The Final Stage in the Deindustrialization of America

I'm old enough to clearly remember their lies. Their promise to us was that we would "think" while others would "sweat".
It sounded too good to be true, and like anything that sounds too good to be true, it was a lie.

The pro-globalization, pro-free trade crowd was very clear. If we lowered our trade barriers to cheap foreign imports, while we retrained our workforce, other nations would do the hard, manual work of producing goods while we would do the do the mental stuff of high-tech goods and services.
It was an appeal to our egos. They tried to manipulate us with false pride, and it worked to some extent.

What was sowed was hubris. We are now reaping that false promise.

With enough abandoned lots to fill the city of San Francisco, Motown is 138 square miles divided between expanses of decay and emptiness and tracts of still-functioning communities and commercial areas. Close to six barren acres of an estimated 17,000 have already been turned into 500 "mini- farms," demonstrating the lengths to which planners will go to make land productive.

The city, like the automakers, has to shrink to match what's left, said June Thomas, a professor of urban and regional planning at the University of Michigan in Ann Arbor.

"The issue is how," she said. "There's no vision."

"People are moving out of the city, trying to find work," said David Martin of Wayne State University's Urban Safety Program. Those who stay "can't afford to move out."

There is no example more poetic of a failed policy than a major city turning back into farmland. America is returning to the one thing that can't be exported by the globalists at a profit - dirt.

We were supposed to keep the "thinking" jobs, and the American workers did their part. All major advances in computers were pioneered by American workers.
But it turned out that "thinking" jobs were exportable too. Our computers are now made overseas, as are our call centers. It didn't matter what our thinking could invent. The only thing that mattered was that the work could be done cheaper overseas.

The hollowing out of our industrial base is so complete that once large, vibrant cities like Flint are literally looking at abandoning whole sections of the city.

Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.
...
[Mayor] Brown said that as more people abandon homes, eating away at the city's tax base and creating more blight, the city might need to examine "shutting down quadrants of the city where we (wouldn't) provide services."

He did not define what that could mean -- bulldozing abandoned areas, simply leaving the vacant homes to rot or some other idea entirely.

Abandoned cities never looked like progress to me. Yet that appears to be America's future, not just Michigan's. It's true in Youngstown, Ohio, as well.

Under the initiative, dubbed Plan 2010, city officials are also monitoring thinly-populated blocks. When only one or two occupied homes remain, the city offers incentives - up to $50,000 in grants - for those home owners to move, so that the entire area can be razed. The city will save by cutting back on services like garbage pick-ups and street lighting in deserted areas.
...
"Abandoned houses here are like rainfall in the spring," said Mayor Jay Williams, "That has gone on for decades."

When the good paying factory jobs left the local tax base was gutted. Inevitably that meant that the money for the local school was gutted as well. Even if their lies were true, and all we needed was to just train our kids for the "thinking" jobs, how was that going to happen when our schools were falling apart?

The free-market fundamentalist crowd told us that globalization was inevitable, there was no stopping it. If that was true then why did we need to pass NAFTA and CAFTA and China's MFN status? Why did globalization have to be helped along if nothing was going to stop it anyway?
Was it just another lie?
The fact that the gutting of our industrial base happened right around the time of massive deregulation and free trade agreements point to "yes".

The theory of the pro-globalization, pro-free trade crowd was that the people in these towns would migrate into jobs in new industries. Those industries never came.
So the hardworking people that lived in these cities left for new cities in the sunbelt, where everything was supposed to be better...except that it wasn't.

Cul-de-sac neighborhoods once filled with the sound of backyard barbecues and playing children are falling silent. Communities like Elk Grove, Calif., and Windy Ridge, N.C., are slowly turning into ghost towns with overgrown lawns, vacant strip malls and squatters camping in empty homes.

Estimates predict that by 2025 the nation will suffer a surplus of 22 million large-lot, suburban homes. Instead of the sunbelt poor taking over the centers of our cities, they will be pushed to the fringes by economics, out of sight and out of mind.

If that sounds vaguely familiar to you, it should. Just look at the cities where our jobs went. Anyone familiar with Mexico City, Rio de Janeiro, Jakarta and other cities like it will recognize that the wealthy live near the city centers while the slums of the working poor are on the edges.

