think?

This will not work due to the fact that our foreign competition can still undercut us by raising their tariffs and calling it free trade becuase they are "underdeveoped."

There are only certain options we really have. Tariffs which provide revenue to the Federal government and make imported products more expensive and thereby encourage capital investment in the USA. We may get rid of subsidies for investing in overseas projects (OPIC). We might start the enforcemnet of our imigration laws.

Our alternative is an end to the USA as we know it. It will cease to be anything like what we have known. We as a nation can not at this time afford further erosion of our industrial and inforamtion handling base. Both are essential for our national defense.

[Old Professer]

I'm not doing work that can be readily farmed out to an Indian in Bangalore or a Mexican in Guadalajara.

The Mexicans you need to be concerned with have left Mexico and wait outside the door where you work.

[bvw]

PR?

[P.O.E.]

There was a companion article, too, that basically lambasted the endemic corruption in India. China has the same problem. And I also fret about the US - the regulatory and confiscatory government lackeys and trial lawyers are a big stumbling block to growth and start-ups.

[hedgetrimmer]

SB909 re-appeared with completely new language. The new version would have allowed privately owned water utilities to seek state grants to make costly improvements to water systems they operate. One source of such bond money is Proposition 50, the Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002, a $3.4 billion, voter-approved bond sale.

Is this an example of corporate welfare?

[Libertina]

the United States will undergo wrenching economic, social and political adjustments
Would it take this much suffering for the people & their government to get back to priorities and constitution? Yes, I think so. There are many reasons besides truly neccessary safety regulations for our goods & lives to cost so much. Our elected officials continue their spending parties - free $ for everyone and it is taking its toll. Schools help out by dumbing down the work force. I am guessing these "wrenching" developments will be at our door long before our "leaders" stop spending and regulating our economy's demise.

[Old Professer]

Economic fallacy number one: Jobs are fungible, zero-sum commodities, i.e. a job gained in India is a job lost in the US.

The reality is that jobs are not zero-sum commodities.

To the extent that the jobs that are going to foreign countries are working for the companies who engage in the practice, the jobs are fungible.

The zero-sum argument you impute is much stronger, but only in a relative sense.

If a $40,000 year job goes to India that was being done here by a worker who ends up taking a $25,000 year job the net number of jobs may not have changed, but that is of little consolation to the worker whose job is shifted.

[biffalobull]

And the underlying cause of this is a world oversupply of labor.

I would bet there are about 40/50% of the employed people in America, who are one way or the other on the Govt. payroll.

I have no idea what the cost of maintaining the military is.

Is there an economic upside to such a huge military. What do the Govt. employees do for the economy?.

I believe the govt. has become so unwieldly, there is no way it can ever be made to function in a sensible, cost accountable manner.

[bvw]

To call it a stumbling block is true, yet misses a more important picture. The FDA upper-level bureaucrats are not interested in stumbling industry -- they want to rule and have cushiony VP-level positions once the term of their Federal Sinecure maxes out. That IS the problem:, oligarchic facsism, established by and for our modern Federal Nobility.

[ARCADIA]

Same thing here - 100 jobs in India may be the same as 10 jobs here or worse yet no jobs for anyone because the costs are much higher than the returns here.

You seem to have something to say...but, you are sure having a hard time saying it.

You may be trying to argue that the demand is a factor of price. Which is true within an enclosed and balanced system. However, when you export jobs you reduce your potential for income, increase the cost of borrowing, and weaken the exchange rate, which is the same as increasing the price. We have been exporting production for decades yet the cost of products have continued to inflate. There is no real costs savings.

Product produced offshore is productive capability lost here. It really is that simple. You produce less, borrow more, kow-tow to your creditors, and go broke, and have wars. That is all there is to it. Oh yes, and a few investors are richly rewarded for scarificing their country. You can identify these people easily since their heads usually turn up on sticks.

[garbanzo]

To the extent that the jobs that are going to foreign countries are working for the companies who engage in the practice, the jobs are fungible.

Not really - my main point was that 10000 jobs in India (if somehow you could make them go away) would only result in say 100 jobs in the US - or just as likely no jobs in the US because the economic benefit of 100 jobs to the company wouldn't outweigh the costs. A company only has a limited pool of money to invest in labor costs - it can pay more to fewer workers or less to more workers. Below a certain number of workers, the output doesn't justify the costs which is why it's fallacious to say that the 10000 jobs gained in India are 10000 jobs lost in the US.

[Nick Danger]

We are either at the gateway to Hell, or about to enter the Garden of Eden. We are approaching that fork in the road rather quickly now, and arriving with us will be the Marxists, who will have their own ideas about which way lies Eden or Hell.

In all these discussions, people are treating "jobs" and "selling labor for money" as Good Things that we should fight for, and try to keep. We don't want those furriners spending eight hours a day inserting Tab A into Slot B, we want to do it.

Really? Why? Other than the actual heat, what's so hot about spending your days watching giant machines turn red-hot ingots into slabs of steel?

