Thursday, February 18, 2010


I thank my friend Paul Bolin for having turned me on to this brilliant piece which originally appeared at It is hard to believe, but this writer once served in the REAGAN White House. It is reassuring to have conservatives see the error of their ways...

I have taken the liberty of putting what I believe to be key phrases in the article below in bold.


By Paul Craig Roberts

The media has headlined good economic news: fourth quarter GDP growth of 5.7 percent ("the recession is over"), Jan. retail sales up, productivity up in 4th quarter, the dollar is gaining strength. Is any of it true? What does it mean?

The 5.7 percent growth figure is a guesstimate made in advance of the release of the U.S. trade deficit statistic. It assumed that the U.S. trade deficit would show an improvement. When the trade deficit was released a few days later, it showed a deterioration, knocking the 5.7 percent growth figure down to 4.6 percent. Much of the remaining GDP growth consists of inventory accumulation.

More than a fourth of the reported gain in Jan. retail sales is due to higher gasoline and food prices. Questionable seasonal adjustments account for the rest.

Productivity was up, because labor costs fell 4.4 percent in the fourth quarter, the fourth successive decline. Initial claims for jobless benefits rose. Productivity increases that do not translate into wage gains cannot drive the consumer economy.

Housing is still under pressure, and commercial real estate is about to become a big problem.

The dollar’s gains are not due to inherent strengths. The dollar is gaining because government deficits in Greece and other EU countries are causing the dollar carry trade to unwind. America’s low interest rates made it profitable for investors and speculators to borrow dollars and use them to buy overseas bonds paying higher interest, such as Greek, Spanish and Portuguese bonds denominated in euros. The deficit troubles in these countries have caused investors and speculators to sell the bonds and convert the euros back into dollars in order to pay off their dollar loans. This unwinding temporarily raises the demand for dollars and boosts the dollar’s exchange value.

The problems of the American economy are too great to be reached by traditional policies. Large numbers of middle class American jobs have been moved offshore: manufacturing, industrial and professional service jobs. When the jobs are moved offshore, consumer incomes and U.S. GDP go with them. So many jobs have been moved abroad that there has been no growth in U.S. real incomes in the 21st century, except for the incomes of the super rich who collect multi-million dollar bonuses for moving U.S. jobs offshore.

Without growth in consumer incomes, the economy can go nowhere. Washington policymakers substituted debt growth for income growth. Instead of growing richer, consumers grew more indebted. Federal Reserve chairman Alan Greenspan accomplished this with his low interest rate policy, which drove up housing prices, producing home equity that consumers could tap and spend by refinancing their homes.

Unable to maintain their accustomed living standards with income alone, Americans spent their equity in their homes and ran up credit card debts, maxing out credit cards in anticipation that rising asset prices would cover the debts. When the bubble burst, the debts strangled consumer demand, and the economy died.

As I write about the economic hardships created for Americans by Wall Street and corporate greed and by indifferent and bribed political representatives, I get many letters from former middle class families who are being driven into penury. Here is one recently arrived:

"Thank you for your continued truthful commentary on the 'New Economy.' My husband and I could be it's poster children. Nine years ago when we married, we were both working good paying, secure jobs in the semiconductor manufacturing sector. Our combined income topped $100,000 a year. We were living the dream. Then the nightmare began. I lost my job in the great tech bubble of 2003, and decided to leave the labor force to care for our infant son. Fine, we tightened the belt. Then we started getting squeezed. Expenses rose, we downsized, yet my husband's job stagnated. After several years of no pay raises, he finally lost his job a year and a half ago. But he didn't just lose a job, he lost a career. The semiconductor industry is virtually gone here in Arizona. Three months later, my husband, with a technical degree and 20-plus years of solid work experience, received one job offer for an entry level corrections officer. He had to take it, at an almost 40 percent reduction in pay. Bankruptcy followed when our savings were depleted. We lost our house, a car, and any assets we had left. His salary last year, less than $40,000, to support a family of four. A year and a half later, we are still struggling to get by. I can't find a job that would cover the cost of daycare. We are stuck. Every jump in gas and food prices hits us hard. Without help from my family, we wouldn't have made it. So, I could tell you just how that 'New Economy' has worked for us, but I'd really rather not use that kind of language."

Policymakers who are banking on stimulus programs are thinking in terms of an economy that no longer exists. Post-war U.S. recessions and recoveries followed Federal Reserve policy. When the economy heated up and inflation became a problem, the Federal Reserve would raise interest rates and reduce the growth of money and credit. Sales would fall. Inventories would build up. Companies would lay off workers.

Inflation cooled, and unemployment became the problem. Then the Federal Reserve would reverse course. Interest rates would fall, and money and credit would expand. As the jobs were still there, the work force would be called back, and the process would continue.

It is a different situation today. Layoffs result from the jobs being moved offshore and from corporations replacing their domestic work forces with foreigners brought in on H-1B, L-1 and other work visas. The U.S. labor force is being separated from the incomes associated with the goods and services that it consumes. With the rise of offshoring, layoffs are not only due to restrictive monetary policy and inventory buildup. They are also the result of the substitution of cheaper foreign labor for U.S. labor by American corporations. Americans cannot be called back to work to jobs that have been moved abroad. In the New Economy, layoffs can continue despite low interest rates and government stimulus programs.