We have a lot more in common with those third-world countries than just the structure of our cities. From a non-American perspective, our political system looks very third-world.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again).
...
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

The center of free-market fundamentalism, the leading advocate of deregulation, free-trade agreements, and the exporting of good-paying jobs, has always been Wall Street.
Make no mistake, when you send your hard-earned money to your 401k you are also sending money to the same people that want to export your job. You are empowering the people who most threaten your job security and financial well-being.
These people on Wall Street didn't just create the current economic crisis, they also bought your government. These banksters aren't just an enemy of your economic way of life, they are also an enemy of your democracy.
The best way to protect everything you hold dear, the most patriotic act you can make for your country, is to stop contributing to your 401k and IRA. If you really do love your country you would move your life savings into a local credit union or regional bank. You would take the money out of the stock market and away from the oligarchs that have done so much damage to our nation.

Comments

creative destruction

The infamous claim that one must destroy jobs to create jobs is misplaced. It comes from technical innovation. i.e. the sewing machine increased productivity, made clothes cheaper but also displaced many hand sewing workers. Mass production of clothing displaced many workers on sewing machines...but up the skills ladder we go in that case and workers learn how to maintain, build the machines instead of doing hand labor...

Anyway, that's the crux of the theory.

"free" trade theory does acknowledge "localized economies" may be hurt but the claims is the overall positives "eradicate" those "temporary" localized economies destruction.

Well, there is something very wrong going on here. Firstly they seem to put those local economy destruction as "temporary" and the time line is much too short. But secondly and here comes our bad math again, they seem to have these local economic destructions as independent events. That is false. There is a correlation, a dependency between local economies, they are not isolated.

So, I think what one has here and this is also bore out by the macro economic theory with just a few variable tweaks...

is all of these local economy, sector "creative destructions" are adding up to destroy the entire United States economy.

That's the production economy.

And yes, the most advanced skills, the jobs required the highest education, the smartest people, are being offshore outsourced in mass and if they cannot offshore outsource those jobs they want to bring in foreign guest workers to do that and flood the domestic labor market with a global one.

If anyone believes that the United States, with the best universities in the world and a population of 300,000,000 people cannot produce enough of the highly skilled "geniuses" for the U.S. domestic labor force, they have not been paying attention to what is happening in these high skilled career areas.

It is only career areas which are highly protectionist, like attorneys through their bar exam and the Medical doctor, through their boards and certifications which so far are exempt. And Doctors are getting hit up at this point in time...

Lawyers, who of course are also making huge money from global labor arbitrage, have the most "local" certification process in order to practice their craft...and wala....
they are not being labor arbitrage or their wages reduced...

If we offshore outsourced attorneys you can bet there would be a flurry of national labor laws to stop the practice. ;)

You must have Javascript enabled to use this form.

Even lawyers may not be immune

http://www.abanet.org/lpm/magazine/articles/v34/is5/pg47.shtml

The ABA is not against it:

http://www.abanet.org/abanet/media/release/news_release.cfm?releaseid=435

You must have Javascript enabled to use this form.

Schumpeter initially

Schumpeter initially postulated creative-destruction. But I think we've seen cost manipulations, especially in the forex since the end of Vietnam era. That's one reason why it has been so costly to manufacture in the U.S. Yes, unions and short-sighted managements are to blame, too, but something deeper has been going on in terms of the cost of money. One reason why a U.S. worker needs $15+ per hour has to do with the cost of housing and everything else, including medical and other insurances. Add education, etc. into it...the inflated costs have been the root cause of a perceived necessity to outsource (and import lower cost HB1 & illegal labor).

You must have Javascript enabled to use this form.

Doctors, if insurance companies have anything to say about it

will be next.

It may not be too far in the future to have a 'surgeon' in Beijing performing a surgery using remote robotics on a patient in ...say Boston, for instance.

But only if we allow it.

What will local Boards of Health say about that mythical surgery?

Is this mythical surgery in a Boston hospital? Yes, and that would make it subject to the inspections of the operating room by the local Board of Health. But the highest paid person in the room, along with the fact that they have the most education, presumably, is not performing the surgery as they are now. He/she is thousands of miles away. That's where lobbying by insurance companies to allow this because it suits their bottom line would come in.

It isn't too far fetched to hear someone say: to save money on health costs doctors like this mythical surgeon would have an advocate in the form of lobbyists from the insurance companies and the US Doctor seeing his job outsourced sees his job and position in the same light as a Union auto worker and he too would need the services of a lobbyist to make his case to the politicians that will decide whether or not his job is outsourced or not.

That's where we are heading if you take it all to it's natural conclusion.

Politics matters because the political decisions have economic consequences.

You must have Javascript enabled to use this form.

