American Economy: R.I.P.

[See also:

National Data, Immigrant Displacement Of American
Workers Booms Amid The Job Bust


Edwin S. Rubenstein

The US economy continues its slow death before our eyes,
but economists, policymakers, and most of the public are
blind to the tottering fabled land of opportunity.

August jobs in goods-producing industries declined by
64,000. The US economy lost 4,000 jobs overall. The
private sector created a mere 24,000 jobs, all of which
could be attributed to the 24,100 new jobs for
waitresses and bartenders, and the government sector
lost 28,000 jobs.

the 21st century the US economy has ceased to create
jobs in export industries and in industries that compete
with imports. US job growth has been confined to
domestic services, principally to food services and
drinking places (waitresses and bartenders), private
education and health services (ambulatory health care
and hospital orderlies), and construction (which now has
tanked). The lack of job growth in higher-productivity,
higher-paid occupations associated with the American
middle and upper middle classes will eventually kill the
US consumer market.

The unemployment rate held steady, but that is because
340,000 Americans unable to find jobs dropped out of the
labor force in August. The US measures unemployment only
among the active work force, which includes those
seeking jobs. Those who are discouraged and have given
up are not counted as unemployed.

With goods producing industries in long-term decline as
more and more production of US firms is moved offshore,
the engineering professions are in decline. Managerial
jobs are primarily confined to retail trade and
financial services.

Franchises and chains have curtailed opportunities for
independent family businesses, and the US government`s
open borders policy denies unskilled jobs to the
displaced members of the middle class.

When US companies offshore their production for US
markets, the consequences for the US economy are highly
detrimental. One consequence is that foreign labor is
substituted for US labor, resulting in a shriveling of
career opportunities and income growth in the US.
Another is that US Gross Domestic Product is turned into
imports. By turning US brand names into imports,
offshoring has a double whammy on the US trade deficit.
Simultaneously, imports rise by the amount of

offshored production,
and the supply of exportable
manufactured goods declines by the same amount.

The US now has a trade deficit with every part of the
world. In 2006 (the latest annual data), the US had a
trade deficit totaling $838,271,000,000.

The US trade deficit with Europe was $142,538,000,000.
With Canada the deficit was $75,085,000,000. With Latin
America it was $112,579,000,000 (of which
$67,303,000,000 was with Mexico). The deficit with Asia
and Pacific was $409,765,000,000 (of which
$233,087,000,000 was with China and $90,966,000,000 was
with Japan). With the Middle East the deficit was
$36,112,000,000, and with Africa the US trade deficit
was $62,192,000,000.

Public worry for three decades about the US oil deficit
has created a false impression among Americans that a
self-sufficient America is impaired only by dependence
on Middle East oil. The fact of the matter is that the
total US deficit with OPEC, an organization that
includes as many countries outside the Middle East as
within it, is $106,260,000,000, or about one-eighth of
the annual US trade deficit.

Moreover, the US gets most of its oil from outside the
Middle East, and the US trade deficit reflects this
fact. The US deficit with Nigeria, Mexico, and Venezuela
is 3.3 times larger than the US trade deficit with the
Middle East despite the fact that the US sells more to
Venezuela and 18 times more to Mexico than it does to
Saudi Arabia.

What is striking about US dependency on imports is that
it is practically across the board. Americans are
dependent on imports of foreign foods, feeds, and
beverages in the amount of $8,975,000,000.

Americans are dependent on imports of foreign Industrial
supplies and materials in the amount of
$326,459,000,000—more than three times US dependency on

Americans can no longer provide their own
transportation. They are dependent on imports of
automotive vehicles, parts, and engines in the amount of
$149,499,000,000, or 1.5 times greater than the US
dependency on OPEC.

addition to the automobile dependency, Americans are 3.4
times more dependent on imports of manufactured consumer
durable and nondurable goods than they are on OPEC.
Americans no longer can produce their own clothes,
shoes, or household appliances and have a trade deficit
in consumer manufactured goods in the amount of

The US “superpower” even has a deficit in capital
goods, including machinery, electric generating
machinery, machine tools, computers, and
telecommunications equipment.

What does it mean that the US has a $800 billion trade

means that Americans are consuming $800 billion more
than they are producing.

How do Americans pay for it?

