Can Trump Fix The Economy In 2017?

Paul Craig Roberts

The Western world and that part of the world that partakes of Western
explanations live in a fictional world. We see this everywhere we look—in the
alleged machinations of Russia to elect Donald Trump president of the US, in
claims that Saddam Hussein and his (nonexistent) weapons of mass destruction
were a threat to the United States (a mushroom cloud over American cities), that
Assad of Syria used chemical weapons against his own people, that Iran has a
nuclear weapons program, that a few Saudi Arabians outwitted the entirety of the
US, EU, and Israeli intelligence services and delivered the greatest humiliation
to the “world’s only superpower” in the history of mankind, that Russia invaded
Ukraine and could at any moment invade the Baltics and Poland, that the US rate
of unemployment is 4.6%, that China’s trade surplus with the US is due to
Chinese currency manipulation, and so on and on.
Allegedly we live in a scientific era of information, but what good can come
from faulty orchestrated information? As long as fake news delivered by
presstitutes serves powerful private and governmental interests, how can we know
the truth about anything?
For example, consider the claim found everywhere in US government and US media
statements that the massive US trade deficit with China is the result of Chinese
currency manipulation, keeping the yuan underpriced relative to the US dollar.
This false claim, which is widely accepted as truth even by Russian writers on
Russian websites (
http://www.strategic-culture.org/news/2016/12/12/only-one-step-away-from-global-trade-war.html
), is nonsense. China’s currency is pegged to the US dollar. It moves with the
dollar. China pegged its currency to the US dollar in order to create confidence
in the Chinese currency. Over the past decade China has adjusted the peg of its
currency to the dollar and permitted a rise in the value of the Chinese currency
from 8.1 yuan to 6.9 yuan to the US dollar. (The yuan reached a strength of 6 to
the dollar, but a rising dollar was pulling up the yuan, causing China to widen
the float in order to avoid undue appreciation because of the US dollar’s rise
to other Asian and European currencies.) How is a rising yuan “currency
manipulation”? Don’t expect an answer from the presstitute financial media or
the junk economists who comprise the neoliberal economics profession.
The function of the myth of Chinese currency manipulation is to hide from view
the fact that the massive US trade deficit with China is due to US corporations
offshoring their production for US markets to China. When US corporations bring
goods and services produced offshore back to the US for sale, they enter as
imports, thus swelling the trade deficit. The myth about currency manipulation
shifts the blame from US corporations to China, while in fact it is the return
of offshored production, such as Apple computers, for sale to Americans that
swells the US trade deficit.
US corporations produce offshore because the much lower labor costs result in
higher profits, higher stock prices for shareholders, and in performance bonuses
for executives. One of the main causes for the high Dow Jones averages and the
worsened income and wealth distribution in the US is the offshoring of jobs. In
2016 the richest people added $237 billion to their wealth, while the rise in
student loan, auto loan, and credit card debt combined with stagnant or
declining income left ordinary Americans poorer. During the 21st century,
household indebtedness has risen from about 70% of GDP to about 80%. Personal
income has not risen in keeping with personal debt.
The offshoring of jobs benefits only a small number of shareholders and
executives, and it imposes massive external costs on American society. Former
prosperous manufacturing states are in long term depression. Median real family
incomes have fallen. Real estate values in abandoned manufacturing areas have
fallen. The tax base has eroded. State and local government pension systems
cannot meet their obligations. The social safety net is unraveling.
To get an idea of the external costs that offshoring imposes on the American
population, go online and look at the pictures of decrepit Detroit, formerly an
industrial powerhouse. Schools and libraries are abandoned. Public buildings are
abandoned. Factories are abandoned. Homes are abandoned. Churches are abandoned.
Here is one 4 minute video: https://www.youtube.com/watch?v=pcTYqnL2Bgw 
And it is not only Detroit. In my book, The Failure of Laissez Faire Capitalism
(Clarity Press, 2013), I report the 2010 US Census data. The population of
Detroit, formerly America’s fourth largest city, declined by 25 percent in the
first decade of the 21st century. Gary, Indiana, lost 22 percent of its
population. Flint, Michigan, lost 18 percent. Cleveland, Ohio lost 17 percent.
Pittsburg, Pennsylvania lost 7 percent. South Bend lost 6 percent. Rochester,
New York, lost 4 percent. St. Louis, Missouri, lost 20 percent. these cities
were once the home of American manufacturing and industrial might.