From Citizen Pat

Systemic Failure
By Patrick J. Buchanan
March 20, 2009

As the U.S. financial crisis broadens and deepens, wiping out the wealth and savings of tens of millions, destroying hopes and dreams, it is hard not to see in all of this history's verdict upon this generation.

We have been weighed in the balance and found wanting.

For how did this befall us, save through decisions that brushed aside lessons that history and experience had taught our fathers?

It all began with the corruption called sub-prime mortgages.

The motivation was not wicked. Democrats wanted to raise home ownership among African-Americans from 50 percent to the 75 percent of white folks. Rove Republicans wanted to do the same for Hispanics.

Banks were morally pressured by politicians into making home loans to folks who could not remotely qualify under standards set by decades of experience with mortgage defaults.

Made by the millions, these loans were sold in vast quantities to Fannie Mae and Freddie Mac. There they were packaged, converted into mortgage-backed securities and sold to the big banks. The banks put scores of billions of dollars worth on their books and sold the rest to foreign banks anxious to acquire Triple-A securities, backed by real estate in America's ever-booming housing market.

Computer whizzes devised exotic instruments -- derivatives, which could soar in value, making instant multi-millionaires, but also plummet, based on rises and dips in the underlying value of the paper.

Came now young geniuses at AIG to insure the banks against
catastrophic losses, should the U.S. housing market crash. As the risk was minuscule, premiums were tiny. Payouts, however, should it come to that, were beyond AIG's capacity.

In AIG's Financial Products division, based in Connecticut and London, brainiacs were creating other exotic instru-ments, such as credit default swaps to guarantee against losses and insure profits. To keep these wunderkinds at AIG, they were promised million-dollar retention bonuses.

Who kept the game going?

The Federal Reserve, by keeping interest rates low and money
gushing into the economy, created the bubble that saw housing prices rise annually at 10, 15 and 20 percent.

As the economy grew, however, the Fed began to tighten, to raise interest rates. Mortgage terms became tougher. Housing prices stabilized. Homeowners with sub-prime mortgages now found they had to start paying down principal. People losing jobs began to walk away from their houses.

Belatedly, folks awoke to the reality that housing prices could go south as well as north, and all that paper spread all over the world was overvalued, and a good bit of it might be worthless.

And, so, the crash came and the panic ensued.

Who is to blame for the disaster that has befallen us?

Their name is legion.

There are the politicians who bullied banks into making loans the banks knew were bad to begin with and would never have made without threats or the promise of political favors.

There is that den of thieves at Fannie and Freddie who massaged the politicians with campaign contributions and walked away from the wreckage with tens of millions in salaries and bonuses.

There are the idiot bankers who bought up securities backed by sub-prime mortgages and were too indolent to inspect the rotten paper on their books. There are the ratings agencies, like Moody's and Standard & Poor's, who gazed at the paper and declared it to be Grade A prime.

In short, this generation of political and financial elites has proven itself unfit to govern a great nation. What we have is a system failure that is rooted in a societal failure. Behind our disaster lie the greed, stupidity and incompetence of the leadership of a generation.

Does Dr. Obama have the cure for the sickness that ails the republic?

He is going to borrow and spend trillions more to bring back the good old days, though it was the good old days that brought us to the edge of the abyss into which we have fallen. Then he is going to spend new trillions to give us benefits we do not now have, though the national debt is surging to 100 percent of the Gross National Product, and may reach there by 2011.

Is Obama willing to speak hard truths?

Is he willing to say that home ownership is for those with sound credit and solid jobs? Is he willing to say that credit, whether for auto loans, or student loans, or consumer purchases, should be restricted to those who have shown the maturity to manage debt--and no others need apply?

"Avarice, ambition," warned John Adams, "would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution is made only for a moral and religious people. It is wholly inadequate to the government of any other."

In this deepening crisis, what is being tested is not simply the resilience of capitalism, but the character of a people."

--Patrick Buchanan

You must have Javascript enabled to use this form.

From two different people... emphasis mine

Worst Hit

Here is a breakdown from some of the goods producing industries over the last 12 months (jobs lost, %of March 2008 employment).

* Construction: - 934,000 (-13.25%)
* Manufacturing (total): - 1,215,000 (- 9.0%)
* Textiles/mills: - 54,000 (- 17%)
* Motor vehicles and Parts: - 218,000 (-23.6%)

The losses in both textiles (-17%) and autos (-23%) are astounding for just a 12 month period. Similarly the drop in overall manufacturing employment of 9% in just 12 months is nothing short of devastating.

