The Fading American Economy

From CounterPunch, a essay from former Reagan economist Paul Craig Roberts:

This is the portrait of the US economy according to the Bureau of Labor Statistics. It is an economy in which government is the largest employer. Manufacturing employment comprises just under 10% of total employment and about 12% of private sector employment. Everything else is services, and not particularly high level services.

And

If the US cannot close its trade deficit, it is unlikely that the US dollar can remain the world reserve currency. If the dollar were to lose the reserve currency role, the US government would not be able to finance its annual red ink budget by borrowing from foreigners, as the US saving rate is about zero, and the US would not be able to pay its import bill in its own currency. The rest of the world continues to hold depreciating US currency, because the dollar is the world reserve currency. The dollar is certainly not a good investment having declined dramatically against other traded currencies.

And

The US unemployment rate is creeping up, and according to John Williams, the official unemployment rate greatly understates the real rate of unemployment. Williams has followed the changes that government has made to the official indices over the years in order to spin a more politically palatable picture. Williams uses the original methodology prior to the decades of spin. The original way of measuring unemployment indicates the current rate of unemployment in the US to be 13%, much higher than the 5.1% official number.

Williams also calculates the CPI according to the same way it was officially calculated prior to the recent decades of spin. Williams estimates the current CPI at 12%, three times higher than the official 4% figure.

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Roberts is no lunatic or conspiracy theorist: he's a bona fide economist with quite a good reputation, and a conservative at that. And his latest essay has put together several economic trends that have increasingly worried me in recent years.

But then, this is where I always get into trouble with people who have studied economics more formally than I have.

I mean, I had a really good high school economics course, followed up by a decent college macroeconomics class, taught by a Friedmanite. So I feel like I've got a decent layman's grounding in the discipline. On the other hand, virtually all of my economics study beyond that has been informal and self-taught, usually by reading dissidents within the field, and critical intellectuals outside the field. I mean, I read Krugman, too, but mostly I'm swayed by Chomsky, Hermann, and others way out to the left. So, even though there are bound to be some honest disagreements that I have with people who understand economics in a more mainstream way, I can't help but wonder if there's something I just don't understand because I haven't studied enough.

Case in point: it seems to me that capitalism, as currently constructed in the US, is a big house of cards just waiting to cave in. I don't understand how we can send almost all of our manufacturing abroad and continue to have a strong economy at home. I don't understand how business can keep squeezing consumers and workers and expect to have strong domestic markets in the future. I don't understand how a negative savings rate isn't such a bad thing. I don't understand how maxing out credit cards just to survive, how running massive federal deficits, is going to work out in the long run. It just seems to me that the chickens must come home to roost some day.

But friends of mine, smart well educated friends whose opinions I trust, tell me I'm overreacting. To be honest, the whole monetary issue, reserve currencies, T-bills and whatnot, credit and savings, just gives me a headache when I try to really get my arms around it all from a mainstream point of view. I do understand, and agree with, the point about outsourcing, that cheaper labor overseas creates more wealth overall, but I don't understand how that wealth makes it back to average American citizens.

Anyway, I continue to be deeply worried about our house of cards economy: my take on the current recession is that it is resulting from longstanding structural flaws in how the overall economy is managed, rather than resulting from the usual business cycle. That is, all this bad shit is here to stay unless the wealthy elites completely revisit many of their base assumptions about how economics work, and change accordingly, which I don't expect to happen because they're doing pretty well, all things considered.

Can anybody out there set me straight? Matt? What have you got on all this? I would really prefer to not worry so much.

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