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
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%
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
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
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
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
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
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
Globalism has hijacked the American
consumer and uses him to drive the
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
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
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
The next president will bear the
twin costs of globalism and the Iraq invasion.
And so will you and I.
Paul Craig Roberts is the author with Lawrence M.
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name