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  1. #1
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    How Economists and Policymakers Murdered Our Economy — Paul Craig Roberts

    How Economists and Policymakers Murdered Our Economy — Paul Craig Roberts
    January 25, 2014 | Categories: Articles & Columns | Tags: http//clicks.aweber.com/y/ct/lC8zk.m3X7_CnhMZznjM89bdtO4q6dmAIy3XO1foQdQWA, | Print This Article Print This Article

    How Economists and Policymakers Murdered Our Economy

    Paul Craig Roberts

    The economy has been debilitated by the offshoring of middle class jobs for the benefit of corporate profits and by the Federal Reserve’s policy of Quantitative Easing in order to support a few oversized banks that the government protects from market discipline. Not only does QE distort bond and stock markets, it threatens the value of the dollar and has resulted in manipulation of the gold price. See http://www.paulcraigroberts.org/2014...-manipulation/

    When US corporations send jobs offshore, the GDP, consumer income, tax base, and careers associated with the jobs go abroad with the jobs. Corporations gain the additional profits at large costs to the economy in terms of less employment, less economic growth, reduced state, local and federal tax revenues, wider deficits, and impairments of social services.

    When policymakers permitted banks to become independent of market discipline, they made the banks an unresolved burden on the economy. Authorities have provided no honest report on the condition of the banks. It remains to be seen if the Federal Reserve can create enough money to monetize enough debt to rescue the banks without collapsing the US dollar. It would have been far cheaper to let the banks fail and be reorganized.

    US policymakers and their echo chamber in the economics profession have let the country down badly. They claimed that there was a “New Economy” to take the place of the “old economy” jobs that were moved offshore. As I have pointed out for a decade, US jobs statistics show no sign of the promised “New Economy.”

    The same policymakers and economists who told us that “markets are self-regulating” and that the financial sector could safely be deregulated also confused jobs offshoring with free trade. Hyped “studies” were put together designed to prove that jobs offshoring was good for the US economy. It is difficult to fathom how such destructive errors could consistently be made by policymakers and economists for more than a decade. Were these mistakes or cover for a narrow and selfish agenda?

    In June, 2009 happy talk appeared about “the recovery,” now 4.5 years old. As John Williams (shadowstats.com) has made clear, “the recovery” is entirely the artifact of the understated measure of inflation used to deflate nominal GDP. By under-measuring inflation, the government can show low, but positive, rates of real GDP growth. No other indicator supports the claim of economic recovery.

    John Williams writes that consumer inflation, if properly measured, is running around 9%, far above the 2% figure that is the Fed’s target and more in line with what consumers are actually experiencing. We have just had a 6.5% annual increase in the cost of a postage stamp.

    The Fed’s target inflation rate is said to be low, but Simon Black points out that the result of a lifetime of 2% annual inflation is the loss of 75% of the purchasing power of the currency. He uses the cost of sending a postcard to illustrate the decline in the purchasing power of median household income today compared to 1951. That year it cost one cent to send a post card. As household income was $4,237, the household could send 423,700 postcards. Today the comparable income figure is $51,017. As it costs 34 cents to send one postcard, today’s household can only afford to send 150,050 postcards. Nominal income rose 12 times, and the cost of sending a postcard rose 34 times.

    Just as the American people know that there is more inflation than is reported, they know that there is no recovery. The Gallup Poll reported this month that only 28% of Americans are satisfied with the economy. http://www.gallup.com/poll/166871/am...?version=print

    From hard experience, Americans have also caught on that “free trade agreements” are nothing but vehicles for moving their jobs abroad. The latest effort by the corporations to loot and defraud the public is known as the “Trans-Pacific Partnership.” “Fast-tracking” the bill allowed the corporations to write the bill in secret without congressional input. Some research shows that 90% of Americans will suffer income losses under TPP, while wealth becomes even more concentrated at the top.

    TPP affects every aspect of our lives from what we eat to the Internet to the environment. According to Kevin Zeese in Alternet, “the leak of the [TPP] Intellectual Property Chapter revealed that it created a path to patent everything imaginable, including plants and animals, to turn everything into a commodity for profit.”

