And again economists use equations instead of brains:
1. Yes, globalization means that world wage costs must equalize. Now of course there are other factors. Shipping costs have come way down but are still real. The wages only count in someplace that has good net connections, a functional government, rule of law, etc. So no IT professional has to compete with some programmer hiding out in the bush of Congo’s Kivu former province. Effectively much of the 3rd and 4th worlds still are SUCH bad places to do business that they are out of the game. However were they to solve that problem [and yes that is QUITE unlikely but IF] this would just put MORE pressure on wages. So we are talking about East and South Asia plus some of the Carib for service jobs and a bit more of the Carib and some of the Muslim world for cheap goods [you can buy underwear or garden chairs from Jordan without worrying overly about the risks in letting them run a service center with access to your consumer’s credit card numbers or home addresses]. And yes, your taxi driver must be in front of your door to do the work. So some jobs will never be exported.
2. Unstated because of this man’s politics, globalization affects the social and economic structure of the First World. All jobs are not exported equally. SEARS used to buy almost 100% US goods. Tariffs, shipping and communication costs mandated this. Now we export the manufacture and many of the support services. However SEARS’ buyers and their support staff are still in the US. So for those still with steady employment they can buy more but those without it do not share in the national increase in economic efficiency.
3. From a national security standpoint it DOES matter if you have a manufacturing and design sector. War is not obsolete. Belgium has cut off ammo orders for the US and UK in both of the last Gulf Wars. The First World has cut off spare parts or weapons on order repeatedly. We are giving foreigners a power over the US economy and war making potential they haven’t had since the British evacuated NYC in 1783. Ain’t globalization grand?
4. A fall of the dollar will cure absolutely nothing. The dollar only floats freely against the European currencies. Our trade deficit to Europe is significant but not a serious problem. The whole serious trade deficit has been East Asia since the 1970’s. Their only model of economic growth is exports. So essentially they give us goods for IOU’s. Those IOU’s then shuffle around the globe as overseas dollar deposits and overseas holdings of T Bills. As long as the world regards the Ponzi scheme as valid we trade notional fiat paper for goods. However that fiat notional paper is also our own internal store of wealth. At some point someone is going to want to cash those IOU’s in. The world could survive this. The world could financially implode to such an extent that 1933 will seem like a kid setting off M-80’s in the back yard. We are beta testing all this folks on our one and only planet in our one and only lives. Ain’t that grand?
5. The ‘offsetting’ investment flows involve adding cherries and chimps. The East Asians buy T Bills because they cannot preserve their managed exchange rates if they cash in their dollars. Some individual East Asians and Europe periodically invest in the US – stock market, land, companies, whatever…The economists add these together. The East Asian government and corporate buying of T Bills is inherent in their development model. At least they earn notional interest with the T Bills. However their alternative is to sell us only enough to cover what they wish to buy here. That raises our prices and causes some supply disruptions – we run out of Christmas toys and new ladies shoes at the mall for the first year while the US switches suppliers [there is a worldwide glut of everything and most nations are short of dollars – we deal with East Asia [and now increasingly South Asia] because of price and similar economic reasons]. This causes the East Asian economies to implode. There are other models but we can switch supplier faster than they can switch models and with MUCH less social disruption. Europe stopped buying US stocks after the market crash in 2000. They lost a good part of the capital they parked here and lose more the longer they wait. The fall of the dollar is such that even this winter’s rise on Wall Street shows a net loss translated into Euros.
6. The same unaddressed problems remain – globalization, capital liberalization and mobility, a worldwide deflationary overcapacity in EVERYTHING, the need to find something the world can buy that will make a long-term profit as opposed to an economic model that says everybody gets rich shipping mall goods to the US, the societal costs of the way financial liberalization and globalization change the distribution of jobs and income in the First World [how the goodies are divided and how predictable that is is as important to a nation as the economic macros – economics is a means, never an end in itself]. Think it through. We could run an economy where everyone is paid in Lotto tickets. Most tickets are worthless. A great many pay a very little and a few pay huge amounts. It would ‘work’ economically but fail socially and politically. Perceived fairness and distribution do matter. Predictability does matter. For a society to work a large majority of the population must accept the rules of the game as fair enough to play without grossly cheating. If you are only honest when you have a high probability of getting caught, capitalism breaks down. So does society. See Africa as example.
