Fictitious Capitalism By Addison Wiggin
Economists like talking about the gross domestic product (GDP) because it is a big melting pot. But it 's misleading. All we have to do is look one by one at the parts that make up GDP and we will see the real trends.
The way the news is reported is itself an economic illusion. Our manufacturing base — a historical source of good jobs and economic growth — is undergoing a multi-decade trend that is harming our dollar's value. Starting in the late 1970s, the trend involves the loss of manufacturing plants and jobs overseas; and it has gotten worse during the past few years, a hidden indicator.
In past recoveries, industrial production always led the way; it was a dependable sign to measure the strength or weakness of the recovery. Production surged by an average of about 18 percent in the first two years after the typical recession.
Since November 2001, though, when the so-called current economic expansion began, industrial production — the creation of goods and the traditional driver of the economy —has barely moved. In fact, the total number of factory jobs lost since the start of the most recent recession in March 2001 is 2.8 million. (We have lost a total of 3.4 million jobs since 1998.) This was the single greatest percentage fall in the labor force in almost eight decades since the Great Depression of the 1930s.
What has been happening to American manufacturing can only be described with the word depression. And yet this important trend is almost invisible if we look at overall GDP.
This loss in industrial base is not a temporary thing. It is a sharp downward plunge within a longer-term trend — going south and with the dollar's spending power soon to follow unless we turn it around.
How does the loss of manufacturing jobs play into the true economic picture and, by association, the dollar crisis? Putting it another way, how is the news spun by the media?
In one headline on the topic in 2003, when the fallout from the 2001 recession was still being felt, we read: " Jobs: The Turning Point Is Here. " What was even more interesting in that story was a table titled " A Jobless Recovery? That Depends." Obviously, the author wanted to convey the message that the dismal employment picture was offset by good news elsewhere in the economy. But in fact, the story's statistics only confirmed that the U.S. economy is in a wrenching crisis. Today a more timely news headline is "Making Less Than Dad, " published on May 25, 2007, on CNN. The production side with high - paying jobs is disappearing, while the consumption side with low - paying jobs is booming.
As the nearby chart shows, since the end of 2001, the main job losses have occurred in the most historically productive sectors. In manufacturing, losses have almost doubled, while computer systems design and services have dropped nearly 80 percent.
The gains in construction, commercial banking, and real estate were directly related to the housing and mortgage refinancing bubble, and now, with the growing number of foreclosures that are mounting as the fallout continues into 2008, in two of these sectors growth comes from refinancing and not from any form of productive activity.
Look at the phenomenal growth in accommodation and services — 10 times the numbers just a few years ago — and at temporary help services, which more than doubled. What does such growth say about our real productivity? This employment record shows just how the economy's grossly distorted spending and growth pattern is moving. While the production side is collapsing, the consumption side is expanding.
Our economy is changing in big, big ways. We are moving away from goods production and toward services. It is a development that American policy makers and economists have hailed as a normal and natural shift in emphasis for a developed economy. This complacent view ignores two important points, though. First, the manufacturing sector pays the highest wages, which makes it a no-brainer for anyone to understand — especially anyone who has lost a manufacturing job and who now works in the retail sector. Second, manufacturing is the source of earnings that pay for the overseas obligations of every country.
After a slight dip in 2005 to 53 percent, the United States is now at the point where our exports are at only 56 percent of our imports (57 percent, if you count the gold shipped out of the country). We know that manufacturing produces more and more goods while employing fewer and fewer people. But the American case is different; the production of goods increasingly lags behind growth in personal income. But so what? How does the balance of trade affect the typical American, and how does it hurt the dollar?
We read in our media that miraculous productivity gains have become the main driver of U.S. GDP growth. But is this for real, or is it only a big economic hoax? We may hear a variety of possible explanations. For example, businesses are supposed to be able to squeeze more value out of the average worker. As this idea boosts profits, the impending comeback of business investment spending is taken for granted. The concept of improved productivity is supposed to offset lost market share in a global sense.
The belief that productivity growth is the whole deal is delusional, but as an economic principle it is unique to American economists. In contrast, European economists rarely mentioned the notion. They know about the importance of productivity growth, but they view it as part of a more important trend, capital investment.
American economists don't like to go there, because it brings up the real problem with the relationship between employment and the value of the dollar. As a rule, where there is high capital investment, high productivity growth can also be taken for granted. And by the way, capital investment also provides the increase in demand and spending necessary to translate growing productivity into effectively higher employment and economic growth.
