The US Labor Force: One Foot in the Third World

[ptunic]

I see trade with China as an enormous positive. If you study free trade, you will see that in nearly every situation it is a win-win for both countries.

Free trade on the individual level is almost always a win-win situation, some exceptions being fraud. The reason for this is that trade is voluntary. Both parties would not complete the deal unless it makes sense for both of them.

It is the same way with trade between countries, regardless of it is manufactured goods, or services such as software development.

I like how so many people try to use the trade deficit as a way to scapegoat other countries to avoid blaming ourselves. One of the major root causes in this case is the majority of US citizens are now spending almost as much, if not more, than they earn. THAT is the root cause. But it always has been, and always will be easier for people to blame others than themselves. That goes for individuals, and that goes for countries.

A very common myth is that exports are good and imports are bad. That doesn't make any sense. One economist over 100 years ago said if that was true, then the best trade policy would be to take all your goods, put them on a ship, and then sink the ship. That way you would have huge exports with no imports, and you would have a massive trade surplus.

-Taric

 

[ptunic]

I would add a low savings rate is just one of several issues in the US. Another, as was mentioned, is education. Personally I think we should switch to a fully private, or voucher system. Either that, or pay France or another country with excellent schools to run our schools for us. Either choice would be a massive improvement.

Our other major problem is our medical system. We are in the middle of a slow train-wreck, and by that I don't mean something that will hit us one day, I mean something that has hit us for 10 years, is hitting us this very second, will hit us tomorrow, and will continue to hit us for decades if nothing is done. The problem lies in the whole 3rd payer system, eg insurance, (actually it is more like a "5th" payer system since the government + the companies are involved too). People have huge incentives to overuse and overpay for health services.. since why not? Other people pay most of the tab. A solution here is to make people have economic incentives to keep costs low, in a free-market environment. A pure free-market approach here would be to end all government regulations and spending in the health care sector. People won't go for that, of course, so the next best thing is to switch people over to the HSAs (Health Savings Accounts), which are at least a big improvement, and transition Medicare/Medicaid to a sort of government-sponsored HSA account. In these cases, the government is still involved, but you are at least getting the incentives correct for over half the costs.

While wages haven't been rising quickly, total employee compensation has been. It is just that corporate medical insurance premium increases are eating up roughly 80% of the new wage increases. If we fix the health care sector, inflation-adjusted cash wages would grow much faster.

-Taric

 

[AAAintheBeltway]

Quote from ptunic:

I see trade with China as an enormous positive. If you study free trade, you will see that in nearly every situation it is a win-win for both countries.

Free trade on the individual level is almost always a win-win situation, some exceptions being fraud. The reason for this is that trade is voluntary. Both parties would not complete the deal unless it makes sense for both of them.

It is the same way with trade between countries, regardless of it is manufactured goods, or services such as software development.

I like how so many people try to use the trade deficit as a way to scapegoat other countries to avoid blaming ourselves. One of the major root causes in this case is the majority of US citizens are now spending almost as much, if not more, than they earn. THAT is the root cause. But it always has been, and always will be easier for people to blame others than themselves. That goes for individuals, and that goes for countries.

A very common myth is that exports are good and imports are bad. That doesn't make any sense. One economist over 100 years ago said if that was true, then the best trade policy would be to take all your goods, put them on a ship, and then sink the ship. That way you would have huge exports with no imports, and you would have a massive trade surplus.

-Taric

I think the objection tends to be a bit more sophisticated than just being against trade. The end all and be all of public policy is not economic efficiency. We have laws against child labor, minimum wage laws and pollution rules. It is not totally crazy to want to prevent end runs around those policies through outsourcing. There are security implications as well. We should be concerned about companies being coerced to transfer intellectual property or provide political support for chinese policies.

The other side of the debate is that a protected economy tends to become fat and uncompetitive. You can only delay the day of reckoning for so long.

 

[Lights]

maybe this is forcing americans to think about education. education that is inspired by people, and not the government.

