Paul Craig Roberts opines
How big is planet earth? Large if compared to the moon, small if compared to the solar system, and infinitesimal if compared to the universe. The point is that the size of something depends on that to which it is being compared.
The San Francisco Federal Reserve Bank www.frbsf.org and offshoring’s shills forgot this simple point. On August 8 the SF Fed put out an Economic Letter in which US imports of goods made in China (both by Chinese and US firms) were explained away as a mere 2.7 percent of US personal consumption expenditures.
I am confident that the staff of the SF Fed were competent to get the percentage correct. But does it mean anything? No.
For most Americans, their income is used up on housing, energy, car payments, food, and medical care. Very little income is left, especially these days, for durable (for example, furniture and household equipment) and nondurable (for example, clothing and shoes) manufactured goods.
The appropriate comparison of imports from China (from both Chinese owned and US owned corporations) would be with the percentage of personal consumption expenditures spent on durable and nondurable manufactures. As I do not think the US is yet importing cars from China, or at least not in any volume, we can deduct motor vehicles from US personal consumption expenditures on durables. The total personal consumption expenditures on furniture, household equipment, other durables, clothing and shoes comprise 9.9 percent of personal consumption expenditures.
This means that goods imported from China (those made by Chinese and US firms) account for 27% of US expenditures on durable and nondurable manufactured goods not including cars. In other words, imports from China absorb more than one-fourth of
Americans’ expenditures on manufactured goods. The relevant figure is thus ten times the figure delivered by the SF Fed’s Economic Letter, which was picked up and shouted by shills for offshoring.
As about half of US imports from China are the offshored production of US corporations, 13-14 percent of US personal consumption expenditures on manufactures (excluding cars) is on Chinese-made products of US firms.
The substantial part of the US economy that has been offshored to China is only part of the loss of US jobs, consumer incomes, tax base and GDP. US corporations sell to Americans their goods manufactured in Indonesia, Taiwan, S. Korea, Eastern Europe and elsewhere--anywhere labor can be employed at a wage below labor’s contribution to profits.
When you add up all the offshored production by US corporations that import their products back into the US to sell to Americans, who no longer have the jobs, or incomes from the jobs from producing the goods that they consume, we have a very high cost of offshoring that does not enter into the offshoring corporations’ costs of production.
Libertarians and “free market” economists praise Wal-Mart’s low prices achieved by offshoring, but these prices do not include the costs of the decimated state and local tax bases that are destroying American cities, the costs of the high unemployment and the personal depression, crime, and income support programs. These and other costs are expenses imposed on third parties by the movement of American jobs abroad in order to maximize profits.
The earnings of offshoring corporations and retailers do not include all of the real costs. If the costs of offshoring were included--the unemployment and destroyed careers, the cutback in public services, the impact of the trade deficit in reducing the exchange value of the US dollar, and so forth--offshoring would not pay and would not occur.
Here we see one of the greatest failures of capitalism--the ability to produce by imposing the costs of production on innocent third parties who do not participate in the gain.
We see the same high external costs imposed on societies and countries by the financial sector’s greed for profits. The smashing of people’s retirement hopes, the foreclosure of homes, the zero interest rate on the savings of the retired are all the result of a laissez faire financial sector that took the advantage and leveraged debt to previously unimaginable levels. When the bubble burst, the financial sector, both in the US and Europe, used government to raid the pocketbooks of ordinary people in order to prevent any loss to the financial sector from its fraud, greed, and utter irresponsibility.
Capitalism works only when the costs of production are included in the price of the product. With jobs offshoring this is not the case. Free trade works, if it works at all, only when capital and technology remain in the domestic economy and find their best use or comparative advantage. Offshoring is the contradiction of free trade. It is the pursuit of lowest factor cost and absolute advantage.
The loss of manufacturing to offshoring is not the only cost to Americans. Tradable professional services, such as software engineering, have been offshored, thus denying employment to US university graduates. In recent years, a college degree means unemployment, unserviceable student loans, and living with one’s parents.
Jobs offshoring has benefited Wall Street and corporate profits, but it has dismantled the ladders of upward mobility that made America an opportunity society. Yet, America’s political leaders have no clue. Recently President Obama said that part of the solution to the dragging US economy was to pass the “free trade” agreement with South Korea.
In other words, more jobs offshoring will solve the problem.
Many of the few who are aware of the problem blame China for “currency manipulation,” which is also a favorite scapegoat for offshoring’s shills. The argument is that China attracts jobs offshoring by keeping its currency undervalued to the dollar by “manipulating” its currency to keep it pegged to the dollar.
In other words, when the US government manipulates its currency by devaluing it, the Chinese currency follows it down.
This is just another false claim that originates from the offshoring corporations, the bought-and-paid-for economists and policymakers, and the presstitute media. China pegged its currency to the US dollar in order to assure the world that the questionable money of a communist country was as good as the dollar.
Because of US failures, the Chinese currency has become better than the dollar and is undervalued as a result of the peg. China has adjusted to this fact by replacing the fixed peg with a moving peg. The Chinese currency is gaining in US dollar value, but the dollar is depreciating faster than the moving peg is moving. Therefore, China’s currency remains overvalued.
But this is not the reason so many US corporations are producing in China for their American customers. As China, India, Indonesia, and other countries have large excess supplies of labor, labor can be hired at wages that are below labor’s contribution to profit.
The total lack of any patriotism by first world corporations toward their native lands is destroying, economically, Western civilization. As other factors are also destroying Western civilization, we are entering a collapse comparable to the collapse of the Western Roman Empire and the remaking of the world.
About the author: Former associate editor of The Wall Street Journal and columnist for Business Week, Dr. Paul Craig Roberts served on personal and committee staffs in the House and Senate, and served as Assistant Secretary of the Treasury for Economic Policy during the Reagan Administration.