The
Diminishing American Economy
By Paul
Craig Roberts
June
25, 2019 "Information
Clearing House"
- Since June 2009 Americans have
lived in the false reality of a recovered
economy.
Various fake news and manipulated
statistics have been used to create this false
impression.
However, indicators that really count
have not supported the false picture and were
ignored.
For
example, it is normal in a recovering or
expanding economy for the labor force
participation rate to rise as people enter the
work force to take advantage of the job
opportunities.
During the decade of the long recovery,
from June 2009 through May 2019, the labor force
participation rate consistently fell from 65.7
to 62.8 percent.
https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm
Another
characteristic of a long expansion is high and
rising business investment. However, American
corporations have used their profits not for
expansion, but to reduce their market
capitalization by buying back their stock.
Moreover, many have gone further and
borrowed money in order to repurchase their
shares, thus indebting their companies as they
reduced their capitalization!
That boards, executives, and shareholders
chose to loot their own companies indicates that
the executives and owners do not perceive an
economy that warrants new investment.
How is
the alleged 10-year boom reconcilled with an
economy in which corporations see no investment
opportunities?
Over
the course of the alleged recovery, real retail
sales growth has declined, standing today at
1.3%.
https://www.multpl.com/us-real-retail-sales-growth
This figure is an overstatement, because
the measurement of inflation has been revised in
ways that understate inflation. As an example,
the consumer price index, which formerly
measured the cost of a constant standard of
living, now measures the cost of a
variable standard of living.
If the cost of an item in the index
rises, the item is replaced by a lower cost
alternative, thus reducing the measured rate of
inflation. Other price increases are redefined
as quality improvements, and their impact on
inflation is neutralized.
Real
retail sales cannot grow when “for most U.S.
workers, real wages have barely budged in
decades.”
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
For
full-time employed men real wages have fallen
4.4% since 1973.
https://www.businessinsider.com/record-median-household-income-is-hiding-a-chilling-fact-2017-9
Economic shills explain away the facts.
For example, they argue that people are
working more hours, so their real earnings are
up although their real wages are not.
Others
argue that the declining labor force
participation rate reflects baby boomer
retirements.
Of course, if you look around in Home
Depot and Walmart, you will see many retirees
working to supplement their Social Security
pensions that have been denied cost of living
adjustments by the undermeasurement of
inflation.
Other
economic shills say that the low unemployment
rate means there is a labor shortage and that
everyone who wants a job has one.
They don’t tell you that
unemployment has been defined so as to
exclude millions of discouraged workers who
could not find jobs and gave up looking.
If you have not looked for a job in the
past 4 weeks, you are no longer considered to be
in the work force.
Thus, your unemployment does not count.
It is
expensive to look for employment.
Scarce money has to be spent on
appearance and transportation, and after awhile
the money runs out.
It is emotionally expensive as well.
Constant rejections hardly build
confidence or hope.
People turn to cash odd jobs in order to
survive.
It turns out that many of the homeless
have jobs, but do not earn enough to cover rent.
Therefore, they live on the streets.
The
propagandistic 3.5% unemployment rate (U3) does
not include any of the millions of discouraged
workers who cannot find jobs.
The government does have a seldom
reported U6 measure of unemployment that
includes short-term discouraged workers.
As of last month this rate stood at 7.1%,
more than double the 3.5% rate. John Williams of
shadowstats.com
continues to estimate the long-term discouraged
workers, as the government formerly did.
He finds the actual US rate of
unemployment to be 21%.
The 21%
rate makes sense in light of Census Bureau
reports that one-third of Americans age 18-34
live at home with parents because they can’t
earn enough to supprt an independent existence.
https://www.cnsnews.com/news/article/terence-p-jeffrey/census-more-americans-18-34-now-live-parents-spouse
According to Federal Reserve reports, 40 % of
American households cannot raise $400 cash.
https://www.cnbc.com/2018/05/22/fed-survey-40-percent-of-adults-cant-cover-400-emergency-expense.html
The US
economy was put into decline by short-sighted
capitalist greed.
When the Soviet Union collapsed in the
last decade of the 20th century, India and China
opened their economies to the Western countries.
Corporations saw in the low cost of
Chinese and Indian labor opportunities to
increase their profits and share prices by
producing offshore the goods and services for
their domestic markets.
Those hesitant to desert their home towns
and work forces were pushed offshore by Wall
Street’s threats to finance takeovers unless
they increased their profits.
The
shift of millions of high productivity, high
value-added American jobs to Asia wrecked the
careers and prospects of millions of Americans
and severely impacted state and local budgets
and pension funds. The external costs of jobs
offshoring were extremely high. The
cost to the economy far exceeded the profits
gained by jobs offshoring. Almost
overnight prosperous American cities, once a
source of manufacturing and industrial strength,
became economic ruins.
https://www.claritypress.com/product/the-failure-of-laissez-faire-capitalism/
The
“trade war” with China is an orchestration to
cover up the fact that America’s economic
problems are the result of its own corporations
and Wall Street moving American jobs offshore
and because the US government did nothing to
stop the deconstruction of the economy.
The
Reagan administration’s supply-side economic
policy, always misrepresented and wrongly
described, cured stagflation, the malaise of
rising inflation and unemployment described at
the time as worsening “Phillips curve”
trade-offs between inflation and unemployment.