Scott
The job problem
By Paul Craig Roberts
The U.S. continues to lose jobs. Since President Bush has been in office, 2.5 million manufacturing jobs and nearly 600,000 service jobs have been lost for a total decline in private sector employment of 3.1 million. The unemployment rate has risen to 6.1 percent. If this is recovery, what is going on?
Pundits call it "the jobless recovery." The economy is growing, but jobs are not. Why? One economist recently blamed the absence of job growth on high U.S. productivity. Those who are working are so productive, he said, that their output meets demand, making additional jobs superfluous. His solution, apparently, is to make people less productive.
I think the jobless recovery is an illusion and that the U.S. economy is creating jobs — but not for Americans. Those 2.5 million manufacturing jobs have not been lost. They have been moved offshore and given to foreigners who work for less.
The service economy was supposed to take the place of the lost manufacturing economy. Alas, those jobs, too, are being created for foreigners. It turns out that it is even easier to move service jobs abroad. For example, 170,000 computer system design jobs — 13 percent of the total — have recently been shifted abroad. Keeping knowledge-based jobs in the U.S. is proving as difficult as keeping manufacturing jobs.
Outsourcing, offshore production, work visas and the Internet make it easy for U.S. companies to substitute cheaper foreign employees for U.S. employees. Entrepreneurs in India have created firms that specialize in supplying skilled labor to U.S. corporations. The growth in the U.S. economy thus brings about a growth in foreign employment, not in U.S. employment.
If this analysis is correct, U.S. job seekers will no longer be able to tell the difference between recovery and recession. In the old economy, people lost jobs when the Federal Reserve caused a recession by curtailing the growth of money and credit. In the new economy, they lose their jobs because foreigners work for less.
This development has produced a disconnect between economic policy and employment. The Fed's low interest rates and President Bush's tax cuts cannot bridge the difference between wages and salaries in the U.S. vs. those in China and India.
When U.S. companies move their production for U.S. markets offshore, U.S. incomes and GDP decline and foreign income rises. When the offshore production is shipped to the U.S. to meet consumer demand, it becomes imports.
A country that produces offshore for its home market is going to have a big import bill, as those goods come on top of goods that foreign companies export. In 2002, the U.S. had a trade deficit in goods of $484 billion and a current account deficit of $503 billion.
With production and employment moving out of the U.S., the ability of the U.S. to pay for its imports with exports declines. In the end, there is nothing to bring about a balance between U.S. imports and exports except a collapse in the value of the dollar. When that happens, cheap goods from abroad become expensive, and the living standard of an import-dependent population drops.
During the short time that President Bush has been in office (Jan. 19, 2001-June 5, 2003), the dollar has lost 27 percent of its value in relation to the new European currency, the Euro. Considering that European economies are not doing well and that the Euro is an untested currency, the dollar's decline is not a good sign.
When we import $500 billion more than we export, foreigners must finance our deficit. They do this by using the dollars we pay them to purchase our assets, or they lend the money back to us by purchasing government or corporate bonds. Either way, Americans lose to foreigners the future income streams from stocks, real estate, and bonds, and this worsens our current account deficit in subsequent years.
In the past two years, foreigners' willingness to finance our current account deficit with their direct investment in the U.S. has declined from $335.6 billion in 2000 to $52.6 billion in 2002, a decline of 84 percent. This dramatic drop in the willingness of foreigners to hold U.S. dollar assets is the likely explanation for the drop in the dollar's value.
If U.S. companies cannot profitably employ costly U.S. labor to produce for U.S. consumers, it is unlikely that U.S. companies will be able to export a lot of goods made with U.S. labor. As our manufacturing sector moves abroad, our ability to trade declines as we produce fewer products to offer in exchange for our imports.
The dollar is the world's reserve currency, which gives us the ability to finance trade deficits that no other country could afford. When an alternative reserve currency appears, the U.S. will undergo wrenching economic, social and political adjustments.
Meanwhile, a rising stock market is consistent with "jobless recovery" as the lower labor costs of foreign employees drive profits. The growing gap between average incomes and executive compensation will politically handicap the Republican Party and weaken its resistance to a leftward turn in American politics.
Paul Craig Roberts is a columnist for The Washington Times and is nationally syndicated.
posted by scott 8:13 AM