The Vicious Downward Cycle of the American Economy. By someone who should know.
- From: bromselick@xxxxxxx
- Date: 27 Sep 2005 23:01:44 -0700
Resurrecting Karl Marx --
By PAUL CRAIG ROBERTS*
------------------------------------------
*Paul Craig Roberts has held a number of academic appointments and has
contributed to numerous scholarly publications. He served as Assistant
Secretary of the Treasury in the Reagan administration. His graduate
economics education was at the University of Virginia, the University
of California at Berkeley, and Oxford University. He is coauthor of The
Tyranny of Good Intentions. He can be reached at:
paulcraigroberts@xxxxxxxxx
------------------------------------------
Libertarians and free trade economists don't realize it, but they are
pulling Marx out of his grave.
Free traders are resurrecting class war, not because they are Marxists
but because they confuse free trade with global labor arbitrage. Free
traders turn cold shoulders to US job losses from offshore outsourcing,
because they mistake the losses for the beneficial workings of
comparative advantage. Committed to a 200 year old theory that they no
longer understand, free traders are cheering on the destruction of
middle class jobs and the dismantling of the ladders of upward mobility
that make large income disparities politically acceptable.
The destruction of the stabilizing middle class is occurring
simultaneously with an extraordinary increase in income inequalities.
Not so long ago CEOs were paid 20 times more than the average employee;
now some are paid hundreds of times more. The "gilded age" is returning
while the value of a college degree is declining.
According to the Bureau of Labor Statistics' 10-year jobs forecast, the
majority of US jobs that will be created in the coming decade will be
in domestic services that do not require a college education. This is a
strange job outlook for a high tech economy allegedly benefitting from
free trade. Domestic services are nontradable. The US economy has not
created a net new job in tradable goods and services in the 21st
century.
Free trade economists have forgotten that not all trade reflects the
beneficial workings of comparative advantage. For comparative advantage
to function, a country's capital must stay at home and be allocated to
activities in which the country has comparative advantage. The other
necessary condition is that countries have different internal cost
ratios of producing different goods.
When the principle of comparative advantage was discovered, capital was
mainly kept at home under the watchful eye of the owners and protected
by the country's laws. Tradable commodities were primarily products
influenced by climate and geography, guaranteeing that the cost of a
yard of wool in terms of a bottle of wine would vary among countries.
Today capital is more mobile than tradable goods. Modern production
functions are based on acquired knowledge and produce identical results
regardless of location. When a US corporation closes a factory in Ohio
and relocates its production for US markets to China, the loss of US
jobs is not the result of a Chinese firm gaining a comparative
advantage over the Ohio one. It is the result of US capital seeking
absolute advantage in lower cost Chinese labor.
Free trade economists have completely forgotten that the flow of
resources to where they have absolute advantage does not result in
mutual benefit. The country that receives the resources gains and the
other country loses.
When capital and technology flow from the US to China and India, the
productivity of labor in China and India rises. In the US it falls.
Outsourcing is eliminating entire American occupations in engineering
and information technology. As there are fewer jobs for graduates,
engineering enrollments in the US are declining. Libertarians and free
traders are so emotionally enamored of the market that they have
forgotten that markets can as easily work against a country as for it.
In the US, markets are working to reduce the supply of American
engineers as US corporations lay off their American employees and
replace them with cheaper Chinese and Indians.
Product development, or research and development, follows
manufacturing. As US manufacturing moves offshore, so does R&D.
Innovation follows R&D, with the consequence that US science is also in
relative decline. In brief, the US is developing the labor force
characteristics of a third world country in which jobs are available
only in lower productivity, lower paid "hands on" domestic services.
For engineering and IT jobs that remain in the US, fewer are filled by
Americans. US firms have learned that they can pay foreigners on H-1B
and L-1 work visas lower salaries, force their American employees to
train their foreign replacements, and then discharge their American
workers. Consequently, there is double-digit unemployment among
American software engineers, IT professionals and computer programmers.
As Lou Dobbs exposed recently on CNN, the US Department of Labor is
currently reserving some 52,000 high tech job openings in US firms for
H-1B visa holders. "Bodyshops" use the visas to bring in foreigners who
take Americans' jobs by undercutting their pay.
American firms advertise openings for H-1B visa holders only. No
Americans need apply. Gene Koprowski in TechNewsWorld (August 20)
reports that "in excess of 600,000 new visas have been granted during
the last five years. Thirty-nine percent of H-1B visas were for workers
in computer-related occupations."
In other words, 600,000 Americans lost the occupations in which they
have invested their human capital. You can be assured that these
600,000 did not move up to better jobs.
As bad as it is for the individuals, it is even more costly for the
country. The outsourcing of jobs and the importation of foreigners on
work visas are emptying the pipeline of qualified Americans and
destroying US technical occupations. It is paradoxical to hear the very
executives who replaced their US employees with foreigners now complain
about the declining interest of Americans in science and engineering.