Quote from K.C.:

by Paul Craig Roberts

In May the Bush economy eked out a paltry 73,000 private sector jobs: 20,000 jobs in construction (primarily for Mexican immigrants), 21,000 jobs in wholesale and retail trade, and 32,500 jobs in health care and social assistance. Local government added 5,000 for a grand total of 78,000.
Not a single one of these jobs produces an exportable good or service. With Americans increasingly divorced from the production of the goods and services that they consume, Americans have no way to pay for their consumption except by handing over to foreigners more of their accumulated stock of wealth. The country continues to eat its seed corn.

Only 10 million Americans are classified as "production workers" in the Bureau of Labor Statistics nonfarm payroll tables. Think about that.

The US with a population approaching 300 million has only 10 million production workers. That means Americans are consuming the products of other countries labor.

In the 21st century the US economy has been unable to create jobs in export and import-competitive industries. US job growth is confined to nontradable domestic services.

This movement of the American labor force toward Third World occupations in domestic services has dire implications both for US living standards and for America's status as a superpower.

Economists and policymakers are in denial while the US economy implodes in front of their noses. The US-China Commission is making a great effort to bring reality to policymakers by holding a series of hearings to explore the depths of American decline.

The commissioners got an earful at the May 19 hearings in New York at the Council on Foreign Relations. Ralph Gomory explained that America's naïve belief that offshore outsourcing and globalism are working for America is based on a 200 year old trade theory, the premises of which do not reflect the modern world.

Clyde Prestowitz, author of the just-published Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, explained that America's prosperity is an illusion. Americans feel prosperous because they are consuming $700 billion annually more than they are producing. Foreigners, principally Asians, are financing US over-consumption, because we are paying them by handing over our markets, our jobs, and our wealth.

My former Business Week colleague, Bill Wolman, explained the consequences for US workers of suddenly facing direct labor market competition from hundreds of millions of Chinese and Indian workers.

Toward the end of the 20th century three developments came together that are rapidly moving high productivity, high value-added jobs that pay well away from the US to Asia: the collapse of world socialism, which vastly increased the supply of labor available to US capital; the rise of the high speed Internet; the extraordinary international mobility of US capital and technology.

First World capital is rapidly deserting First World labor in favor of Third World labor, which is much cheaper because of its abundance and low cost of living. Formerly, America's high real incomes were protected from cheap foreign labor, because US labor worked with more capital and better technology, which made it more productive. Today, however, US capital and technology move to cheap labor, or cheap labor moves via the Internet to US employment.

The reason economic development in China and some Indian cities is so rapid is because it is fueled by the offshore location of First World corporations.

Prestowitz is correct that the form that globalism has taken is shifting income and wealth from the First World to the Third World. The rise of Asia is coming at the expense of the American worker.

Global competition could have developed differently. US capital and technology could have remained at home, protecting US incomes with high productivity. Asia would have had to raise itself up without the inside track of First World offshore producers.

Asia's economic development would have been slow and laborious and would have been characterized by a gradual rise of Asian incomes toward US incomes, not by a jarring loss of American jobs and incomes to Asians.

Instead, US corporations, driven by the short-sighted and ultimately destructive focus on quarterly profits, chose to drive earnings and managerial bonuses by substituting cheap Asian labor for American labor.

US corporations, driven by the short-sighted and ultimately destructive focus on quarterly profits, chose to drive earnings and managerial bonuses by substituting cheap Asian labor for American labor.

American businesses' short-run profit maximization plays directly into the hands of thoughtful Asian governments with long-run strategies. As Prestowitz informed the commissioners, China now has more semiconductor plants than the US. Short-run goals are reducing US corporations to brand names with sales forces marketing foreign made goods and services.

By substituting foreign for American workers, US corporations are destroying their American markets. As American jobs in the higher paying manufacturing and professional services are given to Asians, and as American school teachers and nurses lose their occupations to foreigners imported under work visa programs, American purchasing power dries up, especially once all the home equity is spent, credit cards are maxed out and the dollar loses value to the Asian currencies.

The dollar is receiving a short-term respite as a result of the rejection of the European Union by France and Holland. The fate of the Euro, which rose so rapidly in value against the dollar in recent years, is uncertain, thus possibly cutting off one avenue of escape from the over-produced US dollar.

However, nothing is in the works to halt America's decline and to put the economy on a path of true prosperity. In January 2004, I told a televised conference of the Brookings Institution in Washington, DC, that the US would be a Third World economy in 20 years. I was projecting the economic outcome of the US labor force being denied First World employment and forced into the low productivity occupations of domestic services.

