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Jobless Recovery Means Lurch To Left
The U.S. continues to lose jobs. Since President 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.
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 that it is even easier to move service jobs abroad. For example, 170,000 computer system design jobs -13 percent of the total - have recently been shifted abroad. Keeping knowledge-based jobs in the U.S. 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 will no longer 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 President Bush's tax cuts cannot bridge the difference between wages and salaries in the U.S. versus those in China and India.
When U.S. companies move their production for U.S. markets offshore, U.S. incomes and GDP decline and foreign income rises. When the offshore production is shipped to the U.S. 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 U.S. 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 U.S., the ability of the U.S. to pay for its imports with exports declines. In the end there is nothing to bring about a balance between U.S. imports and exports except a collapse in the value of the dollar. 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 that President Bush has been in office (Jan. 19, 2001-June 5, 2003), 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.
In the past two years, foreigners' willingness to finance our current account deficit with their direct investment in the U.S. has declined from $335.6 billion in 2000 to $52.6 billion in 2002, a decline 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 that 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 U.S. 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 politically handicap the Republican Party and weaken its resistance to a leftward turn in American politics.
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. Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.
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