Behind the Job Loss
Monday, June 25, 2007
By William F. Jasper
The accelerating exodus of American businesses and American jobs to China, Mexico, and dozens of other countries over the past two decades is unprecedented in our history. The devastating impact of this development on America’s middle class has been amplified by the simultaneous influx of millions of illegal aliens who have taken the jobs of U.S. citizens.
For years we were told that these waves of “undocumented workers” were essential to our economy, that they were simply “doing jobs Americans wouldn’t do” — mostly seasonal, minimum-wage (or sub-minimum-wage) farm labor. But the fact is that several million Mexicans who have come as “temporary” farm laborers have moved on from the fields to take permanent jobs in the construction trades, manufacturing, meatpacking, food processing, textiles, hotel and restaurant services — good-paying blue-collar jobs that were, until very recently, held by U.S. citizens.
More recently, these unskilled workers have been joined by several million skilled white-collar workers, from a wide variety of fields: computers, engineering, information technology, medicine, and many sciences and professions.
This dual threat, the offshore “outsourcing” of American jobs and the concomitant “insourcing” of foreign workers (both skilled and unskilled), presents a far greater danger to America’s future than the usual experts have been willing to admit. One exception has been economist-author-columnist Paul Craig Roberts. In 2003, Roberts, an assistant secretary of the Treasury in the Reagan administration, predicted that if jobs outsourcing and occupational destruction continued apace, America would be a Third World country within 20 years.
Many, if not most, other economists responded to these alarming trends and Dr. Roberts’ dire prediction with amusement and derision. In February 2004, Gregory Mankiw, President Bush’s chief economic adviser, created a firestorm by stating that sending millions of U.S. service jobs abroad “is probably a plus for the economy in the long run,” because foreign workers can do the jobs more cheaply. “Outsourcing is just a new way of doing international trade,” he said. Voters and displaced workers were upset, but economists — even Democratic economists, including former Clinton economic advisers like Janet Yellen, Robert Reich, Laura Tyson, and Brad DeLong — came to Mankiw’s defense.
Outsourcing is merely a reflection of “globalization,” they sniffed, a contemporary illustration of Adam Smith’s classical trade principle of “comparative advantage.” While “temporarily” painful, it will benefit all players in the long run, they insisted. Economist Daniel W. Drezner presented one of the most important expositions of this argument in the May/June 2004 issue of Foreign Affairs, the influential journal of the Council on Foreign Relations. In his essay, entitled “The Outsourcing Bogeyman,” Drezner defended Mankiw’s remarks and said:
Should Americans be concerned about the economic effects of outsourcing? Not particularly. Most of the numbers thrown around are vague, overhyped estimates. What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy.
However, within a couple of years, some very sobering studies were showing Paul Craig Roberts’ warnings to be anything but bogeyman rantings. In 2006, Alan S. Blinder, former vice chairman of the Federal Reserve, shocked people on both sides of the debate with his “crude guestimate” that the number of potentially offshorable U.S. jobs was in the neighborhood of 42-56 million, roughly 30-40 percent of all U.S. jobs!
In March of this year, Dr. Blinder announced a more detailed study that was slightly less ominous but still alarming: “I estimate that somewhere between 22 percent and 29 percent of all U.S. jobs are or will be potentially offshorable within a decade or two.” He didn’t say that 22-29 percent of American jobs would be sent offshore, but that that percentage potentially could be outsourced. Nevertheless, that level of potential, combined with the devastating trends of the past decade — with no let up or reversal in sight — points toward a very bleak future for America.
Will the twin threats of outsourcing and insourcing continue? Can nothing be done to halt these devastating trends? Fortunately, they are not the result of unavoidable “market forces,” as the globalization advocates so frequently proclaim. If America’s middle class dissolves and our nation declines to Third World status, it will be because we have allowed the destructive policies that are killing our economy to continue. America can and must regain its competitiveness and leadership, but it will do so only if we move rapidly and aggressively to reverse the policies that are destroying middle-class America.
