Thursday, May 9, 2013

China to Pass U.S. Economy

The United States has been the world’s largest economy since 1871, but that may soon change.

China has achieved economic growth averaging 10% since it initiated market reforms in 1978 and, in the process, lifting almost half of its 1.3 billion population out of poverty and becoming the undisputed second-largest economy in the world, overtaking Japan.

Rather than using the measure of Gross Domestic Product (GDP), but instead, by using another measure known as Purchasing Power Parity (PPP), China is forecast to race past the U.S. in just a few more years.

Last year the Organization for Economic Cooperation and Development (OECD) published a study that concluded that on the basis of PPP rates, China may surpass the Euro area’s GDP within a year, and that of the U.S. in another few years to become the world’s largest economy.

Specifically, China’s GDP (based on PPP) is forecast by the OECD at $15.26 trillion for 2016, exceeding the forecasted U.S. GDP of $15.24 trillion for the very first time. (Full article here)

Job creation is another indicator. According to the Wall Street Journal, since the recession, China has created 66 million new jobs, averaging 13.2 million new jobs a year for the past 5 years. China's government figures show that the service sector created 37 million new jobs in the past five years, with another 29 million in the industrial sector, which includes manufacturing, construction and mining.

By contrast, the Department of Labor reports that 6.8 million net new jobs were created over the past 3 years --- but that doesn't even keep pace with high school graduates (3.4 million are expected this year alone).

The acting Secretary of Labor Seth D. Harris claimed that last month, the number of long-term unemployed (those jobless for 6 months or longer) has declined --- and he said, "The bottom line is, people are finding work. There are 1.65 million more people working today than 12 months ago." But that's not near enough.

China is now experiencing its tightest labor market in years, putting upward pressure on wages that already are rising in the double digits annually. That is leading apparel manufacturers to shift some production out of China to other countries (Vietnam, Cambodia, Columbia, Panama, Mexico, Taiwan, etc.), although concerns about worker safety in countries such as Bangladesh are forcing factory owners to consider the risks of doing so. But one thing is for certain, most American manufacturers won't be bringing jobs back to the U.S.

The acting Secretary of Labor Seth D. Harris claimed that "there are 1.65 million more people working today than 12 months ago" --- and in the latest jobs report from the Bureau of Labor Statistics, they claim that "over the past 12 months the number of long-term unemployed has decreased by 687,000."

But if what the Bureau of Labor Statistics reports is true, that would mean 41.6% of all new jobs that were created over the past 12 months came from hiring the long-term unemployed - - - It's either that or, the Bureau of Labor Statistics is saying that 687,000 less people are no longer being counted.

The Department of Labor also reports that there are currently over 5 million Americans claiming unemployment benefits, down from 6.7 million a year ago --- for a difference of 1.7 million --- which coincidentally, is about the same number of jobs that Secretary Harris has said was created in the past 12 months (1.65 million).

According to the Social Security Administration, half of all U.S. wage earners (who filed a W-4 with an employer and paid FICA taxes) earned $26,965.43 a year or LESS after taxes. Forbes reports that a third of working college graduates earn $25,000 or less a year. And among the 2011/2012 college grads, 44% are living at home. For 2013, only 16% of graduating seniors say they have a job waiting for them.

Currently, according the Bureau of Labor Statistics reports that 90 million Americans are not in the workforce, but of those who are, over 7 million work multiple jobs.

From  2000 to 2010, 56,190 factories in the U.S. were closed. When a private equity firm does a "Bain Capital" on an American business (such as outsourcing jobs to countries like China), it sometimes costs the taxpayers much more than just lost tax revenues, less domestic consumer purchasing, and the cost of unemployment benefits. 

The U.S. Department of Labor has recently certified more than 18,000 former Hostess workers around the country as eligible to apply for Trade Adjustment Assistance for workers who lose jobs ("displaced") due to "international trade". (I have no idea how many other American workers qualify for Trade Adjustment Assistance.)

Workers 50 years of age and older may elect to receive Re-employment Trade Adjustment Assistance instead. If a worker obtains new employment at wages less than $50,000 and less than those earned in the trade-impacted employment, the RTAA program will pay 50 percent of the difference between the old wage and the new wage, up to $10,000 over a two-year period.

The Department of Labor reported last year that just from January 2009 through December 2011, 6.1 million workers were displaced from jobs they had held for at least 3 years.

"Free trade" leads to costs associated with workers displaced by import competition and offshore outsourcing. In general, manufacturing workers are most affected by import competition and outsourcing compared to workers in other sectors; and there is a strong correlation between import penetration and unemployment. According to a report by Kletzer, estimations suggest that industries facing high import competition account for 40% of manufacturing job losses.

Trade-displaced workers face longer periods to find a new job and have low re-employment rates (63% during the last two decades according to Kletzer). Reemployment is particularly challenging for older workers.

Two years ago the former president of the World Bank Group had made a stunning admission and told us what we may have already known for years -- or a least, had suspected deep down in the pit of our stomachs (but had remained in denial) --- that America was indeed in decline and that China will soon exceed the US in GNP --- and by the year 2050, they might have 1 billion people in their opposed to America's declining middle-class.