Instead of telling the truth, the presstitute financial media and the corrupt US
economics profession have hidden the massive social and external costs of jobs
offshoring under the totally false claim that offshoring is good for the
economy. In my book, I take to task corporate shills such as Dartmouth’s Matthew
Slaughter and Harvard’s Michael Porter, who produced through incompetence or
complicity erroneous reports of the great benefits to Americans of having their
jobs given to Chinese and American cities left in ruins.
Throughout its history the US has suffered from public lies, but not until the
Clinton, George W. Bush, and Obama regimes did lies become so ubiquitous that
truth disappeared.
Consider the November jobs report. We were told that the unemployment rate has
fallen to 4.6% and that 178,000 new US jobs were created in November. The
recovery is on course, etc. But what are the real facts?
The unemployment rate does not include discouraged workers who have been unable
to find employment and have ceased job hunting, which is expensive, exhausting
and demoralizing. In other words, unemployed people are being pushed into the
discouraged category faster than they can find jobs. That is the explanation for
the low official unemployment rate. Moreover, this reported low rate of
unemployment is inconsistent with the declining labor force participation rate.
When jobs are available, people enter the work force in order to take advantage
of the employment opportunities, and the labor force participation rate rises.
The reporting by the financial presstitutes adds to the deception. We are given
the number of 178,000 new jobs in November. And that is it. However, the data
released by the Bureau of Labor Statistics shows many problematic aspects of the
data. For example, only 9,000 of the claimed 178,000 jobs are full time jobs
(defined as 35 hours or more per week). October saw a loss of 103,000 full time
jobs from September, and September had 5,000 fewer full time jobs than August.
No one explains how an economy losing full time jobs is in recovery.
The age distribution of the November new jobs is disturbing. 77,000 of the jobs
went to those 55 and over. Only 4,000 jobs went to the household forming ages of
25-34.
The marital status distribution of the jobs is also troubling. In November there
were 95,000 fewer employed married men with spouse present and 74,000 fewer
employed married women with spouse present than in October. In October there
were 331,000 fewer married men and 87,000 fewer married women employed than in
September.
One can conclude from these large differences month to month that the official
statistics are not good, which might well be the case. For example, as I have
stressed in my reports on the monthly payroll employment releases, there is
always a large number of new jobs for waitresses and bartenders. Yet restaurant
traffic has declined for 9 consecutive months. Why do restaurants hire more
employees as traffic declines?
As John Williams (shadowstats.com) has informed us, the monthly payroll jobs
claims might consist entirely of add-ons from estimates from a flawed
birth/death model and manipulations of seasonal adjustments. In other words, the
reported new jobs might only be statistical illusions.
John Williams also emphasizes that the claimed real GDP growth numbers might be
entirely the products of the under-measurement of inflation. Some years ago the
inflation measures were “reformed” in order to cheat those on Social Security
out of cost-of-living adjustments. In place of a weighted index that calculated
the cost of a constant standard of living, substitution was introduced. In the
reformed index, if the price of an item in the index rises, a lower-priced item
is substituted in its place, thus negating the inflationary impact of the price
rise. Also, price rises are defined away as “quality improvements.” Clearly,
this is an index designed to under report rising prices.
The bottom line is that the recovery allegedly underway since June 2009 might be
a statistical illusion produced by a flawed measure of inflation.
What can Americans expect from the economy in 2017? First, some perspective. The
defeat of stagflation by President Reagans supply-side policy gave the Clinton
regime a good economy. The improved US economy was not entirely a good thing,
because it masked the adverse consequences of jobs offshoring that began in
earnest after the Soviet collapse in 1991.
The Soviet collapse encouraged the change in attitude of the Indian and Chinese
governments toward foreign capital. Wall Street and big box retailers such as
Walmart forced the relocation of much of US manufacturing to China, to be
followed after the rise of the high speed Internet by offshoring professional
skill jobs such as software engineering to India. These relocations of US
economic activity to foreign locations hollowed out the US economy and reduced
the job opportunities for Americans.
The growth of real median family income ceased. Without increases in consumer
spending to drive the economy, the Federal Reserve substituted a growth in
consumer debt for the missing growth in real median family income. But the
growth of consumer debt is limited by the lack of growth in consumer income.
Thus, an economy dependent on debt expansion is limited in its ability to
expand. Unlike the federal government, the American people cannot print money
with which to pay their bills.
Alone among those contending for political office, president-elect Trump has
fingered jobs offshoring as a blow to the American people and the US economy. It
remains to be seen what he can do about it, as jobs offshoring serves the
interests of the global corporations and their shareholders.
For many years now the monthly payroll jobs reports show the US descending into
Third World status, with the vast bulk of the claimed new jobs in lowly paid,
non-tradeable domestic services. The BLS 10-year job projections show few new
jobs that require a university degree. If high value-added, high productivity
middle class jobs cannot be brought back to the US, the American economic future
is one of continuing decline into Third World status.
