US Invades Iraq; Cheap Labor Invades US; Economy Suffers


Is President Bush focused on Iraq
because he doesn`t know what to do about the economy?
The Federal Reserve has cut interest rates dramatically,
but there are (as of July) 116,000 fewer jobs now than
eight months ago when the recovery supposedly began.

The phenomenon of losing jobs
during economic recovery marked the 1991 recovery when
job loss continued 13 months into the recovery.

Business profits are
disproportionately affected by recession. Job losses
during the last two recoveries suggest that profits are
recovering less quickly. Globalism might explain the
stress on profits. The world is a different place today
from 20 years ago when socialism smothered most of the
earth, leaving the U.S. as the only efficient producer.

Today the U.S. economy is no longer
protected by socialism`s failures. The U.S. is even
losing agricultural markets, and U.S. multinational
corporations rely heavily on foreign earnings for their
profits. The mobility of capital and technology is
sending U.S. high-tech jobs to third world countries.
With cheap skilled labor, China is becoming a favorite
location for U.S. manufacturers.

In a word, the U.S. now exports

manufacturing, engineering, and research and development
jobs abroad
, where these jobs are filled by foreign
nationals who produce for the U.S. market. The goods are
still sold in the U.S., but the incomes associated with
their production belong to foreigners.

In manufactured goods, the U.S.
trade deficit is currently running at a $350 billion
annual rate.

Trade enthusiasts
often emphasize that every $1
billion in U.S. exports means 10,000 U.S. manufacturing
jobs. In 2001 U.S. manufactured exports totaled $640
billion, enabling trade enthusiasts to claim that free
trade brought the U.S. 6.4 million jobs.

This rule of thumb might well be
true. However, it has another side. In 2001 we imported
$951 billion in manufactured goods, which means an
equivalent job loss of 9.5 million jobs. In 2001 the net
effect of free trade was a loss of 3.1 million U.S.
manufacturing jobs. In 2002 the level of manufacturing
job loss has risen to 3.5 million, an increase over last
year of 400,000.

The loss of high productivity jobs
means less income growth in the U.S., which in turn
means sluggish recoveries, less economic growth and less
upward mobility.

Simultaneously the U.S. is
importing millions of poor

non-English speaking
immigrants each year. These
immigrants hold down

per capita income growth
in the

low-tech areas
of the U.S. economy.

By exporting well-paying jobs and
importing

poor people
, the U.S. is eroding per capita income
growth. As the consumer sector accounts for two-thirds
of the economy and is deeply in debt, how can there be a
strong recovery?

Business investment needs the spur
of consumer demand which in turn requires income growth.
Low interest rates have helped keep consumer demand
alive through mortgage refinancing. The drop in mortgage
payments has freed money for household spending. But
this is a one time boost. When it plays out, what will
drive consumer demand?

Not more consumer debt unless stock
prices rise, and stock prices need earnings to rise.

And what happens if the hot housing
market turns out to be a bubble as well? Will heavily
indebted households find themselves with negative equity
in their homes?

The U.S. has not played its
economic cards well. Other countries do not provide the
U.S. the same access to their markets as we provide
them. Free trade is largely an illusion. Trade
enthusiasts relying on theory are used as cover by
special interests who benefit from exclusive agreements
and locked-up distribution channels.

The incomes to support the U.S.
share of world consumption are not being generated in
the U.S. Sooner or later this fact will reduce foreign
capital flows to the U.S. and the value of the dollar.

The U.S. feels rich but could
easily become bogged down trying to occupy the Middle
East, while the export of jobs and import of

third world immigrants
tank both the economy and the
American identity.

Paul Craig Roberts is the co-author with Lawrence
M. Stratton of

The Tyranny of Good Intentions: How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice

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