Last July Bill Gates expressed his worries about the precipitous
decline in the number of students entering computer science. Why is
Bill surprised when he helped to lead the offshore outsourcing
movement?
Obviously, it is a vicious cycle. As Americans are discouraged from the
occupations, the corporations lobby for more work visas, which
discourages more Americans.
Seeking to protect their careers from being outsourced, Americans are
turning to domestic services, such as nursing and teaching. However,
H-1B visas threaten these occupations, too. Hospitals struggling with
costs and school systems struggling with budgets are importing lower
cost foreigners to teach American kids and care for American patients.
In Nevada the Clark County School District has imported teachers from
the Philippines. Arizona has imported teachers from New Delhi, India.
The New York Department of Education has brought teachers in from
Jamaica. Cleveland, Ohio, has imported teachers from India. It goes on
and on.
Joe Guzzardi has a good article posted on vdare.com about the use of
foreign teachers in US schools. This practice raises many questions:
Does the money saved on teachers' salaries go to administrators as
bonuses for cost-cutting? How can foreigners from outside our culture
enculturate American students? What happens to enrollments in US
education and nursing curriculums as imported foreigners fill available
positions? What happens to the laid off US engineers and technical
people who are displaced again, this time from teaching math and
science in our schools?
The pressure on school budgets comes from the lost middle class jobs.
As manufacturing and now white collar work move out of US communities,
tax revenues become more scarce. Administrators seek foreign employees
who will work for less.
Eventually, all Americans will be working for less except the fat cats
at the top, who will earn large bonuses by substituting foreigners for
Americans.
What occupations will be left to native citizens? This question comes
to me from many frustrated parents who are trying to give their
children some career counseling. It is possible for Americans still to
earn good incomes from being dentists and lawyers (if they are in the
top 20% of their class). Next one thinks of skilled trades such as
electrician, plumber and auto mechanic. However, Mexican immigrants are
crowding Americans out of the construction trades and may soon dominate
other trades as well.
Opportunity for native born Americans is collapsing. The loss of
opportunity is showing up in declining median household income and
rising poverty rate. On September 1, Edwin Rubenstein reported
(vdare.com) that according to the Census Bureau's August 30 report,
"median household income declined for an unprecedented fifth straight
year in 2004." The main reason for declining household income, says the
Economic Policy Institute, is "ongoing weakness in the job market."
HIgher paying jobs are being lost to outsourcing and to work visas.
Lower paying jobs are being lost to Mexicans. With real income falling
for five years (despite an economic recovery), the US poverty rate has
climbed from 11.3% in 2000 to 12.7% in 2004, adding 5.4 million more
persons to the poverty roll.
Yet, nothink free trade economists and libertarians--like LBJ who
promised us light at the end of the tunnel in Vietnam and Bush who
promises light at the end of the tunnel in Iraq--still promise that
outsourcing and H-1B visas mean increased wealth for Americans.
Economic science no longer exists in America. Its place has been taken
by emotional commitments to dogmas. Americans and their hopes are daily
paying the price for this great failure of economic thinking.
The August payroll jobs report from the Bureau of Labor Statistics
repeats the consistent pattern of 21st century America--no net job
creation in high productivity sectors. The only jobs created are in
nontradable lower paid domestic services.
Of the 154,000 private nonfarm jobs created in August, 25,000 are in
construction and are filled primarily by legal and illegal Mexican
immigrants; 20,000 are in wholesale and retail trade; 16,000 in
administrative and waste services; 43,000 in education and health
services; 34,000 in leisure and hospitality (primarily waitresses and
bartenders). Manufacturing lost another 14,000 jobs.
Brand name companies that once were symbols of US manufacturing are
today assemblers of foreign made parts. An industry of assemblers has
no need for engineers or scientists. The dismantling of the US economy
cannot be corrected by education and job retraining. The US is on its
way to becoming a third world country.
It is detrimental to the future of freedom that at this time, when our
civil liberties are under attack by the Bush administration and
diminishing economic opportunity is breathing new life into class war,
libertarians and market economists are demonstrating more commitment to
ideology than to the welfare of fellow citizens. By associating freedom
and market solutions with policies that are eroding Americans'
prospects, freedom's defenders are unwittingly stabbing freedom in the
back.
---------------------------------------
Paul Craig Roberts has held a number of academic appointments and has
contributed to numerous scholarly publications. He served as Assistant
Secretary of the Treasury in the Reagan administration. His graduate
economics education was at the University of Virginia, the University
of California at Berkeley, and Oxford University. He is coauthor of The
Tyranny of Good Intentions. He can be reached at:
paulcraigroberts@xxxxxxxxx
.
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