New Economy: Was It All Hype?

Was the “new economy” merely hype designed to sell
overpriced stocks and globalism? Many Americans think
so. “Do something about it,” their e-mail
missives urge.

That so many Americans still believe that the pen
retains its power in our corrupt society governed by
organized interest groups indicates a refreshing lack of
cynicism. But there is frustration, too, on the part of
many Americans, who believe fellow citizens are
impervious to the connection between globalism and
declining job opportunities and income growth in the
U.S. The following paragraph, which has made its way

around the Internet
, sums up the frustration:

Joe Smith started the day
early having set his alarm clock (made in China) for 6
a.m. While his coffeepot (made in China) was perking, he
shaved with his electric razor (made in Hong Kong). He
put on a shirt (made in Sri Lanka), designer jeans (made
in Singapore) and tennis shoes (made in Korea). After
cooking his breakfast in his electric skillet (made in
India), he sat down with his calculator (made in

) to check his budget for the day. After
setting his watch (made in Taiwan) to the radio (made in
India) he got in his car (made in Japan) and continued
his search for an AMERICAN job. At the end of yet
another discouraging and fruitless day, Joe decided to
relax. He put on his sandals (made in Brazil), poured
himself a glass of wine (made in Chile), turned on his
TV (made in Indonesia) and wondered why he cannot find a
job in America.

U.S. communities are losing manufacturing jobs.
Americans who used to make things for a living now have
part time jobs at

selling things made abroad. Taught not to
worry by “new economy” reassurances, Americans have
maintained their consumption by taking the equity out of
their homes with refinancings. In the past five years
mortgage debt has risen by 55 percent. Total personal
debt now stands at 100 percent of personal income. The
U.S. has made the transition from the accumulation of
wealth to the consumption of wealth.

What is true for the individual in this case is also
true for the country. Massive U.S. trade deficits are
being financed by giving foreigners our assets. Every
day we hand over to foreigners another billion dollars
in Treasury bonds, corporate bonds, real estate, and
corporate equities.

When we hand over our assets to pay for our
consumption of manufactured goods, we also hand over the
incomes that these assets produce. The interest incomes
from Treasury and corporate bonds, the profits,
dividends and capital gains from equity ownership, and
the rents and capital gains from real estate pass from
American hands to Chinese, Japanese, and other hands.
Thus, Americans are not only losing the incomes
associated with the production of the goods they
consume, but also the incomes from the assets that they
no longer control.

When I attempt to discuss this issue with my fellow
economists, they cite the case for free trade that Adam
Smith made two and one-quarter centuries ago and accuse
me of being in the pay of corporate protectionists who
want to gouge consumers with high prices.

These responses tell me that free traders have ceased
to think. First of all, there are no corporate
protectionists. Corporations oppose protection, because
tariffs and quotas would reduce or eliminate the gains
to their bottom lines from their use of inexpensive
foreign labor to manufacture goods for the American
market. High- and low-tech U.S. firms are not moving to
Asia because the U.S. government refuses to protect
their American markets. They are moving their plants to
Asia because they can drive up their earnings by hiring
efficient Asian labor at a lower price per week than
Americans demand per hour.

Second, Adam Smith directed his free trade argument
against the belief that countries should be
self-sufficient and produce all of their own needs.
Smith said that incomes would be higher in every country
if each specialized in areas where they were most
capable and satisfied demands for other goods by

Smith said that the British should not subsidize the
production of wine and perfume with tariffs, but should
concentrate where the British had advantage and trade
with the French for wine and perfume. Smith did not say
that British industry should relocate abroad and use
cheap foreign labor to produce for their home markets.


to work, there needs to a single currency
and a single tax system–a one world political system.
Trade between countries is not like trade within a
country. Trade between countries involves different
currencies whose values change if there are persistent
trade deficits or surpluses. A country that runs up a
large trade imbalance due to its importation of cheap
manufactured goods suddenly finds the goods are no
longer cheap when the value of its

declines. The companies that

to benefit from cheap labor suddenly find
their profits impacted when the currency in their home
market devalues.  

For the U.S., globalism has meant outsourcing. U.S.
manufacturers use Chinese labor to produce goods for the
American market. American firms locate their clerical
and backoffice operations in India, and so on. When
these goods and services flow back into the U.S., they
arrive as imports. The U.S. is not building up
manufacturing sectors, agricultural sectors or service
sectors capable of restoring balance between imports and

There is nothing to bring the massive trade imbalance
into balance except currency collapse. As fewer and
fewer things are actually produced in the U.S., even
dollar collapse cannot spur exports sufficiently to pay
for our import dependence. The U.S. is being reduced to
indebted third world status, a country that retails
foreign made goods.

Recently I

if the U.S. would be a third world country in
20 years. Many e-mails arrived from Americans saying
that their communities had already been reduced to third
world status by the loss of jobs and the arrival of

third world refugees
and immigrants. They said I was
optimistic to believe that the U.S. had 20 years left as
a superpower.

Who is right, the American people who are
experiencing globalism and its effects or Washingtonians
who hide behind theories while our country is sold?

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

for Peter
Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.