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Globalism, End Of Socialism Causes Of Jobless Recovery
INVESTOR'S BUSINESS DAILY ^ | Friday, August 30, 2002 | BY PAUL CRAIG ROBERTS

Posted on 08/29/2002 9:56:06 PM PDT by sixmil

The Bush administration would benefit from giving a little more thought to the economy and a little less to Iraq.

Concerns already existed over the economy having 116,000 fewer jobs as of July than eight months ago, when the recovery supposedly began. Now there might be indications that the economy softened in mid-July and has been contracting for the past four weeks.

Continuing job losses well into a recovery marked the 1991 recovery. This phenomenon suggests that profits are recovering less quickly. Globalism and the demise of socialism are part of the explanation.

For decades U.S. producers were protected from competition by world socialism. But with privatizations in the U.K. and France in the 1980s, the demise of the Soviet empire, reforms in Latin America and China's "capitalist road," globalism has brought increased pressure on U.S.-generated profits. Many U.S. multinationals owe the bulk of their profits to their foreign operations.

Capital Mobility

An economy's success is dependent on its ability to produce per capita income growth. Per capita income growth in the U.S. is under attack from two factors: The U.S. exports high-productivity jobs and imports low-productivity people.

The advent of globalism means that capital and technology are mobile. Mobile capital and management seek low-cost skilled labor, and have found it in China. A long list of American high-tech companies have relocated manufacturing, engineering, research and development jobs to China.

The export of high-productivity jobs means that foreign nationals abroad earn the incomes from producing goods sold by U.S. companies in U.S. markets. Policy-makers and trade enthusiasts assume that this is a rosy development, because it means lower prices for consumers and holds down inflation. They ignore the other side of the equation: lower growth in per capita incomes from the loss of high-productivity jobs.

Simultaneously, the U.S. imports millions of poor non-English-speaking immigrants each year. These immigrants hold down per capita income growth in the retail, construction and low-tech sectors of the economy.

Consumer Demand Lives

By encouraging the export of high-paying jobs and the import of poor people, policy-makers have eroded long-term growth in U.S. per capita incomes. The consumer sector accounts for two-thirds of the economy and is deeply in debt. How can there be a strong recovery?

Low interest rates have kept consumer demand alive through mortgage refinancing, which frees money for household spending. When this one-time boost plays out, what will drive consumer demand?

More consumer debt requires a rise in stock prices and household wealth. Business investment requires profits and consumer demand. With U.S. multinationals improving their bottom lines by chasing lowest-factor cost abroad, the incomes needed to drive the U.S. economy are not being generated in America.

The export of jobs is rationalized as "free trade." But no trade is involved in the export of U.S. jobs. Chinese firms sell the U.S. goods made with Chinese labor, and U.S. firms sell U.S. goods made with Chinese labor. The U.S. capital and technology that employ Chinese labor are relocated to China by U.S. firms, not exported to China.

Trade enthusiasts stress that every $1 billion in U.S. manufactured exports means 10,000 U.S. jobs. Last year the U.S. exported $640 billion in manufactured goods - thus the claim that the U.S. is dependent on trade for 6.4 million jobs.

Trade enthusiasts neglect the other side of their rule of thumb. Last year the U.S. imported $951 billion in manufactured goods - a loss of 9.5 million jobs. The net effect of trade in manufactured goods is a loss of 3.1 million U.S. jobs.

In 2002, the U.S. trade deficit in manufactured goods is running at a $350 billion annual rate, which translates into an increase in manufacturing job loss of 400,000.

The income growth needed to drive the U.S. economy cannot come from exporting manufacturing jobs and replacing the jobs with retail clerk jobs selling foreign-made goods.

Stock Market, Economy Split

The future could see a split of the stock market from the economy. U.S. multinationals can generate income on foreign operations, but the associated wage and salary incomes accrue to foreign nationals and do not flow through to Americans.

