Globalization Creates Unemployment, American Job Losses Are Permanent

Now that a few Democrats and the remnants of the AFL-CIO are waking up to the destructive impact of jobs offshoring on the US economy and millions of American lives, globalism’s advocates have resurrected Dartmouth economist Matthew Slaughter’s discredited finding of several years ago that jobs offshoring by US corporations increases employment and wages in the US.

At the time I exposed Slaughter’s mistakes, but economists dependent on corporate largess understood that it was more profitable to drink Slaughter’s kool-aid than to tell the truth. Recently the US Chamber of Commerce rolled out Slaughter’s false argument as a weapon against House Democrats Sandy Levin and Tim Ryan, and the Wall Street Journal had Bill Clinton’s Defense Secretary, William S. Cohen, regurgitate Slaughter’s claim on its op-ed page on October 12.

I sent a letter to the Wall Street Journal, but the editors were not interested in what a former associate editor and columnist for the paper and President Reagan’s Assistant Secretary of the Treasury for Economic Policy had to say. The facade of lies has to be maintained at all costs. There can be no questioning that globalism is good for us.

Cohen told the Journal’s readers that “the fact is that for every job outsourced to Bangalore, nearly two jobs are created in Buffalo and other American cities.” I bet Buffalo “and other American cities” would like to know where these jobs are. Maybe Slaughter, Cohen, and the Chamber of Commerce can tell them.

Last May I was in St. Louis and was struck by block after block of deserted and boarded up homes, deserted factories and office buildings, even vacant downtown storefronts. Detroit is trying to shrink itself by 40 square miles. On October 25, 60 Minutes had a program on unemployment in Silicon Valley, where formerly high-earning professionals have been out of work for two years and today cannot even find part-time $9 an hour jobs at Target.

The claim that jobs offshoring by US corporations increases domestic employment in the US is one of the greatest hoaxes ever perpetrated. As I demonstrated in my syndicated column at the time and again in my book, How The Economy Was Lost (2010), Slaughter reached his erroneous conclusion by counting the growth in multinational jobs in the U.S. without adjusting the data to reflect the acquisition of existing firms by multinationals and for existing firms turning themselves into multinationals by establishing foreign operations for the first time. There was no new multinational employment in the U.S. Existing employment simply moved into the multinational category from a change in the status of firms to multinational.

If Slaughter (or Cohen) had consulted the Bureau of Labor Statistics nonfarm payroll jobs data, he would have been unable to locate the 5.5 million jobs that were allegedly created. In my columns I have reported for about a decade the details of new jobs creation in the U.S. as revealed by the BLS data, as has Washington economist Charles McMillion. Over the last decade, the net new jobs created in the U.S. have nothing to do with multinational corporations. The jobs consist of waitresses and bartenders, health care and social services (largely ambulatory health care), retail clerks, and while the bubble lasted, construction.

These are not the high-tech, high-paying jobs that the “New Economy” promised, and they are not jobs that can be associated with global corporations. Moreover, these domestic service jobs are themselves scarce.

But facts have nothing to do with it. Did Slaughter, Cohen, the Chamber, and the Wall Street Journal ever wonder how it was possible to have simultaneously millions of new good-paying middle class jobs and virtually the worst income inequality in the developed world with all income gains accruing to the mega-rich?

In mid-October Treasury Secretary and Goldman Sachs puppet Tim Geithner gave a speech in California in the backyard, or former backyard, of 60 Minutes’ Silicon Valley dispossessed upper middle class interviewees in which Geithner said that the solution is to “educate more engineers.”

We already have more engineers than we have jobs for them. In a recent poll a Philadelphia marketing and research firm, Twentysomething, found that 85% of recent college graduates planned to move back home with parents. Even if members of the “boomeranger generation” find jobs, the jobs don’t pay enough to support an independent existence.

The financial media is useless. Reporters repeat the lie that the unemployment rate is 9.6%. This is a specially concocted unemployment rate that does not count most of the unemployed. The government’s own more inclusive rate stands at 17%. Statistician John Williams, who counts unemployment the way it is supposed to be counted, finds the unemployment rate to be 22%.

The financial press turns bad news into good news. Recently a monthly gain of 64,000 new private sector jobs was hyped, jobs that were more than offset by the loss in government jobs. Moreover, it takes around 150,000 new jobs each month to keep pace with labor force growth. In other words, 100,000 new jobs each month would be a 50,000 jobs deficit.

