The US is on a path to economic Armageddon.
- From: periodistalibre@xxxxxxx
- Date: Thu, 20 Sep 2007 22:54:29 -0700
America's Hegemonic Status Slipping Away,
By Paul Craig Roberts,
09/19/07 "ICH" -- -- Former Fed Chairman Alan Greenspan's memoir has
put him in the news these last few days. He has upset Republicans with
his comments on various presidents, with George W. Bush getting the
brickbats and Clinton the praise, and by saying that Bush's invasion
of Iraq was about oil, not weapons of mass destruction.
Opponents of Bush's wars welcomed Greenspan's statement, as it strips
the moral pretext away from Bush's aggression, leaving naked greed
It is certainly the case that Iraq was not invaded because of WMD,
which the Bush administration knew did not exist. But the oil pretext
is also phony. The US could have purchased a lot of oil for the
trillion dollars that the Iraq invasion has already cost in out-of-
pocket expenses and already incurred future expenses.
Moreover, Bush's invasion of Iraq, by worsening the US deficit and
causing additional US reliance on foreign loans, has undermined the US
dollar's role as reserve currency, thus threatening America's ability
to pay for its imports. Greenspan himself said that the US dollar
"doesn't have all that much of an advantage" and could be replaced by
the Euro as the reserve currency. By the end of last year, Greenspan
said, foreign central banks already held 25 percent of their reserves
in Euros and 9 percent in other foreign currencies. The dollar's role
has shrunk to 66 percent.
If the dollar loses its reserve currency status, the US would
magically have to move from an $800 billion trade deficit to a trade
surplus so that the US could earn enough Euros to pay for its imports
of oil and manufactured goods.
Bush's wars are about American hegemony, not oil. The oil companies
did not write the neoconservatives' "Project for a New American
Century," which calls for US/Israeli hegemony over the entire Middle
East, a hegemony that would conveniently remove obstacles to Israeli
The oil industry asserted its influence after the invasion. In his
book, Armed Madhouse, BBC investigative reporter Greg Palast documents
that the US oil industry's interest in Middle Eastern oil is very
different from grabbing the oil. Palast shows that the American oil
companies' interests coincide with OPEC's. The oil companies want a
controlled flow of oil that results in steady and high prices.
Consequently, the US oil industry blocked the neoconservative plan,
hatched at the Heritage Foundation and aimed at Saudi Arabia, to use
Iraqi oil to bust up OPEC.
Saddam got in trouble because one moment he would cut production to
support the Palestinians and the next moment he would pump the maximum
allowed. Up and down movements in prices are destabilizing events for
the oil industry. Palast reports that a Council on Foreign Relations
report concludes: Saddam is a "destabilizing influence . . . to the
flow of oil to international markets from the Middle East."
The most notable aspect of Greenspan's memoir is his unconcern with
America's loss of manufacturing. Instead of a problem, Greenspan
simply sees a beneficial shift in jobs from "old" manufacturing
(steel, cars, and textiles) to "new" manufacturing such as computers
and telecommunications. This shows a remarkable ignorance of
statistical data on the part of a Federal Reserve Chairman renowned
for his command over numbers and a complete lack of grasp of
The incentive to offshore US jobs has nothing to do with "old" and
"new" economy. Corporations offshore their production, because they
can more cheaply produce abroad what they sell to Americans. When
corporations bring their offshored production to the US to sell, the
goods count as imports.
Had Greenspan bothered to look at US balance of trade data, he would
have discovered that in 2006, the last full year of data, the US
exported $47,580,000,000 in computers and imported $101,347,000,000 in
computers for a trade deficit in computers of $53,767,000,000. In
telecommunications equipment the US exported $28,322,000,000 and
imported $40,250,000,000 for a trade deficit in telecommunications
equipment of $11,883,000,000.
Greenspan probably has given offshoring no serious thought, because
like most economists he mistakenly believes that offshoring is free
trade and learned in economic courses decades ago before the advent of
offshoring that free trade can do no harm.
For most of the 21st century I have been pointing out that offshoring
is not trade, free or otherwise. It is labor arbitrage. By replacing
US labor with foreign labor in the production of goods and services
for US markets, US firms are destroying the ladders of upward mobility
in the US. So far economists have preferred their delusions to the
It is becoming more difficult for economists to clutch to their bosoms
the delusion that offshoring is free trade. Ralph Gomory, the
distinguished mathematician and co-author with William Baumol, past
president of the American Economics Association, of Global Trade and
Conflicting National Interests, the most important work in trade
theory in 200 years, has entered the public debate.
In an interview with Manufacturing & Technology News (September 17),
Gomory confirms that there is no basis in economic theory for claiming
that it is good to tear down our own productive capability and to
rebuild it in a foreign country. It is not free trade when a company
relocates its manufacturing abroad.
Gomory says that economists and policymakers "still are treating
companies as if they represent the country, and they do not."
Companies are no longer bound to the interests of their home
countries, because the link has been decoupled between the profit
motive and a country's welfare. Economists, Gomory points out, are not
acknowledging the implications of this decoupling for economic theory.
A country that offshores its own production is unable to balance its
trade. Americans are able to consume more than they produce only
because the dollar is the world reserve currency. However, the
dollar's reserve currency status is eroded by the debts associated
with continual trade and budget deficits.
The US is on a path to economic Armageddon. Shorn of industry,
dependent on offshored manufactured goods and services, and deprived
of the dollar as reserve currency, the US will become a third world
country. Gomery notes that it would be very difficult-perhaps
impossible-for the US to re-acquire the manufacturing capability that
it gave away to other countries.
It is a mystery how a people, whose economic policy is turning them
into a third world country with its university graduates working as
waitresses, bartenders, and driving cabs, can regard themselves as a
hegemonic power even as they build up war debts that are further
undermining their ability to pay their import bills.
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; Alienation and the
Soviet Economy and 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.
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