Their Own Economic Reality
Who can forget the neocons’ claim that under their leadership America
creates its own reality? Remember the neocons’ Iraq reality--a “cakewalk”
war? After three years of combat, thousands of casualties, and cost estimated
at over $1 trillion, real reality must still compete with the White House spin
One might think that the Iraq experience would restore sober judgement to policymakers.
Alas, neocon reality has spread everywhere. It has infected the media and the
new Federal Reserve Chairman, Ben Bernanke, who just gave Congress an upbeat
report on the economy. The robust economy, he declared, could soon lead to inflation
and higher interest rates.
Consumers deeper in debt and fresh from their first negative savings
rate since the Great Depression show high consumer confidence. It is as if the
entire country is on an acid trip or a cocaine trip or whatever it is that lets
people create realities for themselves that bear no relation to real reality.
How can the upbeat views be reconciled with the Bureau of Labor Statistics’
payroll jobs data, the extraordinary red ink, and exploding trade deficit? Perhaps
the answer is that every economic development, no matter how detrimental, is
spun as if it were good news. For example, the worsening US trade deficit is
spun as evidence of the fast growth of the US economy: the economy is growing
so fast it can’t meet its needs and must rely on imports. Declining household
income is spun as an inflation fighter that keeps mortgage interest rates low.
Federal budget deficits are spun as letting taxpayers keep and spend more of
their own money. Massive layoffs are spun as evidence that change is so rapid
that the work force must constantly upgrade skills and re-educate itself.
The denial of economic reality has become an art form. Except for Lou Dobbs,
no accurate economic reporting is available in the “mainstream media.”
Occasionally, real information escapes the spin machine. The National Association
of Manufacturers, one of outsourcing’s greatest boosters, has just released
a report, “US Manufacturing Innovation at Risk,” by economists Joel
Popkin and Kathryn Kobe. The economists find that US industry’s investment
in research and development is not languishing after all. It just appears to
be languishing, because it is rapidly being shifted overseas: “Funds provided
for foreign- performed R&D have grown by almost 73 percent between 1999
and 2003, with a 36 percent increase in the number of firms funding foreign
US industry is still investing in R&D after all; it is just not hiring
Americans to do the R&D. US manufacturers still make things, only less and
less in America with American labor. US manufacturers still hire engineers,
only they are foreign ones, not American ones.
In other words, everything is fine for US manufacturers. It is just
their former American work force that is in the doldrums. As these
Americans happen to be customers for US manufacturers, US brand names will gradually
lose their US market. US household median income has fallen for the past five
years. Consumer demand has been kept alive by consumers’ spending their
savings and home equity and going deeper into debt. It is not possible for debt
to forever rise faster than income.
When manufacturing moves abroad, engineering follows. R&D follows engineering,
and innovation follows R&D. The entire economy drains away. This is why
the “new economy” has not materialized to take the place of the
lost “old economy.”
The latest technologies go into the newest plants, and those plants are abroad.
Innovations take place in new plants as new processes are developed to optimize
the efficiency of the new technologies. The skills required to operate new processes
call forth investment in education and training. As US manufacturing and R&D
move abroad, Indian and Chinese engineering enrollments rise, and US enrollments
The process is a unified whole. It is not possible for a country to lose parts
of the process and hold on to other parts. That is why the “new economy”
was a hoax from the beginning. As Popkin and Kobe note, new technologies, new
manufacturing processes, and new designs take place where things are made. The
notion that the US can lose everything else but hold on to innovation is absurd.
Someone needs to tell Congress before they waste yet more borrowed money. In
an adjoining column to the NAM report on innovation, the February 6 Manufacturing
& Technology News reports that “the US Senate is jumping on board
the competitiveness issue.” The Bush regime and the doormat Congress have
come together in the belief that the US can keep its edge in science and technology
if the federal government spends $9 billion a year to “fund innovative,
big-payoff ideas that have the potential to transform the US economy.”
The utter stupidity of the “Protecting America’s Competitive Edge
Act” (PACE) is obvious. The tremendous labor cost advantage of doing things
abroad will equally apply to any new “big-payoff ideas” as it does
to the goods and services currently outsourced. Moreover, US research is open-sourced.
It is available to anyone. As the Cox Commission Report made clear, there are
a large number of Chinese front companies in the US for the sole purpose of
collecting technology. PACE will simply be another US taxpayer subsidy to the
rising Asian economies.
The assertion that we hear every day that America is falling behind because
it doesn’t produce enough science, mathematics and engineering graduates
is a bald-faced lie. The problem is always brought back to education failures
in K-12, that is, to more education subsidies. When CEOs say they can’t
find American engineers, they mean they cannot find Americans who will work
for Chinese or Indian wages. That is what the so-called “shortage”
is all about.
I receive a constant stream of emails from unemployed and underemployed engineers
with many years of experience and advanced degrees. Many have been out of work
for years. They describe the movement of their jobs offshore or their replacement
by foreigners brought in on work visas. Many no longer even know American engineers
who are employed in the profession. Some are now working in sawmills, others
in Home Depot, and others are attempting to eke out a living as consultants.
Many describe lost homes, broken marriages, even imprisonment for inability
to make child support payments.
Many ask me how economists can be so blind to reality. Here is my answer: Many
economists are bought and paid for by outsourcers. Most of the studies claiming
to prove that Americans benefit from outsourcing are done by economic consulting
firms hired by outsourcers. Or they are done by think tanks or university professors
dependent on corporate donors. Or they reflect the ideology of “free market
economists” who are committed to the belief that “freedom”
is good and always produces good results. Since outsourcing is merely the freedom
of property to act in its interest, and since this self-interest is always guided
by an invisible hand to the greater welfare of everyone, outsourcing, ipso facto,
is good for America. Anyone who doesn’t think so is a fascist who wants
to take away the rights of property. Seriously, this is what passes for analysis
among “free market economists.”
Economists’ commitment to their “reality” is destroying the
ladders of upward mobility that made America the land of opportunity. It is
just as destructive as the neocons’ commitment to their “reality”
that is driving the US deeper into war in the Middle East.
Fact and analysis no longer play a role. The spun reality in which Americans
live is insulated against intelligent perception.
American “manufacturers” are becoming merely marketers of foreign
made goods. The CEOs and shareholders have too short a time horizon to understand
that once foreigners control the manufacture-design- innovation process, they
will bypass American brand names. US companies will simply cease to exist.
Norm Augustine, former CEO of Lockheed Martin, says that even McDonald's
jobs are no longer safe. Why pay an error-prone order-taker the minimum wage
when McDonald's can have the order transmitted via satellite to a central location
and from there to the person preparing the order. McDonald’s experiment
with this system to date has cut its error rate by 50% and increased its throughput
by 20 percent. Technology lets the orders be taken in India or China at costs
below the minimum wage and without the liabilities of US employees.
Americans are giving up their civil liberties because they fear terrorist
attacks. All of the terrorists in the world cannot do America the damage it
has already suffered from offshore outsourcing.
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: firstname.lastname@example.org