The U.S. has played its economic cards carelessly. The incomes to support the U.S. share of world consumption are no longer being generated in the U.S. Sooner or later this fact will reduce foreign capital flow to the U.S. and the value of the dollar. The redistribution of income that the Third World has been demanding from the First World is taking place as China gains American incomes.

Paul Craig Roberts was assistant secretary of the Treasury for President Reagan.


TOPICS: Business/Economy; Editorial
KEYWORDS:
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Sounds like free traitors have a new enemy - Paul Craig Roberts.
1 posted on 08/29/2002 9:56:06 PM PDT by sixmil
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To: sixmil
So anyone who doesn't share the brigadier's economic ideology is a traitor?
2 posted on 08/29/2002 10:05:04 PM PDT by Dat
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To: Dat
So anyone who doesn't share the brigadier's economic ideology is a traitor?

Aw come on, it's just a fun name.

3 posted on 08/29/2002 10:17:17 PM PDT by sixmil
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To: sixmil
it's just a fun name.

Unless one belongs to the unfortunate 3.1 million whose jobs were exported. The accuracy of your quip may haunt us for generations.

4 posted on 08/29/2002 10:27:59 PM PDT by meadsjn
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To: sixmil
Roberts is getting it right. Amen.
5 posted on 08/29/2002 10:33:03 PM PDT by RLK
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To: sixmil
The Bush administration would benefit from giving a little more thought to the economy and a little less to Iraq.

-----------------

Bush's daddy did the same thing. As the economy deteriorated he bombed the ragheads. That was the only thing he understood.

6 posted on 08/29/2002 10:34:52 PM PDT by RLK
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To: meadsjn
Unless one belongs to the unfortunate 3.1 million whose jobs were exported. The accuracy of your quip may haunt us for generations.

----------------------------

Nobody cares about the millions who lose jobs except the millions who lose jobs. Certainly, it isn't a reality to some of the spoiled kids who hang around here.

7 posted on 08/29/2002 10:37:47 PM PDT by RLK
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To: sixmil
By encouraging the export of high-paying jobs and the import of poor people, policy-makers have eroded long-term growth in U.S. per capita incomes

These policies have also caused inflation to be lower than it would otherwise be and low inflation is important in preserving the purchasing power of per capita income. Further, low inflation keeps interest rates low. Finally the real killer of the US economy is high taxes. Reducing taxes (and govt. spending) would increase after tax per capita income and the govt. spending could be redirected to revitalizing american industry. Govt. with its 2.3 trillion dollar budget (this does not include state and local govt.) is a much worse enemy of the American people than a measley 400 billion trade deficit.

8 posted on 08/29/2002 10:39:16 PM PDT by staytrue
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To: sixmil
>An economy's success is dependent on its ability to produce per capita income growth. Per capita income growth in the U.S. is under attack from two factors: The U.S. exports high-productivity jobs and imports low-productivity people.

There is so much wisdom here its hard to begin. The wealth in the US was created by a middle class which could earn and produce as well as spend. This only happens when you keep more than you need for expenses. Governments and companies have been targeting this 'excess' money for themselves. The result will be economic disaster.

9 posted on 08/29/2002 10:39:26 PM PDT by Dialup Llama
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To: staytrue
>>By encouraging the export of high-paying jobs and the import of poor people, policy-makers have eroded long-term growth in U.S. per capita incomes

>These policies have also caused inflation to be lower than it would otherwise be and low inflation is important in preserving the purchasing power of per capita income.

So we go to Wal Mart to buy inferior ersatz goods. Not exactly a good deal. Inflation is not only an increase in prices but a cheapness in goods. We have inflation.

10 posted on 08/29/2002 10:43:08 PM PDT by Dialup Llama
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To: sixmil
The export of jobs is rationalized as "free trade." But no trade is involved in the export of U.S. jobs. Chinese firms sell the U.S. goods made with Chinese labor, and U.S. firms sell U.S. goods made with Chinese labor. The U.S. capital and technology that employ Chinese labor are relocated to China by U.S. firms, not exported to China.

