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A Colossus With Weak Knees
Job loss at home and failure abroad have already written the script which will sweep away the next administration.
Recession could return by the inauguration before the economy ever regains the jobs lost to the 2001 recession. Second quarter 2004 economic growth came in 20% less than expected. The consumer is showing weakness, and crude oil prices have reached record highs. Personal savings remain low by historical standards.
On August 3 the Bureau of Economic Analysis reported that seasonally adjusted real per capita incomes declined in June to levels below those reached in April. Total personal real spending declined 0.9% in June to the level of last February.
As the Bureau of Labor Statistics made clear in its July 30 report, the US economy is suffering not only from weak job growth but also from a loss of better paying jobs.
Only 65% of the 5.3 million workers who were laid off from long term jobs during the first three years of President Bush's administration were reemployed by January 2004. That means only about 3.5 million of the 5.3 million laid off workers were able to find new jobs during two years of economic recovery.
Of those who found new jobs, 57%--about 2 million workers--took jobs paying less than their previous positions. About 1.2 million of the workers who found new jobs experienced pay cuts of 20% or more.
It is really disturbing that this job loss may have occurred in the absence of a recession. The conventional definition of recession is two consecutive quarters of negative economic growth. However, on July 30 the Bureau of Economic Analysis released the revised GDP data for 2001, and the recession, as conventionally measured, has disappeared. The revised data does not show two consecutive negative quarters, and for 2001 the economy grew 0.8%. Did we experience not only a job loss recovery, but also a job loss nonrecession?
There was no recession in the second quarter of this year, but BLS data show 131,000 fewer American computer software engineers employed in the second quarter than in the first quarter of 2004--a decline of 15% in three months. Employment of computer scientists and systems analysts declined by 51,000 in the second quarter. Employment of computer programmers fell 16,000.
Despite the horrendous job loss, the unemployment rates for software engineers, computer scientists and programmers fell, which suggests that technical professionals are discouraged and have ceased to search for jobs in their occupations.
The decline in high-tech professions in the US is also reflected in the collapse in computer engineering enrollments in America's premier engineering schools. Over the past several years, M.I.T., Georgia Tech, and UC Berkeley have experienced computer engineering enrollment declines of 43%.
More unprecedented bad news comes from the Internal Revenue Service. For the first time ever, the real incomes of Americans shrank for two consecutive years. In 2002 Americans reported 9.2% less income than in 2000.
Part of this decline comes from the erosion of better paying jobs. However, the "rich" also suffered declines. One of every eight who had been earning more than $200,000 fell below that figure in 2002. The ranks of the super rich (adjusted gross income of $10 million or more) were cut in half to 5,280 persons, who together experienced a 63% drop in income.
The US economy has been kept alive by consumers spending their home equity. The low interest rates allow homeowners to carry larger mortgages for lower monthly payments. Consumers have taken equity out of their properties and spent it. The result is a decline in net worth and a rise in debt.
The fuel for the economy provided by home refinancing is used up. So is the money from tax cuts, and the massive federal budget deficit precludes their renewal.
What will provide the next leg of the recovery? Normally, a recovery is driven by the pickup in employment and rise in consumer incomes. Increased consumer spending, in turn, encourages business investment.
This normal cycle has broken down in the current recovery, and the breakdown might be long lasting. US firms have regained competitiveness by moving production and jobs offshore. Increasingly, US multinationals serve their markets at home and abroad from China. More demand for their products means more jobs and investment in China.
The next time you shop in Wal-Mart, look to see where all the US brand names you purchase are made.
You will discover that few are made in the USA.
Economists, policymakers, and CEOs of multinational corporations don't care that outsourcing disconnects domestic sales from domestic production and employment. The Bush tax cut and low interest rate mortgage refinancing have been a boon for Asian economies.
Globalism has hijacked the American consumer and uses him to drive the Chinese economy.
This will take a second bite out of the American worker through higher prices.
Supposedly, the advantage of globalism to American workers is cheaper consumer goods made by cheaper foreign labor. However, China's booming economy, fed by transfers of first world capital, technology and consumer demand, has an enormous appetite for oil, steel and concrete that is driving prices of these essential factors of production higher.
The booming Chinese economy is causing the price of building materials in the US to skyrocket, threatening the US housing boom, the economy's only real strong point.
Even those cheap goods made in China could become unaffordable for many Americans. On July 29 the Bureau of Labor Statistics reported that US wages and salaries did not keep pace with inflation in the second quarter.
The rapidly worsening US trade deficit is on a collision course with the undervalued Chinese currency. A rise in the value of Chinese money will mean higher Wal-Mart prices (or less profits for outsourcers).
During the booming 1990s, the US trade deficit averaged 1.1% of real GDP. Today the trade deficit stands at 5.1% of real GDP. Normally, demand for imports falls during recession, but economist Charles McMillion of MBG Information Services notes that for the first time in US history, the trade deficit actually rose during the 2001 recession (if there was one)--an indication of outsourcing's inroads into the US economy.
Iraq is the other big problem that will destroy the next administration. US occupation forces are impotent in the face of rising violence.
No happy ending is possible for the US.
The next president will bear the twin costs of globalism and the Iraq invasion.
And so will you and I.
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Paul Craig Roberts is the author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice