October 16, 2012
| Paul Craig Roberts
During the second half of the 20th century the United States was
an opportunity society. The ladders of upward mobility were plentiful,
and the middle class expanded. Incomes rose, and ordinary people were
able to achieve old-age security.
In the 21st century the opportunity society has disappeared. Middle
class jobs are scarce. Indeed, jobs of any kind are scarce. To stay
even with population growth from 2002 through 2011,
the economy needed
about 14 million new jobs. However, at the end of 2011
there were only 1
million more jobs than in 2002. http://www.bls.gov/webapps/legacy/cesbtab1.htm
Only 426,000 of these jobs are in the private sector. The bulk of the
net new jobs consist of
waitresses and bartenders and health care and
social assistance. According to the
Bureau of Labor Statistics,
over the
9 years, employment for waitresses and bartenders increased by
1,188,000.
Employment in health care and social assistance increased
3,087,000. These two categories accounted for 1,000% of the net private
sector job growth.
As for manufacturing jobs, they not only did not grow with the
population but declined absolutely. During these nine years,
3.5 million
middle class manufacturing jobs were lost.
Over the entire nine years, only 48,000 new jobs were created for architects and engineers.
In the 21st century the US economy has been able to create only a few
new jobs and these are in
lowly paid domestic services that cannot be
offshored, such as waitresses and bartenders.
The lack of jobs, especially high value-added, high productivity
jobs, is the reason real median household income has declined and the
distribution of income has worsened. Without rising real household
income, there cannot be a consumer economy.
In the early years of the 21st century, the Federal Reserve
substituted a rise in consumer debt to drive the economy in place of the
missing rise in consumer incomes. Low interest rates drove up housing
prices, and people refinanced their mortgages and spent the equity. The
Federal Reserve kept the economy alive by loading up consumers with debt
that housing prices and consumer incomes would soon be unable to
support.
When debt and real estate prices reached unsustainable levels, the bubble popped, and the ongoing financial crisis was upon us.
The cause of all of the problems is the
offshoring of Americans’
jobs. When jobs are moved offshore, consumers’ careers and incomes, and
the GDP and payroll and income tax base associated with those jobs, go
with them. When the goods and services produced for American markets by
offshored labor are brought into the US to be sold, the trade deficit
rises, and downward pressure is put on the dollar, pushing up domestic
inflation. (On October 12, statistician John Williams (
shadowstats.com) reported that
“third-quarter wholesale inflation jumped to an annualized 6.2%.”)
Jobs offshoring is driven by Wall Street, “shareholder advocates,”
the threat of takeovers, and by large retailers, such as Walmart.
By
cutting labor costs, profits go up.It is that simple. However, as a
result of sending American jobs to cheap labor countries, US consumer
incomes go down.
The end result is to destroy the domestic consumer
market. What would have been US consumer income growth becomes instead
profit growth for US corporations.
Keynesian economists use in their textbooks the example of how the
aggregate effect of individual saving could be the opposite of the
effect intended by the individuals. Whereas each saver seeks to improve
his position by building wealth, in the aggregate saving could exceed
investment, resulting in a decline in aggregate demand and a fall in
income for all. Offshoring has the same logic. Each corporation can
expect to gain more profits from moving US jobs offshore, but
the
aggregate effect is a fall in American consumer incomes and a reduction
in the American consumer market.
I have told this story many times. But policymakers, the media, and economists seem unable to connect the dots.
Jobs offshoring has substantial implications for Social Security and
Medicare.
The US has the least adequate social safety net of any
developed country. The two major components of the US social safety net
are Social Security and Medicare for the elderly. Social Security and
Medicare are financed by a payroll tax. The combined tax is 15.3% of
payrolls. For the past quarter of a century the Social Security portion
of the payroll tax has built up a surplus of over $2 trillion.
Recently, the Medicare portion began running in the red.
Right-wing Republicans, free market ideologues, and the left-wing
have all indoctrinated themselves with incorrect beliefs about Social
Security and Medicare. The right-wing claims that a safety net financed
with 15.3% of payrolls is a “Ponzi scheme” and an “unfunded liability.”
If that is the case, then so are veterans benefits, military pensions,
and federal pensions, all of which are financed by the income tax, the
basis for the payroll tax.
The left-wing claims that the rich do not pay high enough payroll
taxes, because the income subject to Social Security payroll tax is
capped at about $110,000. But the benefits are also capped.
