Tuesday, November 15, 2005

Whatever works

One of my links somewhere on the right of this page is "Opinions are like..." No matter your particular taste in spleen, you can find what you want there. I admit I don't check in on it as often as I should, but everytime I wander through its offerings, I find something intriguing. I noticed this today from the "Right" side: http://newsmax.com/archives/articles/2005/11/9/122503.shtml

"In the 21st century, the U.S. economy has ceased to generate net new jobs in middle- and upper-middle-class professions. This is a serious economic, social and political problem that receives no attention.

There is a great deal of meltdown inside the U.S. economy. Manufacturing is hollowed out. The decline in manufacturing means a decline in the engineering and other professions that serve it. Knowledge jobs are also being lost to offshore outsourcing and to H-1b, L-1 and other work visas. In October, there were 81,301 corporate layoffs.

In December 2003, Congress directed the Department of Commerce to complete a study within six months of the impact of jobs outsourcing on knowledge-based industries. The report due in June of 2004 was not released until September of this year in response to a Freedom of Information Act action, and only after the report was gutted by political appointees and reduced to 12 pages of PR quoting reports by organizations and individuals that have been funded by multinationals that benefit from shifting American jobs overseas.

Powerful lobbies that benefit from low-cost foreign labor have invested heavily in public relations campaigns to create the impression that American jobs have to be outsourced and foreign workers brought into the United States because there are shortages of U.S. engineers, scientists, nurses and schoolteachers. It is amazing that the occupations in which shortages are alleged to exist are the very occupations in which qualified Americans cannot find jobs.

Many economists mistakenly claim that offshore outsourcing and work visas for foreigners benefit Americans by lowering costs. But no country benefits from the loss of high productivity, high value-added occupations. The United States runs trade deficits in manufactured goods and advanced technology products. Last year, the U.S. trade deficit in advanced technology products was $36,857,000,000. As of August of this year, the U.S. trade deficit in advanced technology products is running 26 percent higher than in 2004.

America's volume exports are paper, waste paper, agricultural products and chemicals. The Oct. 28 issue of Manufacturing & Technology News reports that Procter & Gamble, General Electric, Ford, Kimberly Clark, Caterpillar, Goodyear, General Motors, USG, Honeywell, Alcoa and Kodak combined exported 269,600 containers of goods in 2004. Wal-Mart alone imported 576,000 containers of goods.

Last year, the United States imported $196,682,000,000 in goods and services from China and exported a mere $34,744,100,000 to China. The American "superpower's" trade deficit with China came to $161,938,000,000. To put this figure in perspective, America's trade deficit with China is 28 percent higher than American's total oil import bill.

Everyone talks about energy independence as if our future depends on it. Simultaneously, we are told that globalization is good for us in every other respect. But why is energy independence any better than manufacturing independence, or engineering independence, or innovation independence? U.S. imports of industrial supplies, capital goods, automotive vehicles and consumer goods all exceed U.S. oil imports.

In recent years, offshore outsourcing has caused the U.S. trade deficit to explode. Offshore outsourcing means that the production of goods and services for the U.S. market is shifted from America to foreign countries. This turns goods formerly produced in the United States into imports. Between 1997 and 2004, the U.S. trade deficit increased six-fold. Since 1997, the cumulative U.S. trade deficit (including the $700 billion estimate for 2005) is $3.5 trillion. The outsourcing of America's economy is a far greater threat to Americans than terrorists.

Economists now declare the trade deficit to be good for us. They mistakenly describe the trade deficit as a mere reflection of the beneficial workings of free trade. Economists have become mouthpieces for the corporate interests who benefit by deserting their American workforce and replacing them with foreigners.

This process of substituting foreign workers for American workers cannot go on for too long before the U.S. consumer market dies from lack of income and purchasing power. U.S. policymakers have no clue. The Nov. 4 edition of "Market Watch" reports that "wage growth is a chief concern of the Federal Reserve, which fears that wage pressures could imbed an inflationary psychology in the economy." This is amazing. U.S. wages are not keeping up with inflation. Real wages are falling, and the Federal Reserve is worried about wage pressures!

The Bush administration is squandering our few remaining resources fighting an insurgency in Iraq that the Bush administration created by invading Iraq. Meanwhile, globalization separates Americans from the production of the goods and services that they consume. Americans are expected to buy the products without having the incomes associated with their production. If the war in Iraq lasts another 10 years, as the Bush administration keeps telling us, the United States will find itself without the industrial capacity or borrowing power to continue with the conflict."

I think you can argue the point, particularly his notion of causation, but it is a rather scathing and "worker" viewpoint, coming from the "right" side of politics. The part that interested me was his assertion that consumers' purchasing power will decline as a result of loss of jobs. What the mainstream economists are telling us is that consumption will merely cool as housing prices come off the boil, with no mention of job scarcity as an issue.

And the subject becomes more critical to understand given the large US trade deficit. Bernanke, Greenspan's heir apparent, tells us the trade deficit will sort itself out and that it is nothing much more than too many dollars under the mattress and too few investment opportunities.

"Instead of domestic imbalances, Fed Chair appointee Ben Bernanke, by contrast, has emphasized a "global savings glut" chasing attractive investments in the U.S. as a major reason for the current account deficit.

"Bernanke's view, and I agree, is that -- apart from real estate -- there has been no real risk-taking by companies," says Moody's Lonski. "Businesses are still cautious after the excesses of the 1990s and they have not been investing or hiring as much." http://www.thestreet.com/_googlen/stocks/nicholasyulico/10252777_2.html
The thing that has supported, and at the same time caused, the trade deficit has been the gargantuan gorging consumption of goods and services by Americans. They have been sustained like cows in a feeding lot by foreign exporters whose own workers have been too poor and too thrifty to afford the excessive consumption. Americans are becoming poorer for it, too, but they have managed to live off their credit cards, and the way they are going on with it, they seem to think that the cards will never run up against any limits. That's not particularly astute financial thinking. The moment they discover they can no longer consume any more, whether because of jobs scarcity or home prices falling or credit card limits, the only job in town will be the card collectors. And it will be those folks who have been busy working and saving and lending who will take their turn on easy street.

"The huge trade deficits the U.S. has been running up each year "cannot persist indefinitely," Greenspan warned in remarks delivered via video link to a conference in Mexico. "At some point, investors will balk at further financing," he said. The Fed chief, who retires Jan. 31 after 18-plus years running the central bank, didn't say when this might occur.

Greenspan's comments were aimed at the "current account" deficit, which swelled to a record $668 billion last year. The shortfall is financed by foreign investors. The current account deficit is considered the best measure of a country's international economic standing because it tracks not only goods and services but investment flows between countries.

So far, foreigners have been willing to lend the United States money to finance its current account imbalances. The worry is that at some point foreigners will lose their appetite for holding dollar-denominated investments. That could cause them to unload investments in U.S. stocks and bonds, which would send prices plunging and interest rates soaring.

The constraints on financing the current account deficit are likely to come from "foreign investors' fears" of holding too large a share of their investment portfolios in U.S. stocks and bonds, Greenspan said. This change in mind-set could already be under way, he suggested. "Concentration and other risks in holding dollar balances seem to have become a consideration at least for some investors, Greenspan said." http://sfgate.com/cgi-bin/article.cgi?f=/news/archive/2005/11/14/financial/f114725S67.DTL&type=business


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