The idiocy of the financial press is demonstrated by the following two headlines which appeared on October 19 on the same Bloomberg page:

To keep eyes off of the loss of jobs to offshoring, policymakers and their minions in the financial press blame US unemployment on alleged currency manipulation by China and on the financial crisis. The financial crisis itself is blamed by Republicans on low income Americans who took out mortgages that they could not afford.

In other words, the problem is China and the greedy American poor who tried to live above their means. With this being the American mindset, you can see why nothing can be done to save the economy.

No government will admit its mistakes, especially when it can blame foreigners. China is being made the scapegoat for American failure. An entire industry has grown up that points its finger at China and away from 20 years of corporate offshoring of US jobs and 9 years of expensive and pointless US wars.

“Currency manipulation” is the charge. However, the purpose of the Chinese peg to the US dollar is not currency manipulation. When the Chinese government decided to take its broken communist economy into a market economy, the government understood that it needed foreign confidence in its currency. It achieved that by pegging its currency to the dollar, signaling that China’s money was as sound as the US dollar. At that time, China, of course, could not credibly give its currency a higher dollar value.

As time has passed, the irresponsible and foolish policies of the US have eroded the dollar’s value, and as the Chinese currency is pegged to the dollar, its value has moved down with the dollar. The Chinese have not manipulated the peg in order to make their currency less valuable.

To the contrary, when I was in China in 2006, the exchange rate was a little more than 8 yuan to the dollar. Today it is 6.6 yuan to the dollar--a 17.5% revaluation of the yuan.

The US government blames the US trade deficit with China on an undervalued Chinese currency. However, the Chinese currency has risen 17.5% against the dollar since 2006, but the US trade deficit with China has not declined.

The major cause of the US trade deficit with China is “globalism” or the practice, enforced by Wall Street and Wal-Mart, of US corporations offshoring their production for US markets to China in order to improve the bottom line by lowering labor costs. Most of the tariffs that the congressional idiots want to put on “Chinese” imports would, therefore, fall on the offshored production of US corporations. When these American brand goods, such as Apple computers, are brought to US markets, they enter the US as imports. Thus, the tariffs will be applied to US corporate offshored output as well as to the exports of Chinese companies to the US.

The correct conclusion is that the US trade deficit with China is the result of “globalism” or jobs offshoring, not Chinese currency manipulation.

An important point always overlooked is that the US is dependent on China for many manufactured products including high technology products that are no longer produced in the US. Revaluation of the Chinese currency would raise the dollar price of these products in the US. The greater the revaluation, the greater the price rise. The impact on already declining US living standards would be dramatic.

When US policymakers argue that the solution to America’s problems is a stronger Chinese currency, they are yet again putting the burden of adjustment on the out-of-work, indebted, and foreclosed American population.

Lol, and I noticed all the data and support you provided to support your sweeping claims. You certainly produced one of the more non-sensical comments of recent days. Dude, for highly skilled work such as that substantiated in my #29, the salaries are a large portion of the cost.

Now, think hard, what do you think would be the main costs of an engineering consulting firm, or an accounting/tax preparation firm, or a team of radiologists who read Xrays transmitted from afar?

"All good comments, but still, if the mechanization was replacing as many workers as some here think, it would soon become more feasible to move some of this highly mechanized work to the areas where most of it would be sold."

You forgot the main problem. If it were Just about hourly wage costs Then yes your assumption would be close to truth BUT leaving out that one huge factor invalidates the premise of which you speak.

That one thing you left out is the unfunded mandates that US Businesses have to endure from the Federal, State and Local governments. Not to mention the kickbacks and political back dealing they must engage in just to open a business.

"Labor costs can be quantified, and the savings are immense."

They are not really immense, once you account for them properly.

Suppose you, an American worker produce 10 gadgets and are paid $10/hour. A Chinese worker is paid $90c and produces 1 gadget per hour. The salary difference is immense: $10 vs. $0.9. But how much cheaper is the Chinese worker? By how much should your salary fall for the employer to break even? Well, the cost of one gadget is $1 vs. 90c. Thus, the Chinese worker in this example is only 10% cheaper.

That is not the whole story. In economics and finance, cash flows, profits and costs are evaluated not only on size but also risk (probability of obtaining them). Until very recently, risk abroad was considerably greater than in the U.S., due to political upheavals, crime, lack of well-functioning courts, etc. Thus, the risk-adjusted differences in labor costs are even smaller than the salaries suggest.