Social
Security is not supposed to be an income redistribution scheme from rich
to poor, and it is not supposed to be a pension system for the rich.
The pension paid is supposed to correlate with the pre-retirement income
level of the retiree. Those who had higher wages or salaries and
consequently paid more in payroll taxes receive a larger Social Security
check than those who had lower wages and salaries and paid less payroll
taxes, although there is favoritism toward the lower income earners who
receive proportionally more in respect to their payroll taxes than
higher income earners.
There is no cap on income subject to the Medicare portion of the
payroll tax. Moreover,
Medicare charges a Medicare Part B premium that
is deducted from the Social Security monthly check. In addition, there
is a further Part B premium based on retirement age income. For
example, someone working beyond retirement age and making $250,000 per
year pays about $3,800 in Medicare Part B premium in addition to the
Medicare portion of the payroll tax of about $7,500. The annual premium
he pays for his “free” Medicare for which he has paid all his working
life with a payroll tax is about $11,300.
Moreover,
Medicare by itself is insufficient coverage. To actually
have medical coverage,
those covered by Medicare have to purchase a
supplementary private policy to cover the large gaps in Medicare.
Depending on the range of coverage, a supplementary policy costs
approximately $100 to $300 per month.
As the person making $250,000 per year is likely to go for the most
coverage, he will be paying about $14,900 (excluding deductions and
co-payments) per year for his “free” Medicare. This is despite having
paid the Medicare payroll tax each year of his working life. A person
who made $250,000 in taxable income per year for 30 years would have
paid $217,500 into Medicare at the current Medicare payroll tax rate.
The right-wing’s notion that Social Security and Medicare are
handouts, part of the welfare state’s bread and circuses, and the
left-wing’s idea that the rich get a free ride are equally untrue.
(Note: $250,000 is the politicians’ dividing line between the rich
and the rest of us. For a person making $50,000 a year, an income five
times larger can seem rich. However, a $250,000 annual income leaves a
family or person far distant from the lifestyle of the rich. Upper
middle class incomes are generally associated with high-tax, high-cost
urban areas in states with high income taxes. After federal income and
payroll taxes, state income and sales taxes, and property taxes, what
appears to many as a large income disappears. In New York City, the
federal income tax will take about 25% of the $250,000, New York state
will take about 9%, and New York City will take about 3.65%. The
combined city and state sales tax is 8.875%. The property tax is high.
The conclusion is that in New York City a $250,000 income is reduced to
$125,000 or thereabouts. Those who claim “the rich don’t pay taxes” are
not talking about $250,000 incomes.)
Social Security and Medicare have served the country well. They
protect the individual from his own mistakes, from crooked and
incompetent money managers, and from financial crises, and they protect
society from the moral dilemma of confronting large numbers of fellow
citizens who through fault or no fault of their own cannot provide for
their livelihood and medical care. After the financial scandals and
crisis of the past five years, it is a stretch to believe that any but
the astute can manage their personal wealth, whether small or large, in
today’s situation of unregulated financial markets, zero interest rates,
currency uncertainty, and highly complex investment instruments with
computers programmed with mathematical models dominating equity trades.
The argument that conceptually a person could do better by investing
his payroll taxes in the stock market is a poor basis for old age
security policy. The person can do better as long as he or she doesn’t
fall into the hands of a Bernie Madoff or a Goldman Sachs, doesn’t
receive zero interest on his bonds because the Federal Reserve has to
bail out the “too big to fail banks,” doesn’t experience a decline in
currency value due to monetization of enormous federal deficits, and
doesn’t experience a bear market as he approaches retirement.
The right-wing ideologues who try to scare old age security out of
existence go on and on about rising medical costs, about an aging
population living longer, declining birthrates and a worsening ratio of
workers to retirees, about people learning to rely on handouts rather
than their own means, and about Washington’s rising unfunded
liabilities.
Scare projections are designed to scare, and most are untenable. For
example, longevity was a product of rising incomes, good diet, and
antibiotics. Today only the upper crust have rising incomes. Antibiotics
are wearing out from abuse and rising immunity of bacteria. Diet is
compromised in ways still poorly understood as a result of GMOs,
pesticides, herbicides, pumping chicken, pork, and beef full of
antibiotics and hormones and feeding the animals GMO grains and also
possibly infected animal byproducts, and pumping our water full of
fluoride. A variety of destructive activities and behaviors are causing
ecological damage. Longevity might have been a short-term benefit of
irreproducible conditions considering the mounting ecological damage and
the rise of superbugs, stress, and tainted food and water production.
The projection of an aging population might also be wrong. Clearly,
the post-World War II baby boomers are aging, but do the projections
take into account the legislated 1965 immigration increases plus the
illegal influx from Mexico and points south of young people with high
birth rates? How can it be that a country with allegedly 30 million
illegal immigrants, whose children born in the US are citizens, has a
declining birth rate? How do we know that the illegal population will
not continue to increase?
There are so many Spanish speaking people in the US today that if a
person calls any of his utility companies, whether telephone, Internet,
water, electricity, TV, or any of his credit card companies, or his
bank, he has to select English or Spanish. Obviously, as
anti-immigration sites make clear, the US population is changing in its
national origin, and there appears to be no sign of an aging Hispanic
population. How many old Spanish speaking people do you see in the US
compared to the young?
When confronted with this apparent fact, the response is: “why will
the Hispanics pay for the aging white population?” The answer is:
because they are in the same payroll tax system and the taxes will be
withheld from their wages and salaries just as they are from everyone
else’s.
It is possible that if Hispanics in the US have suffered years of
hostility, accusations, and hatred from “the ice people,” once Hispanics
are sufficiently numerous to control the legislature, assuming one
still exists, or to take over the executive branch, the only seat of
power, they may in retribution cut off the aging whites. But if so, the
whites will have brought it on themselves.
Whatever the scare projections that are mustered to undermine the
public provision of old age security, the real financial danger is never
mentioned. The only significant financial danger to Social Security and
Medicare is the offshoring of American jobs and GDP. A country without a
job base is without a payroll tax base. If the only jobs that the 21st
century “world’s only superpower” economy can create are for
waitresses, bartenders, and health care and social assistance (hospital
orderlies and practical nurses), payroll tax revenues will be less than
if the US still had 20 million workers and rising in well-paid
manufacturing jobs instead of 11 million.
Regardless of Medicare’s financing, the death knell for the elderly
was the legality of abortion. If the yet to be born are an insufferable
burden, imagine the cost of the elderly. As far as the state is
concerned, once you stop producing income and payroll tax revenues for
the state, it is time for you to die. Washington would rather enact
euthanasia than to pay back the $2+ trillion in the Social Security
trust fund that Washington spent, leaving only non-marketable IOUs in
the account.
Readers might think that Americans would never stand for death by
injection for the elderly once the qualified age is reached. But why
would they not? They have accepted millions of aborted babies, and
Americans, including the elderly, have stood for Washington’s murder,
maiming and displacement of millions of Muslim men, women, and children
in 7 countries over the past 11 years and are yet to show any signs of
remorse for their complicity in mass murder. Next month tens of millions
of Americans will vote for Mitt Romney who believes Obama isn’t killing
Muslims fast enough.
Prior to the advent of the new “health care” system, Medicare and or
hospitals are already shifting costs to Medicare patients. To avoid
penalties and fraud allegations for “medically unnecessary
hospitalizations,” rather than formally admit Medicare patients as
inpatients, hospital administrators classify them as outpatients “under
observation.”
According to a Brown University analysis of Medicare records in 2007,
2008, and 2009, the ratio of Medicare observation patients to those
admitted as inpatients rose by
34 percent.
Being classified an outpatient under observation eliminates medicare
coverages, especially for post-operative or post-accident rehabilitation
care, leaving Medicare patients with bills in the tens of thousands of
dollars (AARP Bulletin, October 2012).
Other costs are being shifted to doctors and to hospitals. Medicare
pays fixed prices for each covered procedure or test, and these prices
can be as low as half of the billed prices. During a period when costs
incurred by providers of health care have been rising, Medicare has been
cutting the amounts it pays providers.
As the payroll tax is commingled with general tax revenues, Social
Security and Medicare payroll tax collections can be diverted to other
purposes and, thus, are always subject to competing budgetary demands,
such as the previous 11 years of gratuitous wars and the bailouts of
“banks too big to fail,” or to deficit reduction demands as the
government consistently overspends all revenue sources.
A national health service is the only way to control health costs and
provide the population with health care coverage. A national health
system takes the many levels of profits out of the system and also reams
of compliance and liability costs. A national health system can coexist
with a private system for those who can afford it or whose employers
are sufficiently profitable to provide it.