Economists like talking about the gross domestic product (GDP) because it is a big melting pot. But it 's misleading. All we have to do is look one by one at the parts that make up GDP and we will see the real trends.
The way the news is reported is itself an economic illusion. Our manufacturing base — a historical source of good jobs and economic growth — is undergoing a multi-decade trend that is harming our dollar's value. Starting in the late 1970s, the trend involves the loss of manufacturing plants and jobs overseas; and it has gotten worse during the past few years, a hidden indicator.
In past recoveries, industrial production always led the way; it was a dependable sign to measure the strength or weakness of the recovery. Production surged by an average of about 18 percent in the first two years after the typical recession.
Since November 2001, though, when the so-called current economic expansion began, industrial production — the creation of goods and the traditional driver of the economy —has barely moved. In fact, the total number of factory jobs lost since the start of the most recent recession in March 2001 is 2.8 million. (We have lost a total of 3.4 million jobs since 1998.) This was the single greatest percentage fall in the labor force in almost eight decades since the Great Depression of the 1930s.
What has been happening to American manufacturing can only be described with the word depression. And yet this important trend is almost invisible if we look at overall GDP.
This loss in industrial base is not a temporary thing. It is a sharp downward plunge within a longer-term trend — going south and with the dollar's spending power soon to follow unless we turn it around.
How does the loss of manufacturing jobs play into the true economic picture and, by association, the dollar crisis? Putting it another way, how is the news spun by the media?
In one headline on the topic in 2003, when the fallout from the 2001 recession was still being felt, we read: " Jobs: The Turning Point Is Here. " What was even more interesting in that story was a table titled " A Jobless Recovery? That Depends." Obviously, the author wanted to convey the message that the dismal employment picture was offset by good news elsewhere in the economy. But in fact, the story's statistics only confirmed that the U.S. economy is in a wrenching crisis. Today a more timely news headline is "Making Less Than Dad, " published on May 25, 2007, on CNN. The production side with high - paying jobs is disappearing, while the consumption side with low - paying jobs is booming.
As the nearby chart shows, since the end of 2001, the main job losses have occurred in the most historically productive sectors. In manufacturing, losses have almost doubled, while computer systems design and services have dropped nearly 80 percent.
The gains in construction, commercial banking, and real estate were directly related to the housing and mortgage refinancing bubble, and now, with the growing number of foreclosures that are mounting as the fallout continues into 2008, in two of these sectors growth comes from refinancing and not from any form of productive activity.
Look at the phenomenal growth in accommodation and services — 10 times the numbers just a few years ago — and at temporary help services, which more than doubled. What does such growth say about our real productivity? This employment record shows just how the economy's grossly distorted spending and growth pattern is moving. While the production side is collapsing, the consumption side is expanding.
Our economy is changing in big, big ways. We are moving away from goods production and toward services. It is a development that American policy makers and economists have hailed as a normal and natural shift in emphasis for a developed economy. This complacent view ignores two important points, though. First, the manufacturing sector pays the highest wages, which makes it a no-brainer for anyone to understand — especially anyone who has lost a manufacturing job and who now works in the retail sector. Second, manufacturing is the source of earnings that pay for the overseas obligations of every country.
After a slight dip in 2005 to 53 percent, the United States is now at the point where our exports are at only 56 percent of our imports (57 percent, if you count the gold shipped out of the country). We know that manufacturing produces more and more goods while employing fewer and fewer people. But the American case is different; the production of goods increasingly lags behind growth in personal income. But so what? How does the balance of trade affect the typical American, and how does it hurt the dollar?
We read in our media that miraculous productivity gains have become the main driver of U.S. GDP growth. But is this for real, or is it only a big economic hoax? We may hear a variety of possible explanations. For example, businesses are supposed to be able to squeeze more value out of the average worker. As this idea boosts profits, the impending comeback of business investment spending is taken for granted. The concept of improved productivity is supposed to offset lost market share in a global sense.
The belief that productivity growth is the whole deal is delusional, but as an economic principle it is unique to American economists. In contrast, European economists rarely mentioned the notion. They know about the importance of productivity growth, but they view it as part of a more important trend, capital investment.
American economists don't like to go there, because it brings up the real problem with the relationship between employment and the value of the dollar. As a rule, where there is high capital investment, high productivity growth can also be taken for granted. And by the way, capital investment also provides the increase in demand and spending necessary to translate growing productivity into effectively higher employment and economic growth.
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