The more they can worsen income inequality by offshoring American jobs, the higher they are paid.

Losing the Economy to MythologyBy Paul Craig Roberts

06/04/07 "ICH" -- -- - Economic discussion in the United States is trapped in ancient ruts. Both right and left are stuck in old habitual ways of thinking. Neither shows inclination or ability to think independently of ideology. For a country beset with economic problems, this is problematic.

The ascendency of free market economics during the past quarter century has removed some constraints on corporate power. It is difficult to argue that this is a desirable result. For example, the concentration of media ownership permitted by the Clinton administration in the 1990s has destroyed the independence of the US media, thus reducing the accountability of government. Deregulation has had unintended consequences. The growth of corporate influence has facilitated the reach of special interests into universities and think tanks and turned some from pursuit of truth to “for-profit activities” that compromise the independence of studies and publications.
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US income inequality was worsened and the unions busted by the collapse of world socialism and the rise of the high speed Internet. These two developments, which were not part of Reagan’s economic program, made it possible for corporations to substitute foreign labor for American labor in the production of goods and services for American markets.

Until the collapse of world socialism, corporations did not have access to the large pools of excess labor in China and India. Until the rise of the high speed Internet, corporations could not hire professional services supplied from distant lands. These two developments meant that highly productive and highly paid American labor could be substituted out of production functions and replaced with equally productive but much cheaper foreign labor, because large excess supplies of Asian labor suppressed Asian wages below the productivity of labor.

Industrial unions were busted by the movement of plant, equipment, and technology abroad.

The professional middle class was adversely impacted by the ability of corporations to contract for the delivery via the Internet of professional services from abroad and by the ability to import cheaper foreign workers on H-1B, L-1 and other work visas.

Jobs offshoring is dismantling the ladders of upward mobility in the US, polarizing the population into rich and poor, and, thereby, worsening the income distribution.

Americans need to understand that it is jobs offshoring, not lower tax rates, that is worsening the income distribution. Because of the million dollar cap on tax-deductible executive pay, executive incomes depend primarily on performance-related bonuses. The multi-million dollar CEO pay checks are not salaries. They are bonuses for making or exceeding profit expectations by such practices as offshoring jobs and lowering production costs. We have created an incentive system in which a few corporate executives are amazingly well paid for destroying jobs and career opportunities for Americans. The more they can worsen income inequality by offshoring American jobs, the higher they are paid.

What to do? Some economists think that the process will produce the solution. At some time in the future the Asian labor supply will be fully utilized. Wages will rise, and Asian labor will be paid in keeping with its productivity. ... What economists leave out of the story is the drop in American real incomes and the corresponding social instability in the US while this process works out.
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Offshoring of manufacturing and professional services turns domestically produced goods and services into imports that worsen the US trade deficit. The rest of the world is willing to finance America’s $800 billion annual trade deficit, because the dollar is the reserve currency. ... If the dollar were not the reserve currency, foreigners would have less inclination to accept them.
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It is a puzzle that free traders, who are adamantly opposed to tariffs on the grounds that they result in higher prices and lower consumer real incomes, are unfazed by currency devaluation. An excess of dollars is eroding the dollar’s reserve currency role and undermining its value. As tariffs do, dollar devaluation also confronts American consumers with higher prices and lower real incomes.

The difference is that a tariff would have prevented the loss of jobs, careers, and community tax base to offshoring, which then requires a collapse in the dollar to reverse. The cost of not having the tariff protection is the disrupted lives and hardships associated with jobs offshoring and the loss in purchasing power from a lower valued currency.

Economists cannot understand this straightforward analysis, because economists, like neoconservatives, are not reality-based. Economists are governed by the illusion that America’s post World War II prosperity is based on free trade. It is not. America’s post-war prosperity was based on the destruction of the economic capability of the rest of the world by World War II and communism/socialism. America was prosperous in its trade, because no one else could produce anything.