As Jarad Diamond reveals in his book,
Collapse: How Societies Choose to Fail or Succeed,
societies fail, if not because of their moral bankruptcy, then because
their rulers are only capable of short-term thinking. The future is
beyond their interest. The US offshored its economy, because it worked
short-term for corporate executives (rewarded with multi-million dollar
performance bonuses), Wall Street (rewarded with profits), shareholders
(rewarded with capital gains), and politicians (rewarded with corporate
and Wall Street campaign contributions).
Incompetent free market economists confused jobs offshoring with free
trade. They said the country would and was benefiting by giving its
manufacturing, industrial, and tradable professional service jobs to
China and India, that the US was ridding itself of “dirty fingernail
jobs” and would soon be flush with highly paid high-tech jobs and highly
paid financial service jobs.
None of these promises or predictions were true. Nowhere in the
government’s jobs statistics are there any of these promised replacement
jobs. The economists who provided cover for the destruction of the US
economy were rewarded by the corporations with speaking fees, grants for
their university departments, and newspaper columns paid for by
corporate advertisers. Those few who told the truth were expelled from
the corporate media that Bill and Hilary Clinton allowed to be
monopolized (for campaign contributions, of course).
The future of old age security in the United States has been lost,
because the job base has been given away to foreigners in order to
maximize incomes in the short-run for the few decision-makers.
The misrepresentation of jobs offshoring as free trade has destroyed
the prospects of cities, counties, and states along with those of unions
and millions of Americans who once had a secure future. It has
destroyed the prospects of class after class of university graduates
burdened with student loans who expected to step into the jobs that have
been offshored or filled by H-1B visa holders from abroad.
The American work force has been forsaken by the corporations and by
Washington, and this means that Social Security and Medicare have also
been forsaken.
As I predicted in the early years of this new century,
“the United
States will be a third world country in 20 years.” We might get there
even sooner as
Washington exhausts what little is left of American
wealth in gratuitous wars in service to Israel and the US
Military/Security Complex, in unaffordable military buildups in futile
hopes of establishing hegemony over China and Russia, and in negative
interest rates from the Federal Reserve’s effort to drive up the book
value of debt instruments on the balance sheets of financial
institutions.
In 1817
Percy Bysshe Shelly forecast America’s future:
“I met a traveler from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip and sneer of cold command,
Tell that its sculptor well those passions read,
Which yet survive, stampt on these lifeless things,
The hand that mockt them and the heart that fed:
On the pedestal these words appear:
‘My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.”
Writing in the October 15 online
CounterPunch, John V. Walsh, relying
on charts prepared by economics professor Mark J. Perry at the
University of Michigan and blogger John Hunter, concludes that it is a
myth that US manufacturing is in decline.
Walsh says that the loss of US manufacturing jobs is due to
automation, not to offshoring. Think about this for a moment. Perry’s
graph on which Walsh relies shows the sharp drop in US manufacturing
employment to be a 21st century experience. However, automation has been
around for a long time. The notion that its effect on employment only
showed up recently needs an explanation that is not provided.
The steep
drop in US manufacturing employment that began in 2000 does correspond
with the date at which jobs offshoring began to bite hard.
Why does automation not also affect Chinese manufacturing, especially
as most of the Chinese manufacturing technology came from the US as US
corporations offshored their production for the US market? If Chinese
manufacturing is not up to date with automation, like the US is assumed
to be, how do the Chinese, even with cheap labor, undersell US automated
factories? How did Chinese manufacturing employment increase in a mere
four years by an amount equal to the total manufacturing employment in
the US?
The US Bureau of Economic Analysis shows only 11.2 million full time
US manufacturing jobs in 2010. The US Bureau of Labor Statistics shows
11.7 million US manufacturing jobs in 2011, down from 15.3 million in
2002.
In contrast, China, an industrial and manufacturing backwater for
most of my life, had 112 million manufacturing jobs in 2006. In a mere
four years (2002-2006), the increase in China’s manufacturing employment
was as large as today’s total employment in US manufacturing. As long
ago as 2006, China’s manufacturing employment was about 10 times the
current US manufacturing employment. The Chinese population is about 4
times larger than the US population, but China’s manufacturing
population is proportionately greater–10 times larger. Indeed,
Chinese
manufacturing employees almost equal the total number of employees in
all occupations in the US (Manufacturing and Technology News, December
15, 2009).
Obviously, something is wrong with Walsh’s article or the graphs on which he relied.