Regulation
The U.S. economy, once a flourishing free-enterprise colossus, is now a dying Gulliver, thanks to thousands of strangling Lilliputian regulatory cords.
“The total regulatory burden on manufacturers is estimated at $162 billion,” the National Association of Manufacturers reported in its 2006 study, The Escalating Cost Crisis. “This represents an increase of 10.2 percent since 2000,” NAM reported, noting that this burden is a major contributing factor to the continuing loss of American manufacturing jobs to overseas competitors, as well as an ongoing impetus for U.S. manufacturers to move offshore — or perish.
However, the NAM calculations do not begin to tell the whole story of the horrendous havoc that the regulatory state is wreaking upon our economy. According to the Competitive Enterprise Institute (CEI), the total federal regulatory burden to the American economy is closer to $1.16 trillion annually! In its 2006 study, Ten Thousand Commandments, CEI reports that regulatory costs “exceed estimated 2005 individual income taxes of $894 billion, and are far greater than corporate income taxes of $226 billion.” These costs are also “more than triple the $318 billion [2005] budget deficit.” The regulatory costs combined with federal budget outlays of $2.472 billion “bring the federal government’s share of the economy to 29 percent, compared to 27 percent a year ago.”
The 2005 Federal Register, the daily depository of all proposed and final federal rules and regulations, contained 73,870 pages. CEI noted that, of the 4,062 new regulations now in the regulatory pipeline, 137 are “economically significant” rules that will have at least $100 million in economic impact. “Those rules will impose at least $13.7 billion yearly in future off-budget costs,” says the CEI study, with 788 of them adversely affecting small business, the engine of most of our jobs.
The regulatory impact on U.S. mining is illustrative. Although we are blessed with abundant mineral deposits and have developed many of the world’s innovative mining technologies, we have become dangerously dependent on foreign sources. The U.S. Geological Survey reported in 2005 that “U.S. manufacturers and consumers of mineral products that are critical to the U.S. economy depended on other countries for 100 percent of 17 mineral commodities (an increase of 6 percent over 2003) and for more than 50 percent of 42 mineral commodities (an increase of 8 percent over 2003).” Between 1997 and 2002, there was a 66-percent decline in U.S. mining exploration spending. One reason for this is the lengthy permit process. Obtaining a permit for copper mining in the United States, for instance, can take from 4-8 years compared with 18 months for Chile.
“A CEO has to make the decision to stay in the U.S. and not get a return for those years, or go offshore,” says Luke Popovich, spokesman for the National Mining Association. “The permitting requirements are so onerous they are driving investment away offshore where there can be a much quicker return.” The same can be said for virtually every other industry.
Energy
Most of America’s energy woes can be attributed to the regulatory burden mentioned above. But since energy is the lifeblood of production, an essential ingredient of everything that is produced, it behooves us to examine it separately. Tax and regulatory burdens that drive up our energy costs have a tremendous negative impact on our competitiveness vis-à-vis foreign production and, ultimately, kill domestic jobs.
“Of great concern to U.S. manufacturers is the sharp rise in the cost of energy, particularly natural gas,” said the National Association of Manufacturers in 2006, noting that from 2003 to the end of 2005 the “seasonally adjusted price [of natural gas] has more than doubled from $4 per thousand cubic feet to $8.”
“If we look back to the mid-1990s,” the NAM points out, “the United States enjoyed a 30 percent cost advantage with regard to natural gas on a trade-weighted basis.” However, says the NAM 2006 report, The Escalating Cost Crisis, “the steady increase in U.S. prices since then is purely the result of policy decisions that have limited development of domestic reserves and Clean Air Act mandates that have increased demand” for natural gas.
Unfortunately, environmental extremists — and the politicians they hold in their grip — have adopted the BANANA philosophy towards energy: Build Absolutely Nothing Anywhere Near Anyone. Hence, exploration for and development of new energy deposits (oil, gas, and coal) and construction of refineries and power-generating plants face interminable delays and roadblocks.