Presently, with our recent turn to socialism, the political instability of the U.S. is considered (by business people) to be quite high, favoring foreign investment. The productivity of our workers is poor due to the lack of proper education, especially in the technical areas. That favors foreigners as well. And, the indirect costs --- those of health-care, pensions, etc. has now skyrocketed here, making our workers even more expensive. The same is true with regard to operational costs as a result of over-regulation. All components of labor costs are thus increasing in this country, pricing our workers out of the market.

This is all our doing, not a natural disaster of some sort. But management is not to blame: they are doing the job that you yourself have hired it to do. The profits that the companies make are not kept in vaults but accrue to the American public (BP, for instance, has 40 million of America shareholders; similar numbers relate to all major corporations --- Goldman Sacks, GE, etc. It's a big secret, even among conservatives, that Wall Street is owned today by the Main Street).

Same here.... There is a REASON it is happening, both in our countries, and due to actions with our trading “partners”.

We need to remedy the situation from both sides. We need to ‘fix’ what is wrong with our country, and at the same time, hold other countries accountable if they give us a raw deal.

Having said that, if we fix what’s wrong in our country, businesses and manufacturers would probably be happy to come back here.

Lol, I’ve been the controller of two different firms, and also worked as a cost accountant. I definitely don’t need your silly lectures on this subject.

And my posts have been totally correct on this subject, particularly as it relates to the outsourcing of skilled, professional work where the salaries of the skilled workers will be the biggest expense in most firms doing this sort of outsourced work. The savings are immense.

And when it comes to unskilled labor, that all depends on how labor intensive it is. The portion of the costs that is labor and any labor overheads would vary significantly depending on the degree of automation. And it is the most labor intensive work that is exported first. Not many shirts and slacks being sewn in the US anymore, and those jobs seldom paid over $10.00 in the US.

And in that case, I knew of many sewing plants that employed 300 or more. Real significant saving to cut costs from around $10.00 per hour to less than $1.00, 2,080 hours per year for 300 employees.

And yes, the savings are still immense when the costs can be reduced to little more than 5% of what total labors costs were in a more affluent nation.

Yes, the big government bugaboo is often mentioned, but never quantified at all. You can't just throw that on every example and say that's the controlling factor. Maybe they exist, but I've never seen anyone present, or link a study that shows how much more it costs some specific type business to operate in the US as opposed to some foreign nation.

This is getting as bad the leftists yelling racism. There needs to some specifics attached to some real examples. It's a factor, but no one ever presents evidence to show just how significant a factor it is. And, as I asked in another comment. Do you really want the US to have the same environmental and workplace standards as China?

"Lol, I’ve been the controller of two different firms, and also worked as a cost accountant."

Oh, the age-old "argument:" I have nothing to say on substance, so let me appeal to authority. You personify the problem with American education: it does not even occur to you that appeal to authority is a logical fallacy and was known as such in Ancient Rome.

But even your appeal to authority fails: accountants are notorious for confusing accounting and economic costs.

Your "authority" is weakened further by your defensiveness which only proves that you know that you don't know. If you don't need my "lectures" and deem them as "silly" --- with not a hint, of course, on what makes them such --- why do you make mistakes for which I would fail a sophomore on a mid-term exam? Why is it that you not only fail to account properly for certain classes of costs but demonstrate no awareness that such classes even exist?

Well, I've tried. But nobody can help the one who refuses to think.

Since you find my post silly, I shall not write to you any more but be glad to do so again when you mature a bit and acquire some basic manners.

Have a good night.

“Only those who simply don’t think about it still demand “no outsourcing!” It’s not jobs shipped overseas, it’s jobs replaced with machines and automation. More jobs are lost to robotics and automation than to overseas competitors.”

This may be true for manufacturing jobs, but the financial jobs outsourced (mainly from the northeast) to Asia are never coming back. Many people who made a lot of money building the “information superhighway” are now upset that it works. India has a growing middle class that works all hours of the night, answering phones and emails during our “9 to 5” workday; these were jobs Americans used to have, and they are never coming back. Back office accounting functions? financial trades? all to Asia, never to return.

“Many of the jobs now being outsourced are highly skilled jobs, including all sorts of skilled jobs in the computer and software industries, engineering jobs, accounting and tax preparation, radiologists, draftsmen, and any other sort of skilled work that can be performed and transmitted back and forth via modern communications systems.”