Considering the vast excess supplies of labor in India and China, Asian wages are unlikely to rapidly approach existing US levels. Therefore, the substitution of Asian for US labor in tradable goods and services is likely to continue.

As US students seek employments immune from outsourcing, engineering enrollments are declining.

The exit of so much manufacturing is destroying the supply chains that make manufacturing possible.

The Asians will not give us back our economy once we have lost it. They will not play the "free trade" game and let their labor force be displaced by cheap American labor.

Offshore outsourcing is dismantling the ladders of America's fabled upward mobility. The US labor force already has one foot in the Third World. By 2024 the US will be a has-been country.




--------------------------------------------------------------------------------

Paul Craig Roberts has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions. This article is published in the Chronicle with permission of the author. He can be reached at: paulcraigroberts@yahoo.com.



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Copyright © 2005 The Baltimore Chronicle. All rights reserved.

 

[Hydroblunt]

Quote from K.C.:

The US with a population approaching 300 million has only 10 million production workers. That means Americans are consuming the products of other countries labor.

And it has been like this for centuries, not just with US but any "1st world" nation vs a "3rd world" nation. All these academics & intellectuals and they have yet to figure out how simple the basics of this game is.

 

[Hydroblunt]

Quote from ptunic:

I see trade with China as an enormous positive. If you study free trade, you will see that in nearly every situation it is a win-win for both countries.

WTF are you talking about? Free trade equals a few rich pigs and masses of exploited poor that have been run off their land into sweatshops. Free trade equals everything goes, it's basically another term for pure capitalism on a global scale. Zero concern for the environment, zero concern for fair competition and ethics/morality whatsoever. I know books and theories teach us otherwise, but in real life things aren't so dandy.

 

[dddooo]

Quote from ptunic:

I see trade with China as an enormous positive.

Me too, too bad we don't trade with China. You can call it "trade" all you want, but trade is a business of buying AND selling. We're certainly buying from China but they are not buying from us (hence huge trade deficit). It's not trade, its employment - american multinationals hiring cheap chinese labor.

 

[drsteph]

Quote from Lights:

maybe this is forcing americans to think about education. education that is inspired by people, and not the government.

Check out the unbelievable number of home schooled children in the US. That stuff is just off the radar, so you don't hear much about it. But it is there.

Unfortunately, I don't think that there is much science education going on with those types of schooling.

 

[Covertibility]

Quote from ptunic:

I would add a low savings rate is just one of several issues in the US. Another, as was mentioned, is education. Personally I think we should switch to a fully private, or voucher system. Either that, or pay France or another country with excellent schools to run our schools for us. Either choice would be a massive improvement.

Our other major problem is our medical system. We are in the middle of a slow train-wreck, and by that I don't mean something that will hit us one day, I mean something that has hit us for 10 years, is hitting us this very second, will hit us tomorrow, and will continue to hit us for decades if nothing is done. The problem lies in the whole 3rd payer system, eg insurance, (actually it is more like a "5th" payer system since the government + the companies are involved too). People have huge incentives to overuse and overpay for health services.. since why not? Other people pay most of the tab. A solution here is to make people have economic incentives to keep costs low, in a free-market environment. A pure free-market approach here would be to end all government regulations and spending in the health care sector. People won't go for that, of course, so the next best thing is to switch people over to the HSAs (Health Savings Accounts), which are at least a big improvement, and transition Medicare/Medicaid to a sort of government-sponsored HSA account. In these cases, the government is still involved, but you are at least getting the incentives correct for over half the costs.

While wages haven't been rising quickly, total employee compensation has been. It is just that corporate medical insurance premium increases are eating up roughly 80% of the new wage increases. If we fix the health care sector, inflation-adjusted cash wages would grow much faster.

-Taric

Spoken like a true economist. If you live in the US, you do know that ultimately any budget crisis will be "fixed" with higher taxes?

 

[Bob111]

Quote from dddooo:

Me too, too bad we don't trade with China. You can call it "trade" all you want, but trade is a business of buying AND selling.

look at US bonds. guess who is buying and who is selling?