    The secretly drafted TPP also creates authority for the executive branch to change existing US law to make the laws that were not passed in secret compatible with the secretly written trade bill. Buy American requirements and any attempt to curtail jobs offshoring would become illegal “restraints on trade.”

    If the House and Senate are willing to turn over their legislative function to the executive branch, they might as well abolish themselves.

    The financial media has been helping the Federal Reserve and the banks to cover up festering problems with rosy hype, but realization that there are serious unresolved problems might be spreading. Last week interest rates on 30-day T-bills turned negative. That means people were paying more for a bond than it would return at maturity. Dave Kranzler sees this as a sign of rising uncertainty about banks. Reminiscent of the Cyprus banks’ limits on withdrawals, last Friday (January 24) the BBC reported that the large UK bank HSBC is preventing customers from withdrawing cash from their accounts in excess of several thousand pounds. http://www.bbc.co.uk/news/business-25861717

    If and when uncertainty spreads to the dollar, the real crisis will arrive, likely followed by high inflation, exchange controls, pension confiscations, and resurrected illegality of owning gold and silver. Capitalist greed aided and abetted by economists and policymakers will have destroyed America.


    http://www.paulcraigroberts.org/2014...craig-roberts/

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    How Junk Economists Help The Rich Impoverish The Working Class — Paul Craig Roberts

    January 28, 2014 |


    How Junk Economists Help The Rich Impoverish The Working Class
    Paul Craig Roberts
    Last week, I explained how economists and policymakers destroyed our economy for the sake of short-term corporate profits from jobs offshoring and financial deregulation.
    http://www.paulcraigroberts.org/2014/01/25/economists-policymakers-murdered-economy-paul-craig-roberts/