Absolutely right; the blue-collar jobs went first, and now technology permits the outsourcing of the white-collar jobs. I don’t know how you convince someone to invest the time & money in a college degree anymore; as soon as any skill set can demand a decent salary, forces are at work to find a way to get it done overseas. You can’t outsource vehicle mechanics, electricians, plumbers, etc.; they have to be here “on the ground”.

“either way, the US living standards will fall.”

You say “already declining”; our standard of living is falling more quickly than people realize. More people are buying sub-par products rather than name-brand (see Q-tips as a perfect case in point), home ownership is up in smoke, as is “new car” ownership for most people, and savings have been depleted. The “new normal” (rock bottom) hasn’t been reached yet. Look for higher unemployment, lower birth rates, and the rapid depopulation of the costliest areas of the country (already happening here in NJ).

"Maybe they exist, but I've never seen anyone present, or link a study that shows how much more it costs some specific type business to operate in the US as opposed to some foreign nation."

Hahahah OK, I can't believe you are serious but what the hell. I love it when I can drag a skeptic into the land of reality we business owners deal with every day!

This is from a report prepared by the SBA from 2004:

"The annual cost of federal regulations in the United States increased to more than $1.1 trillion in 2004. Had every household received a bill for an equal share, each would have owed $10,172, an amount that exceeds what the average American household spent on health care in 2004 (slightly under $9,000). While all citizens and businesses of course pay some portion of these costs, the distribution of the burden of regulations is quite uneven. The portion of regulatory costs that falls initially on businesses was $5,633 per employee in 2004, a 4.1 percent cost increase since 2000 after adjusting for inflation. Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations, as they did in the mid-1990s and in 2000. Small businesses face an annual regulatory cost of $7,647 per employee, which is 45 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).."

The number 1.1 Trillion should leap out at you...

Further understand this is a 2004 work. This doesn't include Obamacare and, is 6 years old now. Do you honestly think China or Mexico even comes CLOSE (we will call close one tenth of one percent)to the same costs per worker as what the US demands in compliance?

One more time: 1.1 TRILLION and that is without Obamacare!

BTW this is what the government grudgingly ADMITS.

Here is the link: http://www.sba.gov/advo/research/rs264tot.pdf

Any questions?

This is a very old article. China wasted her stimulus by proclaiming 8 percent growth. The lower level officials did it by taking the money and have people employed building empty apartments and malls. The Chicoms know they blew it, but the good news for them is they still have a surplus and probably plan not to repeat the same mistake. They also have taken action to cool down the heated real estate bubble by raising interest rates. They also anticipate US QE making their dollar deonominated T bills less valuable in the future, thus they chose to buy only short term US bills as the old long term bills mature. China has shifted to gold and silver, secured and stockpiled her raw materials for the coming devalued dollar induced inflation of commodity prices. They are already making moves. Problem with China is corruption and official abuse that may trigger civil unrest. Ceding power to people is hard for authoritarian regimes to do. But, I think they have a more firm handle on their economy then one in the US would think. Remember, unemployment in the US means Congress will just extend unemployment benefits and the Fed will create money from thin air to finance it. In China high unemployment can lead to revolt (there are no safety nets) and death to the ones in charge. I think given what is at stake the Chicom leadership is a lot motivated to keep tabs on their economy and make necessary policies accordingly then our politicians. The other hidden strength of China is her citizens have a high savings rate. Very little cash is spent because the low valued yuan makes foreign goods expensive except for the top 10 percent urban dwellers. If China decides to increase the value of the yuan, the Chinese consumer may be in position to use their stronger currency to buy foreign goods (prices will drop due to better exchange rate). Before everyone jumps for joy at the prospect of selling their exports, China will use this consumer market as leverage for foreign favors. You want to make money on Chinese consumers armed with stronger Yuan, what has your nation done for us lately. US not so fast, stop arms sales to Taiwan and you will make money selling exports to Chinese consumers. We can always buy from Korea, EU, Latin America and etc. That is how the Chinese will play it. They do not let private corporations concentrate on selling and ignore the fact that it may enrich China’s detractors of her foreign policy objectives. Only the US is stupid enough enrich her strategic competitors, and unemploy her own workers at the same time. To add more insult to injury the US corporations dump the unemployment costs unto the working taxpayers and we have a government dumb enough to increase taxes and print money to finance this diseaster.

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