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January 16, 2006

Superpower No More

Economy  Iraq  Politics

A post from last week pointed out that US GDP growth is being fueled entirely by debt. Old-school conservative Paul Craig Roberts (former Senior Research Fellow of the Hoover Institution, former associate editor of the Wall Street Journal, former Asst. Secretary of the Treasury under Reagan — which is to say, no liberal) agrees. He goes further, blaming the Bush administration and its disastrous war for bringing the US to the brink of an economic abyss. Excerpts:

President George W. Bush has destroyed America's economy, along with America's reputation as a truthful, compassionate, peace-loving nation that values civil liberties and human rights.

Nobel Prize-winning economist Joseph Stiglitz and Harvard University budget expert Linda Bilmes have calculated the cost to Americans of Bush's Iraq war to be between $1 trillion and $2 trillion. This figure is five to 10 times higher than the $200 billion Bush's economic adviser Larry Lindsey estimated.

Lindsey was fired by Bush because his estimate was three times higher than the $70 billion figure that the Bush administration used to mislead Congress and the American voters about the burden of the war. You can't work in the Bush administration unless you are willing to lie for Dub-ya.

Americans need to ask themselves if the White House is in competent hands when a $70 billion war becomes a $2 trillion war. [...]

Stiglitz's $2 trillion estimate is OK as far as it goes. But it doesn't go far enough. My own estimate is a multiple of Stiglitz's.

Stiglitz correctly includes the cost of lifetime care of the wounded, the economic value of destroyed and lost lives, and the opportunity cost of the resources diverted to war destruction. What he leaves out is the war's diversion of the nation's attention away from the ongoing erosion of the U.S. economy. [...]

>In 2005, for the first time on record, consumer, business and government spending exceeded the total income of the country.>

America can consume more than it produces only if foreigners supply the difference. China recently announced that it intends to diversify its foreign exchange holdings away from the U.S. dollar. If this is not merely a threat in order to extort even more concessions from Bush, Americans' ability to consume will be brought up short by a fall in the dollar's value, as China ceases to be a sponge that is absorbing an excessive outpouring of dollars. Oil-producing countries might follow China's lead.

Now that Americans are dependent on imports for their clothing, manufactured goods and even high technology products, a decline in the dollar's value will make all these products much more expensive. American living standards, which have been treading water, will sink.

A decline in living standards is an enormous cost and will make existing debt burdens unbearable. Stiglitz did not include this cost in his estimate. [...]

The ladders of upward mobility are being rapidly dismantled by offshore production for U.S. markets, job outsourcing and importation of foreign professionals on work visas. [...]

This fact is made abundantly clear from the payroll jobs data over the past five years. December's numbers, released on Jan. 6, show the same pattern that I have reported each month for years. Under pressure from offshore outsourcing, the U.S. economy only creates low-productivity jobs in low-pay domestic services.

Only a paltry number of private sector jobs were created — 94,000. Of these 94,000 jobs, 35,800 — or 38 percent — are for waitresses and bartenders. Health care and social assistance account for 28 percent of the new jobs, and temporary workers account for 10 percent. These three categories of low-tech, nontradable domestic services account for 76 percent of the new jobs. This is the jobs pattern of a poor Third World economy that consumes more than it produces.

America's so-called First World superpower economy was only able to create in December a measly 12,000 jobs in goods-producing industries, of which 77 percent are accounted for by wood products and fabricated metal products — the furniture and roofing metal of the housing boom that has now come to an end. U.S. employment declined in machinery, electronic instruments, and motor vehicles and parts. [...]

When manufacturing leaves a country, engineering, R&D and innovation rapidly follow. Now that outsourcing has killed employment opportunities for U.S. citizens and even General Motors and Ford are failing, U.S. economic growth depends on how much longer the rest of the world will absorb our debt and finance our consumption.

How much longer will it be before "the world's only remaining superpower" is universally acknowledged as a debt-ridden, hollowed-out economy desperately in need of IMF bailout? [Emphasis added]

The guy sounds like James Kunstler. Kunstler has long insisted that the US economy consists nowadays of little more than the creation and servicing of suburban sprawl: construction, retail, hair cutting and fast food — the stuff that cannot be outsourced overseas. Roberts' figures bear this out, at least as regards new job creation. When the construction bubble bursts, what then?

Posted by Jonathan at January 16, 2006 09:20 PM  

Comments

Makes me think of Hersey's novel White Lotus - a U.S. that is a low scale agrarian society, dominated by the Chinese. His points and purpose were not the economy, but still sends shivers.
Doing a great job on your site, keep it up.

Posted by: Steven at January 17, 2006 06:51 AM