Shrinking the US Dollar from the Inside-Out
Offshoring Interests and Economic Dogma
By Paul craig Roberts
On December 8, Chinese and French news services reported that Iran had stopped billing its oil exports in dollars.
Americans might never hear this news as the independence of the US media was destroyed in the 1990s when Rupert Murdoch persuaded the Clinton administration and the quislings in Congress to allow the US media to be monopolized by a few mega-corporations.
Iran’s oil minister, Gholam Hossein Nozari, declared: “The dollar is an unreliable currency in regards to its devaluation and the loss oil exporters have endured from this trend.” Iran has proposed to OPEC that the US dollar no longer be used by any oil exporting countries. As the oil emirates and the Saudis have already decided to reduce their holdings of US dollars, the US might actually find itself having to pay for its energy imports in euros or yen.
Venezuela’s Chavez, survivor of a US-led coup against him and a likely target of a US assassination attempt, might follow the Iranian lead. Also, Russia’s Putin, who is fed up with the US government’s efforts to encircle Russia militarily, will be tempted to add Russia’s oil exports to the symbolic assault on the dollar.
The assault is symbolic, because the dollar is not the reserve currency due to oil exports being billed in dollars. It’s the other way around. Oil exports are billed in dollars, because the dollar is the reserve currency.
What is important to the dollar’s value and its role as reserve currency is whether foreigners continue to consider dollar-denominated assets sufficiently attractive to absorb the constant flow of red ink from US trade and budget deficits. If Iran and other countries do not want dollars, they can exchange them for other currencies regardless of the currency in which oil is billed.
Indeed, the evidence is that foreigners are not finding dollar-denominated assets sufficiently attractive. The dollar has declined dramatically during the Bush regime regardless of the fact that oil is billed in dollars. Iran is dropping dollars in response to the dollar’s loss of value. This is a market response to a depreciating currency, not a punitive action by Iran to sink the dollar.
Oil bills are only a small part of the problem. Oil minister Nozari’s statement about the loss suffered by oil exporters applies to all exporters of all products.
A quarter century ago US oil imports accounted for the US trade deficit. The concerns expressed over the years about “energy dependence” accustomed Americans to think of trade problems only in terms of oil. The desire to gain “energy independence” has led to such foolish policies as subsidies for ethanol, the main effect of which is to drive up food prices and further ravage the poor.
Today oil imports comprise a small part of the US trade deficit. During the decades when Americans were fixated on “the energy deficit,” the US became three to four times more dependent on foreign made manufactures. America’s trade deficit in manufactured goods, including advanced technology products, dwarfs the US energy deficit.
For example, the US trade deficit with China is more than twice the size of the US trade deficit with OPEC. The US deficit with Japan is about the size of the US deficit with OPEC. With an overall US trade deficit of more than $800 billion, the deficit with OPEC only comprises one-eighth.
If abandonment of the dollar by oil exporters is not the cause of the dollar’s woes, what is?
There are two reasons for the dollar’s demise. One is the practice of American corporations offshoring their production for US consumers. When US corporations move to foreign countries their production of goods and services for American consumers, they convert US Gross Domestic Product (GDP) into imports. US production declines, US jobs and skill pools are destroyed, and the trade deficit increases. Foreign GDP, employment, and exports rise.
US corporations that offshore their production for US markets account for a larger share of the US trade deficit than does the OPEC energy deficit. Half or more of the US trade deficit with China consists of the offshored production of US firms. In 2006, the US trade deficit with China was $233 billion, half of which is $116.5 billion or $10 billion more than the US deficit with OPEC.
The other reason for the dollar’s demise is the ignorance and nonchalance of “libertarian free market free trade economists” about offshoring and the trade deficit.
There is a great deal to be said in behalf of free markets and free trade. However, for many economists free trade has become an ideology, and they have ceased to think.
Such economists have become insouciant shills for the offshoring interests that fund their research and institutes. Their interests are tied together with those of the offshoring corporations.
Free trade economists have made three massive errors: (1) they confuse labor arbitrage across international borders with free trade when nothing in fact is being traded, (2) they have forgot the two necessary conditions in order for the classic theory of free trade, which rests on the principle of comparative advantage, to be valid, and (3) they are ignorant of the latest work in trade theory, which shows that free trade theory was never correct even when the conditions on which it is based were prevalent.
