Saturday, October 5, 2013

Jobs, GDP, Free Trade & Offshoring: The Next Phase

"From economic turmoil to social dissolution and cultural chaos, it can no longer be denied that the once-opulent West is on the brink of collapse."

Paul Craig Roberts, co-founder of Reaganomics, recently wrote an excellent piece saying that the real crisis is not the debt ceiling crisis, but that the real crisis has been the offshoring of jobs over the last several decades (which expanded our trade deficit.)

Jim Devine at Econoclast, when describing NBER recessions vs. actual recessions (Part One), he writes: "For most people, there's a more important issue than GDP...for most people what counts is jobs, jobs, jobs." He calls what some call the jobless recovery an oxymoronic phrase:
It should not be surprising that there are controversies surrounding the issue of whether a "recession" is really over or not. This is especially true when we’re talking about a world-shattering episode like the Great Recession that started in late 2007 and ended in the middle of 2009... So-called "ordinary" folks, for whom the economy’s situation is up close and personal, often see a "recession" as including, not only the period when the economy is falling, but also the quarters -- or even years -- when it’s stagnating in the aftermath of an "official" NBER recession.
In Part Two of his article, Jim Devine explains why "real" GDP must grow faster than 3 percent per year to get unemployment rates to fall --- and why anything less will lead to higher unemployment. He says one possibility of the so-called "jobless recovery" arose because of what economists call “Okun’s Law,” named after the late economist Arthur Okun, who says that the slow growth of the U.S. economy since the 2009 should imply rising official unemployment rates (U3), but that the exact opposite has happened:
Okun's law captures the nature of a real problem. This idea goes beyond the common-sense idea that producing more real GDP means that more jobs are available, so that unemployment rates fall. It says that in order to prevent unemployment rates from rising, the year-to-year growth rate of real GDP must exceed approximately 3 percent per year.
To make matters worse, America's offshorers (such as Apple, who uses contract manufacturers in China to build their iStuff) will soon be reclassified by our government as "manufacturers" to boost the GDP numbers and artificially lower the US trade deficit. From the Economic Populist:
Right now, iPhones are counted as imports and rightly so. Apple has offshore outsourced manufacturing and final assembly to China. Most parts are not manufactured in the United States and components come from China, Japan, South Korea and Germany. Very obviously an iPhone is no more American than that cheap plastic good marked "Made in China". Yet if the government statistical agencies have their way, that iPhone will be an American manufactured good, despite the fact that 1 million Chinese made the thing while Apple does not provide Americans jobs of scale and maintains their strong profit margins.
Also, a new study shows that 1/3 of all current US jobs are still prone to offshoring overseas. 1979 may very well have been the year when the middle-class in America had first began it's long decent into oblivion because of offshoring. And when jobs are sent overseas, because of the "multiplier effect", many other domestic jobs also dry up.
America needs to make stuff again: Manufacturing has traditionally provided some of the best-paying jobs in the U.S. economy. And where 14 million Americans are directly employed by manufacturing, another 8 million have found jobs via manufacturing because of it’s interconnected linkage to the rest of the economy. It's called the multiplier effect.
WorkingForAmerica.Org: "The National Association of Manufacturing (NAM) indicate that each dollar’s worth of manufactured goods creates another $1.43 of activity in other sectors, twice the $.71 multiplier for services. Also, two thirds of U.S. research and development capacity is concentrated in manufacturing. Manufacturing has long been a dynamic economic sector, registering remarkably sustained productivity growth."
Because of the government shutdown, the Bureau of Labor Statistic won't be releasing the September jobs numbers. But Brookings predicts that the unemployment rate will drop again --- to 7.2% --- even though jobless claims for unemployment benefits were up.

So if the US GDP is sluggish now (not creating enough US jobs), and offshoring continues (not creating enough good-paying jobs in the US), and the government redefines imports that are manufactured overseas as part of US GDP (rigging the numbers), how will all the economists redefine all their theories about unemployment?

So the next phase for jobs, GDP and offshoring will be just more of the same: More lost good-paying jobs, more low-paying jobs, an artificial increase in the US Gross Domestic product to hide the affects of offshoring (that both political parties have been responsible for since 1979), and more "free trade agreements" (such as the TPP agreement, described as NAFTA on steroids) that Obama has been pushing for, despite some opposition in Congress and public opinion.
A study published by the Center for Economic and Policy Research made some amazing findings about the Trans-Pacific Partnership (TPP): (1) the impact on economic growth will be almost nothing, only a 0.1% increase in the GDP, but (2) the impact on most Americans will be negative with 90% of workers seeing their wages decline. The TPP will add to the decline of the middle class, the race to the bottom in wages and the continued expansion of the wealth divide. (See this post)
It's no wonder that Paul Craig Roberts said, "In my opinion, the US economy is not salvageable in its present form. At this time, collapse seems the most likely forecast."

That giant sucking sound you hear...

Three Questions Regarding the Layoffs During the Government Shutdown:
1) Most states have a one week waiting period before filing an unemployment claim. The House voted 407-0 on Saturday to give back-pay to the more than 800,000 federal workers when the government shutdown ends. Will the back-pay disqualify 800,000 federal workers from filing UI claims?

2) If the shutdown only lasts 2 to 4 weeks, how will this affect next month's jobs report? If they are called back to work after only 2 to 4 weeks, will they not show up in the unemployment rate? (Some say as many as 35 million could be unemployed in the US.)

3) And besides the 800,000 federal workers, what about all the other civilian workers who are affected with the government shutdown through the "multiplier effect" --- such as those who work in government facilities (like McDonald's, etc) who were also laid off --- how many will have been laid off (and not receive back-pay) who might receive UI benefits? (Only about 1/3 of the unemployed currently receive jobless benefits.)


  1. A Dim Future for those Under 30

  2. New York Times: Western multinationals will soon be challenged

    "A study published by the McKinsey Global Institute said "emerging markets" will soon be the headquarters to thousands more of the world’s largest companies — as many as half — in the next decade or two. As emerging economies in Asia and elsewhere continue to outpace the relatively modest growth seen in the developed world (such as the US and Europe), their share of large companies will also rise. The projected increases reflects the growing role that emerging markets now have in the global economy — not just as sources of cheap labor, but also as consumers of goods and services. By 2025, the long-established dominance of Western multinationals is about to be challenged."

    This might be what American offshoring has helped to establish, by providing more people overseas with jobs, they've also provided more consumers --- not just for their products, but for other foreign goods and services.

  3. 37 consecutive trade deficits (roughly $10 trillion in immediate losses alone) since 1976.

    "Japan, Laughing at TPP Negotiators, Raises Border Taxes by 60%"

    "A New Challenge for Multinationals in China: Mao-era Politics"

  4. At least 600 apply for 45 jobs at New Haven Little Caesars Pizza

  5. The bottom line:

    If 20 million Americans (those currently counted as unemployed and those working part-time in low paying jobs, but who wanted full-time work) had all been working in good-paying manufacturing jobs --- and capital gains were taxed as regular income and taxed for Social Security --- what the state of the Social Security Trust Fund, the social programs (such as food stamps), the annual deficit, the national debt, the trade deficit, the GDP, our infrastructure, our political division, and our entire economy be like today?

  6. I am all for Obamacare. But can't we at least make sure that the jobs it creates are kept here in America rather than outsourced to India?