No one has seen a Phillips curve since
the Reagan administration got rid of it.
The Federal Reserve hasn’t even been able
to resurrect it with years of money printing.
The Reagan administration had the economy
poised for long-run non-inflationary growth, a
prospect that was foiled by the rise of jobs
offshoring.
Normally a government would be protective of
jobs as the government wants to take in tax
revenues rather than to pay out unemployment and
social welfare benefits.
Politicians want economic success, not
economic failure.
But greed overcame judgment, and the
economy’s prospects were sacrificed to
short-term corporate and Wall Street greed.
The
profits from jobs offshoring are short-term,
because jobs offshoring is based on the fallacy
of composition—the assumption that what is true
for a part is true for the whole.
An individual corporation, indeed a
number of corporations, can benefit by
abandoning its domestic work force and producing
abroad for its domestic market. But when many
firms do the same, the impact on domestic
consumer income is severe. As Walmart jobs don’t
pay manufacturing wages, aggregate consumer
demand takes a hit from declining incomes, and
there is less demand for the offshoring firms’
products. Economic growth falters.
When this happened, the solution of Alan
Greenspan, the Federal Reserve Chairman at the
time, was to substitute an expansion of consumer
debt for the missing growth in consumer income.
The problem with his solution is that the
growth of consumer debt is limited by consumer
income.
When the debt can’t be serviced, it can’t
grow. Moreover,
debt service drains income into interest and fee
charges, further reducing consumer purchasing
power. Thus, the offshoring of jobs has
limited the expansion of aggregate consumer
demand.
As corporations are buying back their
stock instead of investing, there is nothing to
drive the economy.
The economic growth figures we have been
seeing are illusions produced by the
understatement of inflation.
Much of
America’s post-World War II prosperity and most
of its power are due to the US dollar’s role as
world reserve currency.
This role guarantees a worldwide demand
for dollars, and this demand for dollars means
that the world finances US budget and trade
deficits by purchasing US debt.
The world gives us goods and services in
exchange for our paper money.
In other words, being the reserve
currency allows a country to pay its bills by
printing money.
A
person would think that a government would be
protective of such an advantage and not
encourage foreigners to abandon dollars.
But the US government, reckless in its
arrogance, hubris, and utter ignorance, has done
all in its power to cause flight from the
dollar.
The US government uses the dollar-based
financial system to coerce other countries to
accommodate American interests at their expense.
Sanctions on other countries, threats of
sanctions, asset freezes and confiscations, and
so forth have driven large chunks of the
world—Russia, China, India, Iran—into non-dollar
transactions that reduce the demand for dollars.
Threats against Europeans for purchasing Russian
energy and Chinese technology products are
alienating elements of Washington’s European
empire.
A country with the massive indebtedness
of the US government would quickly be reduced to
Third World status if the value of the dollar
collapsed from lack of demand.
There
are many countries in the world that have bad
leadership, but US leadership is the worst of
all.
Never very good, US leadership went into
precipitous and continuous decline with the
advent of the Clintons, continuing through Bush,
Obama, and Trump.
American credibility is at a low point.
Fools like John Bolton and Pompeo think they can
restore credibility by blowing up countries.
Unless the dangerous fools are fired, we
will all have to experience how wrong they are.
Formerly the Federal Reserve conducted monetary
policy with the purpose of minimizing inflation
and unemployment, but today and for the past
decade the Federal Reserve conducts monetary
policy for the purpose of protecting the balance
sheets of the banks that are “too big to fail”
and other favored financial institutions.
Therefore, it is problematic to expect the same
results.
Today
it is possible to have a recession and to
maintain high prices of financial instruments
due to Fed support of the instruments. Today it
is possible for the Fed to prevent a stock
market decline by purchasing S&P futures, and to
prevent a gold price rise by having its agents
dump naked gold shorts in the gold futures
market. Such things as these were not done when
I was in the Treasury. This type of
intervention originated in the plunge protection
team created by the Bush people in the last year
of the Reagan administration. Once the Fed
learned how to use these instruments, it has
done so more aggressively.
Market
watchers who go by past trends overlook that
today market manipulation by central authorities
plays a larger role than in the past. They
mistakenly expect trends established by market
forces to hold in a manipulated economic
environment.
Dr. Paul Craig Roberts was Assistant Secretary of
the Treasury for Economic Policy and associate
editor of the Wall Street Journal. He was
columnist for Business Week, Scripps Howard News
Service, and Creators Syndicate. He has had many
university appointments. His internet columns
have attracted a worldwide following. Roberts'
latest books are
The Failure of Laissez Faire
Capitalism and Economic Dissolution of the West,
How America Was Lost,
and
The Neoconservative Threat to
World Order.
Donate
and support Dr, Roberts Work.
=======
See
Also
Watch:
The Men Who Stole the World: Inside the 2008
Financial Crisis:
A
look at how top executives on Wall Street helped
trigger a global financial crisis - and how it
may happen again.
Stocks Move Lower on
Economic Data, Powell Remarks
Watch:
The Men Who Stole the World: Inside the 2008
Financial Crisis:
A
look at how top executives on Wall Street helped
trigger a global financial crisis - and how it
may happen again.
The
views expressed in this article are solely those
of the author and do not necessarily reflect the
opinions of Information Clearing House.