Considering the constraints on the consumer, a large share of corporate profits
has come from labor cost savings from jobs offshoring. For corporations such as
Apple, whose products are almost entirely produced in Chinese factories, there
are no more profits to be secured from jobs offshoring. To keep the profits
flowing, Apple plans to replace the inexpensive Chinese labor with robots, which
do not have to be paid any wage. What better shows the disconnect between
capital and labor than to robotize Chinese factories in the face of an excess
supply of labor?
Paul Samuelson’s economic textbook taught the fallacy of composition, what is
good for the individual might not be good for the group. The Keynesian
economists applied this to savings. Saving is good for the individual, but if
aggregate saving exceeds investment, aggregate demand falls, pulling down
income, employment, and saving.
This is the case with jobs offshoring. It can increase profits for the firm, but
in the aggregate it decreases aggregate income of the population and limits
sales growth. What jobs offshoring does in this respect will be done in spades
by robotics.
When I read economists and financial presstitutes glorifying the cost savings of
robotics, I wonder where their mind is or if they have one. Robots don’t
purchase housing, home furnishings and appliances, cars, food, clothing,
vacations, entertainment. When robots have the jobs, where do humans get the
incomes with which to purchase the products produced by robots?
This unexamined question has extraordinary implications for property rights and
the social organization of society. Robotic patents are not widely held.
Therefore, in a robotized world, income and wealth would be concentrated in the
hands of a relatively few people. As robotics increases profits and reduces
wages, economic inequality will sharply increase. Indeed, would there be any
income or wealth at all? The only way humans could survive their displacement by
robots would be to again become self-sufficient farmers with no monetary income
to purchase products made by robots. As few would be able to purchase products
made by robots, what would be the source for income and wealth for the owners of
robotics?
It is nonsense that macroeconomic monetary and fiscal policies (such as low
interest rates and tax cuts) can maintain full employment in the face of jobs
offshoring and robotics. I am convinced that if robotics is going to supplant
human labor, the patents will have to be socialized, and income distributed on a
relatively equal basis throughout society.
So, can Trump fix the economy in 2017?
There can be no fix unless the ladders of upward mobility that made the US an
opportunity society can be put back in place. This will require bringing home
the offshored middle class jobs or, assuming that new high value-added jobs
could somehow be created, preventing the new jobs from being moved offshore.
There is a way to do this: Base the corporate tax rate on the geographical
location where corporations add value to their product. If corporations add
value domestically with US labor, the tax rate would be low. If the value is
added abroad, the tax rate would be high. The tax rate can be adjusted to offset
the benefits of lower costs abroad.
Despite the progaganda about globalism and free trade, the US economy was built
on protection, and its strength was the domestic market. US prosperity was never
dependent on exports. And as the US dollar is the world reserve currency, the US
doesn’t need exports in order to pay for its imports. This is why the US can
tolerate the trade deficits caused by jobs offshoring.
Globalism is a concoction by the neoliberal junk economists in complicity with
the big banks, Wall Street, and multinational corporations. Globalism is a
disguise for the exploitation of the many in behalf of the few. The alleged
benefits of globalism were used to justify the offshoring of jobs and to enrich
corporate executives and shareholders.
It is the domestic economy that is important, not the global economy. The
suffering population in flyover America finally learned this lesson and elected
Trump.
Can Trump script “The Escape From Globalism?” He could lose the fight. Globalism
has been institutionalized. The large corporations that have offshored their
production for US markets would oppose moves against jobs offshoring. So would
all their shills in the economics profession and financial media. I don’t know
the extent to which globalism has taken root in people’s minds in Asia, Africa,
and South America, but in Europe—even some in Putin’s Russia—people are
brainwashed in the belief that they can’t exit globalism without paying a large
economic price.
Consider, for example, the Greeks. For the sake of the balance sheets of a
handful of northern European (and perhaps US) banks, the Greek and Portuguese
peoples have been forced into extreme austerity, resulting in such high
unemployment and plummeting living standards that women have been forced into
prostitution in order to survive. This totally unnecessary outcome has occurred
because the Greek and Portuguese peoples and governments are so brainwashed that
they believe they cannot survive as independent countries without globalism and
the entry to globalism provided by EU membership. In the UK 45% of the
population suffers from the same misconception.