    That same week Business Week published an article, “Factory Jobs Are Gone. Get Over It,” by Charles Kenny. http://www.businessweek.com/articles/2014-01-23/manufacturing-jobs-may-not-be-cure-for-unemployment-inequality Kenny expresses the view of establishment economists, such as Brookings Institute economist Justin Wolfers who wants to know “What’s with the political fetish for manufacturing? Are factories really so awesome?”
    “Not really,” Kenny says. Citing Eric Fisher of the Cleveland Federal Reserve Bank, Kenny reports that wages rise most rapidly in those states that most quickly abandon manufacturing. Kenny cites Gary Hufbauer, once an academic colleague of mine now at the Peterson Institute, who claims that the 2009 tariffs applied to Chinese tire imports cost US consumers $1 billion in higher prices and 3,731 lost retail jobs. Note the precision of the jobs loss, right down to the last 31.
    In support of the argument that Americans are better off without manufacturing jobs, Kenny cites MIT and Harvard academic economists to the effect that there is no evidence that manufacturing tends to cluster, thus disputing the view that there are economies from manufacturers tending to congregate in the same areas where they benefit from an experienced work force and established supply chains.
    Perhaps the MIT and Harvard economists did their study after US manufacturing centers became shells of their former selves and Detroit lost 25% of its population, Gary Indiana lost 22% of its population, Flint Michigan lost 18% of its population, Cleveland lost 17% of its population, and St Louis lost 20% of its population. If the economists’ studies were done after manufacturing had departed, they would not find manufacturing concentrated in locations where it formerly flourished. MIT and Harvard economists might find this an idea too large to comprehend.
    Kenny’s answer to the displaced manufacturing workers is–you guessed it–jobs training. He cites MIT economist David Autor who thinks the problem is the federal government only spends $1 on retraining for every $400 that it spends on supporting displaced workers.
    These arguments are so absurd as to be mindless. Let’s examine them. What jobs are the displaced manufacturing workers to be trained for? Why, service jobs, of course. Kenny actually thinks that “service industries–hotels, hospitals, media, and accounting–have taken up the slack.” (I don’t know where he gets media and accounting from; scant sign of such jobs are found in the payroll jobs reports.) Moreover, service jobs have certainly not taken up the slack as the rising rate of long-term unemployment and declining labor force participation rate prove.
    Nontradable service sector jobs such as hotel maids, hospital orderlies, retail clerks, waitresses and bartenders are low productivity, low value-added jobs that cannot pay incomes comparable to manufacturing jobs. The long term decline in real median family income relates to the movement offshore of manufacturing jobs and tradable professional service jobs, such as software engineering, IT, research and design.
    Moreover, domestic service jobs do not produce exportable goods and services. A country without manufactures has little with which to earn foreign exchange in order to pay for its imports of its shoes, clothing, manufactured goods, high-technology products, Apple computers, and increasingly food. Therefore, that country’s trade deficit widens as each year it owes more and more to foreigners.
    A country whose best known products are fraudulent and toxic financial instruments and GMO foods that no one wants cannot pay for its imports except by signing over its existing assets. The foreigners buy up US assets with their trade surpluses. Consequently, income from rents, interest, dividends, capital gains, and profits leave US pockets for foreign pockets. It is a safe bet that Hufbauer did not include any of these costs, or maybe even the loss of US tire workers’ wages and tire manufacturers’ profits, when he concluded that trying to save US tire manufacturing jobs cost more than it was worth.
    Eric Fisher’s argument that the highest wage growth is found in areas where higher productivity manufacturing jobs are most rapidly replaced with lower productivity domestic service jobs is beyond absurd. (Possibly Fisher did not say this; I’m taking Kenny’s word for it.) It has always been a foundation of labor economics that workers are paid the value of their contribution to output. Manufacturing employees working with technology embodied in plant and equipment produce more value per man hour than maids changing sheets and bartenders mixing drinks.
    In my book, The Failure of Laissez Faire Capitalism And Economic Dissolution Of The West (2013), I point out the obvious mistakes in “studies” by Matthew Slaughter, a former member of the President’s Council of Economic Advisors, and Harvard professor Michael Porter. These academic economists conclude on the basis of extraordinary errors and ignorance of empirical facts, that jobs offshoring is good for Americans. They were able to reach this conclusion despite the absence of any visibility of this good, and they hold to this absurd conclusion despite the inability of a “recovery” (or lack of one) that is 4.5 years old to get off the ground and get employment back up to where it was six years ago. They hold to their “education is the answer” solution despite the growing percentage of university graduates who cannot find employment.
    Michael Hudson is certainly correct to call economists purveyors of “junk economics.” Indeed, I wonder if economists even have junk value. But they are well paid by Wall Street and the offshoring corporations.
    What the Brookings Institute’s Justin Wolfers needs to ask himself is: what is the redefinition of economic development? For my lifetime the definition of a developed economy is an industrialized economy. It has always been “the industrialized countries” that occupy the status of “developed economies,” contrasted with “undeveloped countries,” “developing countries,” and “emerging economies.” How is an economy developed if it is shedding its industry and manufacturing? This is the reverse of the development process. Without realizing it, Kenny describes the unravelling of the US economy when he describes the decline of US manufacturing from 28 percent of US GDP in 1953 to 12% in 2012. The US now has the work force of a third world country, with the vast bulk of the population employed in lowly paid domestic services. The US work force no longer looks like the work force of a developed country. It looks like third world India’s work force of three decades ago.
    Kenny and junk economists speak of the decline of US manufacturing jobs as if they are not being offshored to countries where labor is cheap but replaced by automation. No doubt there has been automation, and more ways of replacing humans with machines will be found. But if manufacturing jobs are things of the past, why is China’s sudden and rapid rise to economic power accompanied by 100 million manufacturing jobs? Apple computers are not made in China by robots. If robots are making Apple computers, it would be just as cheap to make the computers in the US. The Chinese manufacturing workforce is almost the size of the entire US work force.
    US companies employ Americans to market the products that are produced abroad for sale in the US. This is why US corporations employ Americans mainly in service jobs. Foreigners make the goods, and Americans sell them.
    Economic development has always been about acquiring the capital, technology, business knowledge, and trained workforce to make valuable things that can be sold at home and abroad. US capital and technology are being located abroad, and the trained domestic workforce is disappearing from disuse and abandonment. The US is falling out of the ranks of the industrialized countries and is on the path to becoming an undeveloped economy.

    http://www.paulcraigroberts.org/2014...craig-roberts/

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