We sent a probe to look for the Garden of Eden in the 1980's. It came back empty. The probe was in the form of good old American manufacturing plants. Except that these plants had almost no people in them. Jobs? Maybe a half-dozen, mostly for maintenance techs. Apple had one one these plants making Macintoshes. IBM had one making PC's. ADDS had one in Utah making 'dumb terminals.'

Robots! Robots were the future! Entire manufacturing plants with virtually no people in them... churning out goods 24-by-7, with no overtime, no strikes, and a defect rate impossible to achieve with mere mortals.

Well, that idea was a little ahead of its time. Yeah, the labor cost in those plants was near-zero, but all that fancy equipment was pretty damned expensive. Take out some of the more elaborate automation, use Indian or Chinese humans for some of those functions instead, and a good idea gets even better.

But the jobs! What about the jobs?

Screw the jobs. What if we could have all the stuff, but leave the actual effort of making it to... machines?

Those robots are still coming. The computers have gotten a lot cheaper in 20 years. The software has gotten better. And that keeps happening. The experiments with "humanless factories" in the 1980's will be run again. And one day, it will all be cheap enough that not even Chinese slaves can touch it.

All this crap about 'damn the furriners' and 'keep the imports out' is myopic. Think outside the box. It's not really "jobs" we want, it's the stuff. If we could figure out how to get the stuff without having to work for it... it's Garden of Eden time.

Somewhere between where we are now, and "Terminator" times, there is an era where Machines Are Our Friends. They are rolling the damned steel, and vulcanizing the rubber, and bending the glass. We're just driving around in our cars having a ball.

Those factories in the 1980's worked. The problem with them was that they were still too expensive, compared to having at least some people. Is that still true? If it is, how much longer will it be true?

We could blow up all the Indians and the Chinese, take the jobs back, and find out five years later that all those "high-paid manufacturing jobs" were going to machines anyway. It's just not that many years away.

The real problem here is that free-market capitalism does not have a real good answer for how to manage the transition to a society where almost all return is to capital, not labor.

But the Marxists do, and that is why they will be at the fork in the road waiting for us when we get there. "Public ownership of the means of production," they will say. And that will sound pretty good to people who live in a place where "stuff" is still tied to "jobs" but there aren't any jobs. At least, not for people with IQ's of 100 who weren't born with a silver spoon in their mouths.

In a society where nearly all return goes to capital, there is just plain going to have to be a transition plan that includes capital redistribution. It's either that, or the Marxists will be elected by a landslide and do it at gunpoint.

The distribution of the return on capital is the biggest problem facing human society in the next century. To hell with the Chinese, they aren't the problem. The machines are going to eliminate vast amounts of work that previously provided a living for Average Joes. They will even end up putting Wong Fu out of work.

The Marxists have a plan for saving Joe, and making sure that he gets at least some stuff. We have to face the fact that Marxism is going to sound increasingly seductive to Average Joe as "jobs" continue to disappear and he wonders how he's supposed to make a living in this place.

We know that Marxism leads to Hell. Despite the beautiful rhetoric and the good intentions, it throws off governments that become ever-more draconian and brutal. Every Marxist government on Earth has turned into a police state.

We need another plan. We need a plan that takes us to the Garden of Eden instead of to Hell. We need a plan where Joe doesn't starve to death while Bill Gates and Warren Buffet accumulate ever-larger bank balances that grow faster than they could possibly spend money.

I don't have this answer. But we're going to need it when we get to the fork in the road and we want Joe to vote our way, instead of with the Marxists.

[garbanzo]

See #74 - you're comparing real jobs to phantom jobs - i.e. jobs that would not exist in any real sense if the basic facts were any different. Take Company X for example - the choice isn't whether or not to have 10000 jobs here or 10000 jobs in India. The choice is to have 100 jobs here or 10000 in India given that you have a limited amount of capital to invest in labor costs. If the number of jobs you can create here is less than some magic number then the above choice boils down to either creating jobs in India or not creating jobs anywhere at all.

[riri]

That might just be the best post I have read here to date.

Wasn't it Lenin who advised the most effective way to overturn the existing basis of society is by debasing the currency? Is that not what we are in the process of doing.

[George Frm Br00klyn Park]

"Businesses moved from North US to South US to Mexico and now to China. China is winning the war and will be the superpower in the future."
========================

Guys, "Power" has moved westward forever. It seems to be returning to China, where recorded history shows it starting. And, if anybody thinks this is just happenstance, they might consider the "communist" {actually socialist} sympathizers leading the nation since at least Nixon and Kissinger. And the OBVIOUS policies that have ENCOURAGED this movement of POWER.

When you get down to the nitty-gritty, Republican and Democrat leadership ARE just two wings on the same bird of prey. Peace and love, George.

[monkeywrench]

Your post should have it's own thread. Bttt!

[George Frm Br00klyn Park]

Guys, We REALLY need a few Henry Fords. Peace and love, George.