According to the U.S. Minerals Management Service, areas of America’s outer continental shelf (OCS) currently banned from development likely contain a mean estimate of 18.92 billion barrels of oil and 85.79 trillion cubic feet of natural gas recoverable by current technical means. However, federal environmental policies are preventing us from accessing that treasure trove of desperately needed energy, even though drilling presents almost no environmental danger. No other nation in the world prohibits development of its offshore energy. But, incredibly, federal prohibitions on OCS drilling over the past 25 years have caused the United States to send trillions of dollars to overseas oil producers. We send around $500 billion annually to foreign energy producers, which is a major cause of our huge annual trade deficits and the continuing precipitous loss of our manufacturing and technology base.
In addition to opening up OCS drilling, Congress should allow drilling in Alaska’s Arctic National Wildlife Refuge (ANWR), which the U.S. Geological Survey has estimated contains recoverable oil reserves equivalent to 30 years of oil imports from Saudi Arabia, America’s largest foreign supplier.
Regulatory restrictions and harassing litigation by environmental radicals have prevented construction of a single nuclear power plant or oil refinery in the United States for the past three decades. Thus, while the U.S. pioneered nuclear technology and while all the rest of the world continues to move forward, building new nuclear power plants, we are being prevented from enjoying the benefits of this resource. And, as Hurricane Katrina showed, it is utter folly to restrict our nation to having most of our refineries on the Gulf Coast, where they are vulnerable to tropical storms. Continued blockage of the construction of desperately needed refineries and electrical power plants of all types (nuclear, coal, oil, and gas) is absolutely suicidal.
Taxes
The NAM report, The Escalating Cost Crisis, found that for U.S. manufacturers, “the corporate tax burden was both the heaviest burden in absolute terms and the largest contributor to the deterioration in the U.S. structural manufacturing cost gap, adding 2.0 percentage points to the U.S. cost disadvantage. This is largely due to the fact that U.S. statutory rates were unchanged, even as several other trading partners continued to lower their rates.”
In addition, the research and experimentation (R&E) tax credit, an important and long-standing provision of the tax code designed to encourage innovation and new product development, expired at the end of 2005, which is “equivalent to a nearly 9 percent increase in the overall manufacturing tax burden.” Thus, notes the NAM, “the excess tax burden of U.S. manufacturers relative to their foreign competitors has worsened considerably in the past three years.”
Federal Reserve Policy
Testifying before the House Committee on Education and the Workforce on March 11, 2004, Federal Reserve Board Chairman Alan Greenspan assured the nation: “In all likelihood, employment will begin to increase more quickly before long as output continues to expand. We have reason to be confident that new jobs will displace old ones as they always have.”
Rather than assuming any of the blame for what he referred to as the “creative destruction” of American jobs, he urged American to “think creatively” and “enhance” education. He offered the standard mantra that ongoing adult reeducation and retraining is the answer to job loss, even though the government’s own statistics show that the promised “higher value” jobs that were supposed to replace outsourced jobs have never materialized and federal job retraining programs have been an abject failure.
But as Paul Craig Roberts noted earlier this year, “The problem America faces is not a lack of educated people, but a lack of jobs for educated people. In the 21st century, the US economy has been able to create net new jobs only in domestic services, such as waitresses, bartenders and health and social services. The vast majority of these jobs do not require a college education, and they do not produce tradable goods and services that could be exported or substituted for imports.”
The Federal Reserve’s long stretch of artificially low interest rates, easy credit, and expanding money supply has fueled the ongoing orgy of U.S. consumer spending, stock market and real estate speculation, skyrocketing debt, and an almost total lack of savings.