When a US firm moves its output abroad, the firm is arbitraging labor (and taxes, regulation, etc.) across international borders in pursuit of absolute advantage, not in pursuit of comparative advantage at home. When the US firm brings its offshored goods and services to the US to be marketed, those goods and services count as imports.
David Ricardo based comparative advantage on two necessary conditions: One is that a country’s capital seek comparative advantage at home and not seek absolute advantage abroad. The other is that countries have different relative cost ratios of producing tradable goods. Under the Ricardian conditions, offshoring is prohibited.
Today capital is as internationally mobile as traded goods, and knowledge-based production functions have the same relative cost ratios regardless of the country of location. The famous Ricardian conditions for free trade are not present in today’s world.
In the most important development in trade theory in 200 years, the distinguished mathematician Ralph Gomory and the distinguished economist and former president of the American Economics Association, William Baumol, have shown that the case for free trade was invalid even when the Ricardian conditions were present in the world. Their book, Global Trade and Conflicting National Interests, first presented as lectures at the London School of Economics, was published in 2000 by MIT Press.
While free trade economists hold on to their doctrine-turned-ideology, the US dollar and the American economy are dying.
One of the great lies of the offshoring interests is that US manufacturing is in trouble because of poor US education and a shortage of US scientists and engineers. Pundits such as Thomas Friedman have helped to spread this ignorance until it has become a dogma. Recently, General Electric CEO Jeffrey Immelt lent his weight to this falsehood. (See “The US No Longer Drives Global Economic Growth,” Manufacturing & Technology News, Nov. 30, 2007.)
The fact of the matter is that the offshoring of US engineering and R&D jobs and the importation of foreign engineers and scientists on work visas have combined with educational subsidies to produce a surplus of American scientists and engineers, many of whom are unable to find jobs when they graduate from university or become casualties of offshoring and H-1b visas.
Corporate interests continue to lobby Congress for more foreign workers, claiming a non-existent shortage of trained Americans, even as the Commission on Professionals in Science and Technology concludes that real salary growth for American scientists and engineers has been flat or declining for the past 10 years. The “long trend of strong US demand for scientific and technical specialists” has come to an end with no signs of revival. (See “Job and Income Growth for Scientists and Engineers Comes to an End,” Manufacturing & Technology News, November 30, 2007.)
What economist has ever heard of a labor shortage resulting in flat or declining pay?
There is no more of a shortage of US scientists and engineers than there were weapons of mass destruction in Iraq. The US media has no investigative capability and serves up the lies that serve short-term corporate and political interests. If it were not for the Internet that provides Americans with access to foreign news sources, Americans would live in a world of perfect disinformation.
Offshoring interests and economic dogmas have combined to create a false picture of America’s economic position. While the ladders of upward mobility are being dismantled, Americans are being told that they have never had it better.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
There is a very small privileged elite which thinks that the globe is their plaything. Their plan is to implode economies. The US financial disaster is the pinnacle….all economies are closely tied to the US dollar, no matter what they do or change. I have been saying for years to keep an eye on the central banks. Instead we are forced to watch Iraq, Afghanistan, Iran, and all manner of Congressional intrigue. Our heads rivet to loudmouthed leaders like Bush, Musharraf, Ahmadinejad, and Chavez…Some we cheer on just because of their opposition to US policy; even though they sound very similar to Bush and introduce oppressive changes within their own government.
Now, this author asks us to put our attention on the H-1B visa program. Yes, it is replacing native-born citizens with foreigners at an alarming rate. We saw the same thing during the “Jobless Recovery” that lasted until March 2004. The same companies that are now asking for more H-1B workers were laying off thousands then:
In the ’80s many felt there was an engineering shortage in the US to compete with Japan’s dominance of technology markets. Then, the commercialization of the Internet created a hiring frenzy in which high-tech corporations gave huge bonuses to new hires and the employees who referred them. The IEEE-USA reported that such bonuses pushed the median salary for its members to $93,100 at the peak of the dotcom era.
