Reality Catching Up With Trade Ideologues

American delusion about the job outlook and the future of the US economy is second only to delusion about American success in Iraq.

According to Dr. Charles W. McMillion, president of MBG Information Services, the latest trade report from the Census Bureau shows that the US consumed $51.2 billion more goods than it produced in March. The trade deficit is running $1.65 billion per day. The first quarter trade deficit worsened by another 8%, and the deficit in manufacturing goods worsened by 10%.

Looking for US trade muscle in the 82 individual items is even more discouraging. The US has surpluses in only 28 (34%) of the 82 trade categories.

Twelve (43%) of these surplus categories consist of agricultural products, scrap metal, and pulp and waste paper.

The total US first quarter trade surplus from the 28 surplus categories is $23.4 billion--a figure smaller than the US first quarter deficit in vehicles, smaller than the quarter's deficit in crude oil, and smaller than the quarter's deficit in clothing plus ADP equipment and office machines.

During the 1980s the US trade deficit in goods and services rose and fell with the dollar. Since 1991, however, the US deficit has worsened continuously and is now three times the peak deficit of the 1980s.

There is no prospect of trade closing the gap. Once only energy-dependent, the US is now dependent on foreign countries for its clothes, shoes, electrical machinery, general industrial machinery, metal manufacturing, iron & steel mill products, vehicles, office machines, TVs & VCRs, and so on and on.

Apologists for the destruction of American industrial power said not to worry; "knowledge jobs" in the "new economy" would provide employment in the future, and exports of high-tech services would pay for our imported consumption of "old economy" manufactures. They were wrong. The outsourcing of knowledge jobs is proceeding even more rapidly than the outsourcing of manufacturing.

The last two years have seen startling declines in American higher education enrollments in electrical and computer engineering as American youth looks to nontradable domestic services for employment stability.

The more the payroll jobs numbers show US employment growth to be restricted to nontradable domestic services, and the more the Bureau of Labor Statistics restricts its forecasts of future occupational growth to nontradable domestic services, the more ideologues and hirelings of global corporations preach that Americans are benefiting from outsourcing.

On May 13 a Federal Reserve economist, a graphic designer and an economics writer teamed up to produce a chart in the New York Times. Supposedly, the graphically designed chart shows that as the US economy loses its goods-producing jobs and export capability, it is moving from an outmoded muscle-power, manual-dexterity, routine work economy into a new age economy characterized by analytic reasoning, imagination, creativity and emotional intelligence. [Where the Jobs Are  Chart By W. Michael Cox, Richard Alm And Nigel Holmes]

The authors of this propagandistic chart do not realize the joke they have played on themselves. Their chart shows that the greatest job growth in the last decade was in "financial services sales," followed by "legal assistants," and "actors and directors."

Is the US going to balance its enormous trade deficit by exporting Hollywood's sex and violence, tort lawyers' law suits, and US financial products?

The chart's authors tout the "rise of employment for hair stylists and cosmetologists" as the future for American "imagination and creativity."

The cumulative evidence of the past several years is unambiguous: US job growth is concentrated in low-pay, hands-on domestic services.

It is not concentrated in tradable goods and services.

If the outsourcing of knowledge jobs continues at its current pace, the US will soon have a deficit in services.

The US surplus in services peaked in 1997. From 1997-2003 US exports of services increased by 19%. Imports of services grew by 49%, and the US surplus in tradable services declined by 35%. Service imports have increased from 64% of US service exports in 1997 to 81% in 2003. As the US deficit in traded goods grows, the US surplus in traded services shrinks.

Will the ideologues ever see the writing on the wall?

Free-market reassurances that the US is winning from free trade will come back to haunt those who so cavalierly ignore the facts, no less than the neocon promise of an Iraqi "cakewalk" to freedom and democracy is haunting the Bush administration.

In the end, as the powerful Communist Party of the Soviet Union learned, reality, not ideological commitment, carries the day.

COPYRIGHT CREATORS SYNDICATE, INC.

Paul Craig Roberts was Associate Editor of the WSJ editorial page, 1978-80, and columnist for "Political Economy." During 1981-82 he was Assistant Secretary of the Treasury for Economic Policy. He is the author of Supply-Side Revolution: An Insider's Account of Policymaking in Washington.