U.S. Subsidy of Foreign Competitors
As if taxing and regulating virtually all American production into oblivion isn’t enough, our politicians and bureaucrats virtually bribe U.S. companies to leave and set up operations on foreign soil. Through federal entities such as the Export-Import Bank (Ex-Im) and the Overseas Private Insurance Corporation (OPIC), our federal tax dollars are used to transfer American jobs, technology, and production plants to other countries. In 2001, for instance, Ex-Im helped finance a joint venture between General Electric and Mexico’s Elamex to build an appliance parts factory in Celaya, Mexico. This enabled GE to layoff 1,600 workers at its Bloomington, Indiana, plant and transfer production to the new operation in Celaya.
That’s small potatoes compared to the $5 billion Ex-Im Bank loan the Bush administration has approved for a Westinghouse-Beijing venture to build nuclear power plants in China. Many billions more of U.S. taxpayer dollars have been funneled to Mexico, China, Vietnam, and dozens of other countries and their U.S. corporate partners through the World Bank, Asian Development Bank, Inter-American Development Bank, and other multilateral institutions. This amounts to massive corporate welfare, as well as welfare for the regimes that are undercutting American-produced goods and taking American jobs.
Immigration
As noted in our comments above and the article "Immigration and Wages", illegal immigration is taking a heavy toll on America’s workforce, not only in terms of displacing American workers and depressing wages, but also increasing the tax burden for social services. In many previous issues of this magazine we have detailed the complete lack of commitment by the current and past administrations, both Republican and Democratic, to secure our borders and to implement a visa-monitoring system that ensures the millions of visitors and temporary workers leave when they are supposed to. Many of these “temporary” workers, on H-1B and L-1 visas, for instance, end up staying here permanently.
However, we are in danger of having our already ludicrous system of immigration non-enforcement rendered completely moot. Under the General Agreement on Trade in Services (GATS) which the United States has agreed to accept, millions of foreign service professionals — accountants, doctors, nurses, engineers, architects, stock brokers, bankers, beauticians, realtors, analysts, computer programmers, photographers, teachers, consultants, electricians, plumbers, etc. — may soon be allowed to operate within the United States without regard to state and local licensing and certification.
This new form of insourcing skilled workers, combined with the planned acceleration of outsourcing, could prove the already scary estimates of Dr. Blinder to be on the low side. Unlike the already problematic H-1B program, the number of foreign workers who could be admitted under the GATS provisions is virtually unlimited. As noted in the following article about free-trade agreements, the GATS threat has already begun, as a stealth provision of that tripartite “free trade” agreement between the United States, Canada, and Mexico.
These are not the only policies that are propelling our suicidal “race to the bottom,” but they represent some of the most important matters that must be corrected if the United States is to remain a great nation, instead of being relegated to the dustbin of history.
William F. Jasper joined the staff of The John Birch Society in 1976 as a researcher and soon became a contributing editor to the Society's magazines, American Opinion and The Review of the News. When those publications merged in 1985 to become THE NEW AMERICAN, Mr. Jasper continued to serve as a writer and contributing editor until 1990, when he was promoted to the position of Senior Editor.
Over the past three decades, William Jasper has researched and written extensively on foreign and domestic politics, national security, education, immigration, constitutional issues, the culture war, and most notably, the United Nations. His renown as an investigative journalist and insightful analyst on a wide array of topics has made William Jasper a frequent and highly sought guest on many radio and television programs.
He is the author of the 2001 book, The United Nations Exposed and the 1992 book, Global Tyranny-Step by Step: The United Nations and the Emerging New World Order. Both books were praised by many as the most authoritative and detailed expose' of the UN ever written. Mr. Jasper's coverage of UN events has included attendance at the Earth Summit in Rio de Janeiro, the UN 50th Anniversary Founding celebration in San Francisco, the July 1998 UN Summit on the International Criminal Court in Rome, and the UN Millennium Summit in New York City during September 2000.
Born in Madison, Wisconsin, William Jasper grew up in the Pacific Northwest and is a graduate of the University of Idaho. Mr. Jasper receives critical support from his wife Carmen and their two sons.
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