Very important. Read that slowly several times.

11 posted on 08/29/2002 10:46:55 PM PDT by Dialup Llama
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To: Dialup Llama
A net-inporting, service-based economy is comparable to a mining town in which the mine has petered out, and the remaining wealth is circulated as it dwindles -- no new net wealth is generated. Assets are mortgaged or sold to support the daily consumption. Eventually the wealth is concentrated in the hands of the few worst characters in the town. The best analogy for a service-based economy is one based on prostitution and gambling.

12 posted on 08/29/2002 10:51:12 PM PDT by meadsjn
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To: Dialup Llama
Very important. Read that slowly several times.

Many gems in this piece, IBD seems to have had a change of heart lately. I still don't understand why people can not see this. I wish I could articulate it as well as this guy, since it just seems so obvious. I must admit that I was a free traitor until I spent some time overseas observing how it actually works. If we could only view the trade deficit with the same scorn we now seem to have for the budget deficit, I think we would be half way there.

13 posted on 08/29/2002 10:53:00 PM PDT by sixmil
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To: sixmil
"The income growth needed to drive the U.S. economy cannot come from exporting manufacturing jobs and replacing the jobs with retail clerk jobs selling foreign-made goods."

BRAVO! Its about time the truth came out. Free Trade is a miserable failure and is destroying this country one job at a time. What do we do about it? How about get rid of the income tax and replace it with high tariffs and duties (ala the Constitution) on goods entering the USA. Those factories will be back in no time and we can once again produce our own wealth. Globalism is death.

14 posted on 08/29/2002 11:09:25 PM PDT by brat
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To: RLK
It is baffling how that reality escapes so many. Even those who are drawing retirement pay, government salaries, and those otherwise on the dole, are going to be adversely affected. As tax revenues shrink from decreasing income and declining sales, the government will either have to suck more blood out of the remaining workforce and private equity, or cut its spending. Now, which of those options seem more likely?

Even the old adage "what this economy needs is a good war" won't work this time, because the manufacturing boost will mostly benefit those who live where the factories are -- somewhere overseas.

15 posted on 08/29/2002 11:10:50 PM PDT by meadsjn
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To: meadsjn
Even the old adage "what this economy needs is a good war" won't work this time, because the manufacturing boost will mostly benefit those who live where the factories are -- somewhere overseas.

----------------------

This is part of a broader parallel problem. There used to be a process call priming the economic pump. In the present situation giving everybody a thousand dollars would now generate few jobs here because the money would go overseas to buy foreign goods.

16 posted on 08/29/2002 11:21:32 PM PDT by RLK
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To: RLK
Yep. This might be a replay of Hoover, followed by some exciting FDR (or Eleanor) solutions. Wonder who that'll be.
17 posted on 08/29/2002 11:28:12 PM PDT by meadsjn
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To: meadsjn
I expect a severe depression. The problem will be compounded by various forms of ideological commitment which will deny the real reasons for it.

The eventual result will be a turn to Marxism in desperation and confusion. Economic collapse here would be a cause for celebration by the radical left. The left has every reason to celebrate export of industries. Bush, the so-called free traders, and the globalists are pushing the nation into the radical left's hands. Few are inclined to see it.

18 posted on 08/29/2002 11:40:20 PM PDT by RLK
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To: meadsjn; Dat
So anyone who doesn't share the brigadier's economic ideology is a traitor?

Aw come on, it's just a fun name.

Unless one belongs to the unfortunate 3.1 million whose jobs were exported.

You're right, allow me a do-over:

Yes, all free traitors are actually traitors just like feminazis are actually nazis.

19 posted on 08/29/2002 11:41:46 PM PDT by sixmil
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To: Dialup Llama
If you dont have a job, inflation might as well be 1,000%
20 posted on 08/29/2002 11:52:27 PM PDT by operation clinton cleanup
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