And here is one reason why: CEO pay-to-worker ratios. According to Bloomberg, JC Penney's CEO Ronald Johnson leads the list with a CEO pay-to-worker ratio of 1,795-to-1. The average ratio for the S&P 500 companies was at 20-to-1 in the 1950s, rising to 42-to-1 in 1980, 120-to-1 by 2000, 170-to-1 in 2009 and 200-to-1 today. The AFL-CIO has the S&P CEOs at an average of 354-to-1. (A list of the top 250 CEOs with the greatest wage disparity can be found at Bloomberg)

Roger Martin, dean of the University of Toronto’s Rotman School of Management, said in an interview: “When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel. It’s not that either hates labor, or wants to crush their lives. They just don’t care.”

In other words, American CEOs would "displace" ALL American jobs, so long as their executive compensation packages were larger than the year before ("It's nothing personal, it's just business.")

Laurence Fink, the CEO of the giant BlackRock asset manager, thinks that millions of Americans in their 60s on Social Security ought to be out working instead of collecting a retirement check. After all, he says, most jobs no longer demand “backbreaking” labor. The CEO wants the retirement age raised to 70. Last year Blackrock rewarded Fink with $65 million in “performance pay.” Meanwhile, if lawmakers perform the way Fink wants them — and raise the retirement age to 70 — average Americans will lose about a 20 percent benefit cut.

Last week, federal unemployment benefits for 400,000 Californians out of work since last fall dropped almost 18 percent, a $52 cut out of an average of a $297 weekly check. Similar cuts have already started rolling out in other states. In all, 3.8 million long-term unemployed Americans will, on average, lose near $1,000 each by September 30 --- the date that ends the 2012 federal fiscal year. Read all about the CEOs behind this in an article titled "Hypocrites With Fat Wallets: CEOs Want It All".

The U.S. economy has become significantly more productive over the last 40 years. In fact, the nation’s productivity has doubled over that span. But American workers haven’t shared in the new wealth that rising productivity has created, one huge reason inequality in the United States has skyrocketed. Jack Metzgar (a retired Roosevelt University scholar now with the Chicago Center for Working-Class Studies) notes that in the decades right after World War II, thanks to the presence of a robust labor movement in America, productivity increases translated into wage increases. If the sharing of U.S. productivity gains had continued after 1973 (at pre-1973 levels), American workers would now be taking home another $20,000 a year.

The editors from Pathways agree that much of our contemporary inequality reflects what economists call “rent-seeking” behavior. That is, many of our richest are getting richer by squeezing out monopoly profits, or cutting corrupt sweetheart deals, or looting their enterprises. (Pathways is a magazine on poverty, inequality, and social policy - Free online subscription)

One example: Apple (a major slave-labor employer) cooked up a scheme this week to finance a $55 billion stock buyback for its shareholders which was orchestrated to avoid paying $9.2 billion in taxes (and everybody has heard of Facebook's tax dodges as well).

And the requests for H1-B visas has already hit the current annual cap of 65,000 in 5 days. There's so much volume, and so many requests anticipated, that a lottery system was established (Companies like Facebook and Microsoft have been pushing for higher H1-B quotas, displacing more domestic workers.)

Not only do all these trends continue today, but they are also escalating --- and show no signs of letting up or changing in any significant way for at least another generation or more to come (if at all). That is the fate of the U.S. economy and for most American workers, no matter how much spin the "acting" Secretary of Labor (Seth D. Harris) puts on it.

But maybe all of this is good news for the Republicans, because despite a record high stock market (the DOW closed over 15,000 yesterday), maybe the Republicans will stop calling the unemployed "lazy drug addicts", and instead, will start calling the unemployed "innocent victims" of Obama's failed economic polices. But then again, the Republicans will do and say ANYTHING (and nominate ANYBODY) to gain back control of the Senate and White House.

Under a Democratic President, and when the Democrats controlled both houses of Congress in 2009 and 2010, they passed ObamaCare...but why didn’t they also reform the tax code (such as taxing capital gains as regular income or eliminate corporate loopholes), ban shell corporations and offshore bank accounts, reform election and campaign finance laws, or eliminate (or raise) the cap on Social Security?

The Democrats only complain when they don't have a majority in both the House and Senate (or a President in the White House). Because they don't control the House now, they’re playing the “good cop”, and are acting as though their hands are tied because the Republicans (who are currently playing the “bad cop”) are filibustering everything. And the Democrats (with Harry Reid) had a chance to change the filibuster, but they didn't.

It is not a corporation's responsibility to act for the benefit of any group of individuals, and to the extent that they do, it is usually based upon the self-interest of their executives and shareholders, that's all. It is the government's responsibility to act in the interest of its citizens, and to police these corporations so that they act for the benefit of the country.

Both our political parties take turns in the "good cop - bad cop" role. Our political system is corrupt and allows for corporations to influence our economic policies to enrich the corporate executives at the expense of American workers. There are too many American CEOs who are not our "job creators", but our job destroyers. They are job "enablers" in countries like China, so it should come as no surprise that China might soon overtake the USA as the world's economic leader. If companies like Apple won't invest in American workers, then we're only left with companies like McDonald's and Wal-Mart...our 2nd and 3rd largest employers behind the U.S. government.

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