But all that changed with the dotcom bust and the recession. In 2002 telecommunications and computer makers slashed nearly 400,000 workers which was down from the year before 500,000 layoffs. In 2000, near the end of the high-tech boom, industry CEOs persuaded Congress to nearly double the number of H-1B visas, allowing up to 195,000 skilled workers from India and elsewhere into the US. Some engineers contended that those CEOs kept many of those H-1B workers while cutting higher-paid US citizens.
We are seeing the same again:
Should the U.S. increase its H-1B visa program?CON: Wages belie claims of a labor shortage
Norman Matloff
Thursday, December 7, 2006
Once again, the tech industry is putting heavy pressure on Congress to expand the H-1B visa program. Though the industry says the foreign workers are needed to remedy a tech labor shortage, for most employers the attraction of H-1Bs visa holders is simply cheap labor. The H-1B visa program allows skilled immigrants to work in the United States on a temporary basis.
The program’s scope is far more general than just the tech industry. For example, the San Francisco Unified School District has hired a number of H-1B visa-holding school psychologists, elementary school teachers and so on. But the most common field in which employers hire H-1B visa holders is software development. The visas granted in computer-related fields are 10 times more numerous than in the next most common tech field, electrical engineering.
The industry claims that it needs to import workers to remedy a severe labor shortage. Yet this flies in the face of the economic data.
A Business Week article has pointed out that starting salaries for new bachelor’s degree graduates in computer science and electrical engineering, adjusted for inflation, have been flat or falling in recent years. This belies the industry’s claim of a labor shortage. Additional analysis at the master’s degree level shows the same trend, flat wages — contradicting the industry’s claim that workers at the postgraduate level are in especially short supply.
Microsoft founder Bill Gates is personally leading the industry’s charge for more H-1B visas. Yet Microsoft asked its contract software developers earlier this year to take a seven-day furlough, to save money. And the firm admits that its salaries are not keeping up with inflation. Again, none of this squares with Microsoft’s claims of a labor shortage.
The hidden agenda here is industry access to cheap labor. Several university studies and two congressionally commissioned reports have shown that H-1B visa holders are paid less than Americans. Though the law requires H-1B holders to be paid the “prevailing wage,” the definition of that term is filled with numerous gaping loopholes, as a 2002 congressional report showed. Yet Congress added even further loopholes in legislation in 2004. Just think tax code, and you’ll understand what I mean.
CLIP: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/12/07/EDGOULJ5BC1.DTL
Yes, yes, yes too bad for the high tech industry, but they’re not the only ones in this country/world….Shouldn’t we be looking at the following [these are all clips from my recent posts @ TS Forum...Money Masters and Enslaved Taxpayers]:
We have had a very weak economy for years primarily because of the structural changes tied to the deterioration in our trade position over the decades where significant production jobs are moved off shores; basically U.S. wealth and income has been transferred offshore.
In fact, what has happened over the years is that changes in method-ologies have been implemented in reporting the key statistics, with the effect that economic statistics seem stronger than real growth, and inflation numbers tend to be weaker than reality, enough so that GDP (Growth Domestic Product) is overstated by three percent; the unemployment rate is really up around 12 percent as most people would look at it, and the inflation rate is now topping 11 percent.
If the government wanted to balance its books, let’s say it raised taxes 200%, and took 100% of everyone’s wages, corporate profits, etc. the government would still be in deficit. It’s beyond containment from a standard fiscal approach.
So effectively, the federal government is bankrupt! In terms of total obligations, it has a negative net worth of roughly $54 trillion, which is four times the level of GDP.
To a degree that would surprise the vast majority of the population, this unholy mess fits into the redesign of the United States drawn by the royalist neocons who hold sway over our economy and our government. (No, not George W. Bush, who hasn’t the intellect to design a simple model train layout; I’m talking about the largely faceless people who’ve manipulated the economy and distorted the government under his nominal leadership.) In plain language, we, the people, are in for a screwing the likes of which hasn’t been seen since the 1930s. The very rich will gain enormously, even more than they have since the beginning of the Bush regime.
