US Invades Iraq; Cheap Labor Invades US; Economy Suffers
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Is President Bush focused on Iraq because he doesn't know what to do about the economy? The Federal Reserve has cut interest rates dramatically, but there are (as of July) 116,000 fewer jobs now than eight months ago when the recovery supposedly began.

The phenomenon of losing jobs during economic recovery marked the 1991 recovery when job loss continued 13 months into the recovery.

Business profits are disproportionately affected by recession. Job losses during the last two recoveries suggest that profits are recovering less quickly. Globalism might explain the stress on profits. The world is a different place today from 20 years ago when socialism smothered most of the earth, leaving the U.S. as the only efficient producer.

Today the U.S. economy is no longer protected by socialism's failures. The U.S. is even losing agricultural markets, and U.S. multinational corporations rely heavily on foreign earnings for their profits. The mobility of capital and technology is sending U.S. high-tech jobs to third world countries. With cheap skilled labor, China is becoming a favorite location for U.S. manufacturers.

In a word, the U.S. now exports manufacturing, engineering, and research and development jobs abroad, where these jobs are filled by foreign nationals who produce for the U.S. market. The goods are still sold in the U.S., but the incomes associated with their production belong to foreigners.

In manufactured goods, the U.S. trade deficit is currently running at a $350 billion annual rate. Trade enthusiasts often emphasize that every $1 billion in U.S. exports means 10,000 U.S. manufacturing jobs. In 2001 U.S. manufactured exports totaled $640 billion, enabling trade enthusiasts to claim that free trade brought the U.S. 6.4 million jobs.

This rule of thumb might well be true. However, it has another side. In 2001 we imported $951 billion in manufactured goods, which means an equivalent job loss of 9.5 million jobs. In 2001 the net effect of free trade was a loss of 3.1 million U.S. manufacturing jobs. In 2002 the level of manufacturing job loss has risen to 3.5 million, an increase over last year of 400,000.

The loss of high productivity jobs means less income growth in the U.S., which in turn means sluggish recoveries, less economic growth and less upward mobility.

Simultaneously the U.S. is importing millions of poor non-English speaking immigrants each year. These immigrants hold down per capita income growth in the low-tech areas of the U.S. economy.

By exporting well-paying jobs and importing poor people, the U.S. is eroding per capita income growth. As the consumer sector accounts for two-thirds of the economy and is deeply in debt, how can there be a strong recovery?

Business investment needs the spur of consumer demand which in turn requires income growth. Low interest rates have helped keep consumer demand alive through mortgage refinancing. The drop in mortgage payments has freed money for household spending. But this is a one time boost. When it plays out, what will drive consumer demand?

Not more consumer debt unless stock prices rise, and stock prices need earnings to rise.

And what happens if the hot housing market turns out to be a bubble as well? Will heavily indebted households find themselves with negative equity in their homes?

The U.S. has not played its economic cards well. Other countries do not provide the U.S. the same access to their markets as we provide them. Free trade is largely an illusion. Trade enthusiasts relying on theory are used as cover by special interests who benefit from exclusive agreements and locked-up distribution channels.

The incomes to support the U.S. share of world consumption are not being generated in the U.S. Sooner or later this fact will reduce foreign capital flows to the U.S. and the value of the dollar.

The U.S. feels rich but could easily become bogged down trying to occupy the Middle East, while the export of jobs and import of third world immigrants tank both the economy and the American identity.

Paul Craig Roberts 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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