They pay for it by giving up ownership of existing
assets—stocks, bonds, companies, real estate,
commodities. America used to be a creditor nation. Now
America is a debtor nation. Foreigners own $2.5 trillion
more of American assets than Americans own of foreign
assets. When foreigners acquire ownership of US assets,
they also acquire ownership of the future income streams
that the assets produce. More income shifts away from

How long can Americans consume more than they can

American over-consumption can continue for as long as
Americans can find ways to go deeper in personal debt in
order to finance their consumption and for as long as
the US dollar can remain the world reserve currency.

The 21st century has brought Americans (with the
exception of CEOs, hedge fund managers and investment
bankers) no growth in real median household income.
Americans have increased their consumption by dropping
their saving rate to the depression level of 1933 when
there was massive unemployment and by spending their
home equity and running up

credit card bills.
The ability of a population,
severely impacted by the loss of good jobs to foreigners
as a result of offshoring and H-1B work visas and by the
bursting of the housing bubble, to continue to
accumulate more personal debt is limited to say the

Foreigners accept US dollars in exchange for their real
goods and services, because dollars can be used to
settle every country`s international accounts. By
running a trade deficit, the US insures the financing of
its government budget deficit as the surplus dollars in
foreign hands are invested in US Treasuries and other
dollar-denominated assets.

The ability of the US dollar to retain its reserve
currency status is eroding due to the continuous
increases in US budget and trade deficits. Today the
world is literally flooded with dollars. In attempts to
reduce the rate at which they are accumulating dollars,
foreign governments and investors are diversifying into
other traded currencies. As a result, the dollar prices
of the Euro, UK pound, Canadian dollar, Thai baht, and
other currencies have been bid up. In the 21st century,
the US dollar has declined about 33 percent against
other currencies. The US dollar remains the reserve
currency primarily due to habit and the lack of a clear

The data used in this article is freely available. It
can be found at two official US government sites:

Bureau of Economic Analysis: U.S. International
Transactions Accounts Data

Bureau of Labor Statistics. Employees on nonfarm
payrolls by industry sector and selected industry

The jobs data and the absence of growth in real income
for most of the population are inconsistent with reports
of US GDP and productivity growth. Economists take for
granted that the work force is paid in keeping with its
productivity. A rise in productivity thus translates
into a rise in real incomes of workers. Yet, we have had
years of reported strong productivity growth but
stagnant or declining household incomes. And somehow the
GDP is rising, but not the incomes of the work force.

Something is wrong here. Either the data indicating
productivity and GDP growth are wrong or Karl Marx was
right that capitalism works to

concentrate income in the hands of the few capitalists.

A case can be made for both explanations.

Recently an economist, Susan Houseman, discovered that
the reliability of some US economics statistics has been
impaired by offshoring. Houseman found that cost
reductions achieved by US firms shifting production
offshore are being miscounted as GDP growth in the US
and that productivity gains achieved by US firms when
they move design, research, and development offshore are
showing up as increases in US productivity. Obviously,
production and productivity that occur abroad are not
part of the US domestic economy.

Houseman`s discovery rated a Business Week cover
story last June 18, [The
Real Cost Of Offshoring
by Michael Mandel] but
her important discovery seems already to have gone down
the memory hole. The economics profession has

itself to the “benefits” of
offshoring, globalism, and the non-existent New
Houseman`s discovery is too much of a
threat to economists` human capital, corporate research
grants, and free market ideology.

The media has likewise let the story go, because in the
1990s the Clinton administration and Congress overturned
US policy in favor of a diverse and independent media
and permitted a few mega-corporations to concentrate in
their hands the ownership of the US media, which reports
in keeping with corporate and government interests.

The case for Marx is that offshoring has boosted
corporate earnings by lowering labor costs, thereby
concentrating income growth in the hands of the owners
and managers of capital.

According to Forbes magazine, the top 20 earners
among private equity and hedge fund managers are earning
average yearly compensation of $657,500,000, with four
actually earning more than $1 billion annually. The
otherwise excessive $36,400,000 average annual pay of
the 20 top earners among CEOs of publicly-held companies
looks paltry by comparison.

The careers and financial prospects of many Americans
were destroyed to achieve these lofty earnings for the

Hubris prevents realization that Americans are losing
their economic future along with their civil liberties
and are on the verge of enserfment.



Paul Craig Roberts

] was Assistant
Secretary of the Treasury in the Reagan Administration.
He is the author of

Supply-Side Revolution : An Insider`s Account of
Policymaking in Washington
and the Soviet Economy

Meltdown: Inside the Soviet Economy
and 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
. Click

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