America’s manufacturing prowess cannot be found in the statistical
data. The US is primarily an exporter of Agricultural commodities. The
US imports almost twice the amount of manufactured goods as it exports.
Indeed, according to the US Census Bureau Statistical Abstract of the
US
http://www.census.gov/compendia/statab/2012/tables/12s1308.pdf
US imports of manufactured goods are 5.5 times larger than US imports
of crude oil and 4 times larger than all imports of mineral fuel. Yet,
we hear about energy dependency, not manufacturing dependency.
As of 2010 the “superpower” US economy still had a trade surplus in
airplanes and airplane parts and a small $6 billion surplus in
scientific instruments, but that is about all.
In ADP equipment and office machinery, the US exported $22.2 billion
in 2010 (latest information at time of writing), down from $44.6
billion in 2000. US imports in 2010 of ADP equipment and office
machinery were $113.5 billion, or 5.1 times exports.
The US cannot even make its own clothes and shoes. In 2010 footwear
imports are 28.7 times exports. Clothing imports are 24.6 times exports.
Electrical machinery exports were $77 billion; imports were $120 billion.
Exports of power generating machinery were $33 billion; imports were $42 billion.
Exports of television, VCRs were $21.5 billion; imports were $137 billion.
US exports of vehicles was $88 billion; imports were $179 billion.
US news reports of thousands upon thousands of discharged US workers
never cite their replacement by automation. The news story is always
that the plant is being closed and the jobs moved abroad. Any review of
America’s former manufacturing centers verifies this.
Boarded up plants
and cities and towns in decline are the remains of America’s formerly
world dominant manufacturing economy.
The loss of the US post-war trade surplus in manufacturing has left
the US with a huge trade deficit. The charts on which Walsh relied left
him unaware of the fact that China has a large trade surplus with the
US, and the US has a large trade deficit not only with China but with
the world.
The fact that the US has to import not only manufactured goods, but
also high-technology products from China, an inconceivable outcome
during the second half of the 20th century, is powerful testimony to the
decline of the US as a manufacturing powerhouse.
It took some doing to obscure the facts and to present the US as a rival to China in manufacturing prowess. How did it happen?
The fault might lie in the way statistical information is collected
and presented.
Apple, for example, is a US corporation. It reports its
worldwide earnings to the IRS. Its manufacturing is counted as US
manufacturing as it is a US corporation. However, Apple doesn’t produce a
single computer in the US. They are produced in China. The employment
that Apple reports is in China. The Chinese are employed by an American
company, but they are not Americans. The Chinese incomes that Apple
provides do not support the American consumer market or provide the tax
base for cities and states. The Chinese incomes do not provide ladders
of upward mobility or careers for Americans.
The wages Apple pays are in China. The consumer incomes and GDP that
it generates are in China. When Apple’s computers come back to America
to be sold they come in as imports. But Apple’s manufacturing and
employment are reported as the output and employment of an American
company.
When statistics and the methods by which they are compiled were put
into effect, countries did not offshore their production for their
domestic markets. Foreign investments were made for selling abroad, not
for selling in the home market. With the advent of offshoring, counting
the employment and output of US firms that are producing abroad for
their domestic market as an indication of the strength of US
manufacturing is very misleading.
Apple, for example, has done more to
boost China’s GDP than to boost America’s GDP. This is true of every US
corporation that offshores its production for US consumers.
In recent years the percentage of the work forces of large US
corporations that is foreign sourced has risen rapidly. Some of the
overseas hiring reflects traditional foreign investment in which a
company builds abroad in order to sell abroad, but much of the hiring
reflects offshored production for US markets.
The US has been able to survive the large trade deficits produced by
jobs offshoring, because the US dollar is the world reserve currency.
Being the world reserve currency, the US does not have to earn foreign
currencies with exports in order to pay for its imports. However, as
these trade deficits persist and the buildup of foreign holdings of
dollar paper assets rises, there is a diminishing willingness of
foreigners to trade real goods and services for financial assets
denominated in a fiat currency whose value is diminishing with the
ever-growing supply.
Thus, the basic notion of globalism–that a country’s corporations can
produce goods and services in any country for home markets–is false.
Walsh is correct that China is not to blame for the decline in US
manufacturing. Offshoring is to blame, and, thus,
the blame lies with
US corporations, policymakers, and the economists and financial media
who shill for “globalism.” The decision was made to
sacrifice the US
economy to the short-term profits of the few. A country so poorly led
can do nothing but decline.