To the extent that monetary and fiscal policy can stimulate U.S. consumer demand, much of the demand flows to the goods and services that are produced offshore for U.S. markets. China, for example, benefits from the stimulation of U.S. consumer demand. The rise in China’s GDP is financed by a rise in the U.S. public debt burden.

Another barrier to the success of stimulus programs is the high debt levels of Americans. The banks are being criticized for a failure to lend, but much of the problem is that there are no consumers to whom to lend. Most Americans already have more debt than they can handle.

Hapless Americans, unrepresented and betrayed, are in store for a greater crisis to come. President Bush’s war deficits were financed by America’s trade deficit. China, Japan, and OPEC, with whom the U.S. runs trade deficits, used their trade surpluses to purchase U.S. Treasury debt, thus financing the U.S. government budget deficit.

The problem now is that the U.S. budget deficits have suddenly grown immensely from wars, bankster bailouts, jobs stimulus programs, and lower tax revenues as a result of the serious recession. Budget deficits are now three times the size of the trade deficit. Thus, the surpluses of China, Japan, and OPEC are insufficient to take the newly issued U.S. government debt off the market.

If the Treasury’s bonds can’t be sold to investors, pension funds, banks, and foreign governments, the Federal Reserve will have to purchase them by creating new money. When the rest of the world realizes the inflationary implications, the US dollar will lose its reserve currency role. When that happens Americans will experience a large economic shock as their living standards take another big hit.

America is on its way to becoming a country of serfs ruled by oligarchs.

Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at:

Now that's what I call thorough and factual relevant analysis! It would certainly seem that the time to end our overseas military misadventures, and begin to tax our wealthy the way the rest of the world taxes their wealthy (instead of rewarding them for doing nothing like Bush has done) is now in order, moreso than ever!


Holte Ender said...

Plutocracy is back and in the days when it was the norm, the wealthy had to build castles and grand estates to separate them from the serfs, who could get a little tetchy, and private armies to protect and escort them round their possessions. SO there could be a job opportunity for a few men who don't mind playing their part in the oppression of the American people, perfect opportunity for the Teabaggers, who's actions support corporations and little or no government. Welcome to the new Dark Ages.

Jack Jodell said...

Yes, it's tragically unbelievable, especially at the speed in which this all happened. 35 years ago, it looked like average Americans were FINALLY going to be entering an era of good breaks---but no more.

TRUTH 101 said...

And yet, despite this story hitting millions of families in this same predicament, America is more consumed with tea bagger bullshit and American Idol than the slow death of the middle class.

TAO said...

You have this Reaganite along with David Stockman all now singing the same song: Supply Side Economics didn't work.

As a business owner it could be assumed that my position is totally different than yours: But it isn't.

I have watched as supplier after supplier bites the dust and I have watched retailers bite the dust, one right after another.

It has been over 5 years since I was last able to raise my prices and yet all of my expenses are constantly increasing.

Then I find out about all the special tax incentives that major corporations get...

I know who pays my bills and that is my consumers and I know my consumers are people just like my employees...

Thats why I am on the side of the little guy and the American Worker.

Oso said...

I really like Roberts. He takes a lot of crap now from his former compadres on the right.

Jack Jodell said...

I understand where you're coming from, and it's simply maddening, isn't it? I mean, it's one thing to be stupid and be led unknowingly to the economic guillotine, but it's quite another to be stupid, be led unknowingly to the economic guillotine, be offered help to escape but then refuse it, and finally end up putting your head in the slot and then letting go of the rope blade yourself! These teabaggers and rich-guy wannabes never cease to amaze me!
I salute you and hold you in the highest regard for taking the stance you have. For, unlike a number of your peers, you have demonstrated a clear grasp of the big picture at hand as well as a very big and pure heart. Carry on with our very, very best wishes, my friend!
I like him too, and I'm not shocked at the crap he's taken. Those on the right are so doctrinaire and intolerant that they cannot accept even the slightest deviation from their narrow little belief system. And that's why you, I, and the other progressive-minded people on this page fight them tooth and nail!

mud_rake said...

Jack- an EXELLENT read! Thanks for reposting it.

Productivity increases that do not translate into wage gains cannot drive the consumer economy.


I think of those Wall Street shysters whose personal aggrandizement trumps any faint murmur of morality that may yet exist in their DNA.

Jack Jodell said...

Thanks, mud_rake, and I'm glad you found this as meaningful as I did. But I was never aware that those parasitical Wall Street shysters had ANY murmur of morality in their DNA! Those a-holes are the epitome of everything a good parent DOESN'T want his or her child to grow up to become!

CrisisMaven said...

Since you referred to statistical research: I have put one of the most comprehensive link lists for hundreds of thousands of statistical sources and indicators on my blog: Statistics Reference List. And what I find most fascinating is how data can be visualised nowadays with the graphical computing power of modern PCs, as in many of the dozens of examples in these Data Visualisation References. If you miss anything that I might be able to find for you or you yourself want to share a resource, please leave a comment.

Jack Jodell said...

Thank you, CrisisMaven. I may call on you in the future. I don't know who you are or exactly what you're all about (and a visit to your site didn't tell me much, either), but we'll see...