Globalism is the latest technique by which capitalism loots and destroys. In the
Western world it is the working and middle classes that are looted of their jobs
and careers. In Asia, Africa, and Latin America self-sufficient farming
communities are looted of their land and forced into monoculture as laborers who
produce an export crop. Countries formerly self-sufficient in food become
dependent on food imports, and their currency, which carries that burden, is
subject to endless speculation and manipulation.
Was it universal ignorance or bribes that compelled governments everywhere to
ransome their populations to globalism?
Frontline journalists, such as Chris Hedges, who have seen and reported a lot,
have concluded that the fate of the world is in such few hands that act only in
their narrow self-interests that only revolution can correct the imbalance
between the interest of a handful of oligarchs and the mass of humanity. Hedges’
position is not an easy one with which to argue.
Trump descending into the snakepit that is Washington, D.C., needs to remember
what happened to President Jimmy Carter. In fact, the best thing Trump can do
for his presidency is to go spend some time with Carter prior to taking office.
Carter was an outsider, a principled person, and the Washington establishment
did not want him. They reduced his effectiveness by framing up his budget
director and chief of staff. The same thing can happen to Trump, assuming he is
able to get his appointees confirmed by the Senate, members of which are allied
with the CIA against Trump.
Reaganites had a similar experience in the Reagan adminisration. Reagan had
political experience as governor of California, the largest state, but he was an
outsider to the Republican establishment, whose candidate for the presidential
nomination was George H.W. Bush.
Reagan defeated Bush for the nomination, but was advised by Republicans, who
remembered the Goldwater wipeout when the Rockefeller forces turned on Goldwater
for not choosing the defeated Rockefeller as his VP running mate, costing
Goldwater the election, to select Bush as VP. Otherwise, Reagan would find
himself, like Goldwater, running against both the Democratic and Republican
establishments.
Reagan’s first term took place with George H.W. Bush’s main operative as chief
of staff of the White House. This confronted me with problems as Assistant
Secretary of the Treasury for Economic Policy where I was the point man for
Reagan’s supply-side economic policy.
Both political party establishments are more interested in controlling the party
than in doing well for the country. During President Carter’s four years, the
main concern of the Democratic establishment was in regaining control of the
party from the forces that had sent an outsider to the White House. During
Reagan’s eight years, the main concern of the Republican establishment was in
regaining control of the Republican party from Reaganites.
It is likely that Trump will now experience in spades what presidents Carter and
Reagan experienced. The effort will be made to force him into compromises and to
neuter his agenda. Ironically, this determined attack on Trump is being aided by
the leftwing, progressive forces that stand to gain by Trump’s standing up for
the working and middle classes and for peace with Russia. Many of the liberal,
progressive, leftwing websites are already soliciting donations in order to
fight against Trump.
So, even when we get a president who might try to represent the interests of the
American people, those who claim to speak in behalf of the people join in the
oligarchs’ attack on Trump. The left side of the spectrum seems always, like the
extreme rightwing side, to defer to their hatreds: Trump is a billionaire =
hatred. Trump appointed an energy magnate = hatred. Trump appointed two 3-star
generals = warmonger and more hatred.
The liberal, progressive, leftwing cannot get beyond their bogeymen. Of course,
they might be correct. However, as I have emphasized, Trump has chosen mavericks
who have gone against the establishment. Moreover, these are strong men, like
Trump, which is what it takes to bring change from above. The Exxon CEO wants
energy deals, not war, with Russia. Gen. Flynn is the one who exposed on TV
Obama’s use of ISIS to overthrow Syria against the recommendation of the Defense
Intelligence Agency. Gen. Mattis is the one who challenged the effectiveness of
torture.
Trump’s main appointments are people who have challenged the Establishment. The
usual assortment of establishment-approved appointees cannot bring change to
Washington.
The liberal, progressive, left-wing should be happy at the prospect of a
government on the outs with the Establishment. Instead, the liberal,
progressive, left has aligned with the Establishment in opposition to Trump.
Every day I receive a half dozen requests for donations to “help us fight Donald
Trump.” What are these people thinking? Why do they want to fight someone that
the entire US political establishment opposes? What they should first try is to
gain Trump’s confidence and win him to their agenda, as General Mattis did.
I cannot assure you that Trump is not another fake like Obama. But it is a
mistake to begin with this assumption. Why write off in advance the only person
with the courage to put his life on the line and take on the corrupt and evil
Washington establishment?
Why help the Establshment defeat Trump? If Trump sells out Americans, we can
turn on him then, or we can decide whether Chris Hedges is correct that only
revolution can rectify the situation.
In
IPE PAUL CRAIG ROBERTS
http://www.paulcraigroberts.org/2017/01/03/can-trump-fix-the-economy-in-2017-paul-craig-roberts/
January 3, 2017