[NOTE: Though the banks were involved in the manipulations at Enron and other companies, the fraud was generally explained by the media and the political establishment as the product of a few “bad apples.†Several executives were put on trial and imprisoned, but the underlying conditions remained and the banks remained largely untouched. The dot-com bubble was quickly replaced by the housing bubble, which had the effect of extending the speculative mania of Wall Street to a much broader section of the economy.]
The initial revelations of accounting manipulations and indications of fraudulent activities are only a small indication of the extent to which the American economy is pervaded by financial speculation and out-and-out criminality. None of the major Democratic presidential contenders or congressional leaders is calling for serious investigations, including criminal probes, into the subprime crisis. No serious congressional investigation has been launched. There are no calls for a large-scale emergency allocation of public funds to enable working class and middle class homeowners to keep their homes, something that could be paid for simply by rescinding the more than $1 trillion tax cut for the rich enacted by Bush with Democratic support or ending the war in Iraq, which consumes billions of dollars every month.
The fact is neither party will propose any measures that seriously impinge on the vast fortunes and prerogatives of the financial elite, to whom the Democrats, no less than the Republicans, are beholden. [End CLIPS]
THE BIG QUESTION: Why are they doing this? And who are They?
Here’s some food for thought:
The real conspirators go unnoticed
The research of Prof. Carroll Quigley (1910-77) who wrote two substantial volumes, The Anglo-American Establishment (1949) and Tragedy and Hope (1966), gives evidence on the secret network which emerged from the enterprise of Cecil Rhodes. Quigley characterised the power of this group through its influence in politics, culture and social life as “terrifyingâ€. It is important to note that Quigley was no crazed and paranoid conspiracy nut, but a respected Georgetown professor, and even the teacher of Bill Clinton.
The Western world, and in particular the English-speaking peoples, have been given the task of getting to grips with the material world – of becoming comfortable on Earth and developing in harmony with it. In this specific sense, the West was to introduce a certain kind of [beneficial] materialism into human development. But this materialism was only meant to be developed up to a certain point. It was necessary in order for humans to become fully part of the earthly world, and to help introduce an individualized consciousness [the ‘I’]. But beyond that it had the potential to be destructive. Materialism as a philosophy, which shuts out the possibility of soul and spirit, is retrogressive, and works as an evil in human evolution.
The Anglo-American brotherhoods that seek dominion over mankind know this, and hence today are deliberately sponsoring various kind of materialism in the hope of halting and trapping humanity at the present stage of its development. They don’t want humans to progress beyond the present stage of immersion in the material world. In other words, they don’t want us to reconnect in a free way with our spiritual ‘I’, because they know that their grip over humanity would then be lost. Human progress is dependent on spiritual knowledge, and thus the occult brotherhoods work against it.
Labor was seriously organizing globally against the PTBs years before the Great Depression pulled the rug out from under us…I say it was timed…..Just as the crisis facing banks is an international phenomenon…it is timed as we struggle to find the truth as to how things really work on this planet [which we are]. Plus as economies implode, everything is up for grabs….resources, water, utilities, governments…..and they’re here to take it ALL…for our own good….TO SAVE US!!! And to futher entrench their control over EVERY ASPECT OF OUR LIVES…..And we are to respect, love and follow like a dog to his master.
The PTBs are borderline sociopaths as you can see from this checklist. [At bottom under Other Related Qualities:] http://www.hss.caltech.edu/~mcafee/Bin/sb.html
1. Contemptuous of those who seek to understand them
2. Does not perceive that anything is wrong with them
3. Authoritarian
4. Secretive
5. Paranoid
6. Only rarely in difficulty with the law, but seeks out situations where their tyrannical behavior will be tolerated, condoned, or admired
7. Conventional appearance
8. Goal of enslavement of their victim(s)
9. Exercises despotic control over every aspect of the victim’s life
10. Has an emotional need to justify their crimes and therefore needs their victim’s affirmation (respect, gratitude and love)
11. Ultimate goal is the creation of a willing victim
12. Incapable of real human attachment to another
13. Unable to feel remorse or guilt
14. Extreme narcissism and grandiose
15. May state readily that their goal is to rule the world
(The above traits are based on the psychopathy checklists of H. Cleckley and R. Hare.)
Thanks for the space, Anwaar,
December 16th, 2007 at 10:09 pmMichelle