US Taxes doesn't work for International Trade

Before retiring, I did extensive international business and set up or expanded operations in US, Japan, Korea, Brazil, Germany, and France in large international companies and later in my own highly sussessful company. I even won an award in Japan - for succesfully exporting US products to Japan when Japan was taking heat for its trade barriers.

The other 39 of the top 40 economies make extensive use of taxes such as Value Added Taxes that remove the tax burden of their economy on their products when they export and tax imports with their burden of their government.

This gives other nations an overwhelming cost advantage over the US. When US manufactured products compete with imports in the US, the US manufactured products have the full burden of taxes on labor and capital of the US economy while the import has no burden of the US government and no or reduced burden of the foreign government.

The result is much lower wages and fewer jobs for American workers. I have calculated that for moderately capital intensive manufacturing - our bad tax policy cuts US wages in half - or just prices the US out of the running as a place for manufacturing. Investors don't suffer as much as total capital can be put to effective use in other countries, or manufacturing can be sourced from foreign contract manufacturers.

The US should reform our tax policies and bring back competitive capital intensive skilled manufacting as the core to restoring middle class incomes, our trade balance and national debt. Note than even after tax reform, manufacturing that is not cpital intensive will continue to have trouble competing against capital intensive manufacting.

Why is a demand for a level playing field greeted with cries of "protectionism"? Obama is selling us out to the banks and straddling us with debt we can't pay because he is also continuing to give away our jobs. I should have voted for Nader, and I won't make that mistake again.

They're asking for another four years -- in a just world, they'd get 10 to 20 ~~ Dennis Kucinich

You must have Javascript enabled to use this form.

History somwhat revisited?

Reading this, I can't help but think of the old defunct Morganthau Plan. For those not familiar, during the last years of the Second World War, President Roosevelt's Treasury Secretary, Henry Morganthau came up with a post war plan for a defeated Germany. While it was deemed extreme, it had garnered support by FDR and P.M. Churchill. The plan had two main themes:

1) The destruction of the old German system (both the Nazi regime and any pre-war/pre-NSDAP elements).
2) The geopolitical break up of Germany into several states and Allied-dependent territories.
3) The Complete Deindustrialization of Germany, basically turn the place into one large pastoral area.

Its that last part that has stuck in my brain as I read this. Now I'm not saying there is some international concerted plan with our elites to turn America into one giant farmland. But the net effect of our so-called free trade agreements along with the wage arbitrage that has been going on for over four decades has been the destruction of our industrial base. Indeed, if one looks at pictures of Youngstown or Detroit of today, it bares a large resemblance to Berlin or Tokyo of 1946.

You must have Javascript enabled to use this form.

Sci-fi repeats life

I seem to remember a couple of Stargate episodes based on that idea.

One was a time travel one, in which the human race, due to a trade treaty, was forced onto birth control drugs causing a 98% fertility rate- and ended with SG-1 sending a note back in time to themselves to lock out the entire empire from the dialing device.

The second was actually visiting a planet much like Earth from that empire- where the population had been wiped out and the cities turned over to farming with MASSIVE shipments of grain through the stargate.

Let me know when the midwest farmers start complaining about how tough ironroot is to remove from their fields......

-------------------------------------
Moral hazards would not exist in a system designed to eliminate fraud.

You must have Javascript enabled to use this form.

-------------------------------------
Maximum jobs, not maximum profits.

This is the end result of greed and consumerism

Man how many years did I rant about this coming down the road. People would just tell me cheaper goods benefit the society. I would retort that eventually it will be your job.

For almost probably the last twenty five years the government has tried to hide this from the public by using currency manipulations, skewed CPI and unemployment stats and financial bubbles. Now that there aren't any more bubbles to blow up what's next?

The entire globalization economy is a farce. Why do we need it? We export hardly anything, our capital producing manufacturing base is gone and we are running low in money to support the import market. So if we export hardly anything we are not taking part in a globalized market, except for being used as a herd to support the countries that have our manufacturing base.

It is protectionism but damn it.....bring the jobs back. Adam Smiths invisible hand never envisioned a time that the invisible hand could move the entire factory to a place 10,000 miles away.

The only way we can compete with third world labor is to become very, very, very poor in capital. This was a very cunningly devised world wide scheme to benefit the ultra wealthy global elite. And they have no party affiliation or loyalty.

Germany has resisted and has kept a lot of its manufacturing. The UK has been devastated.

I used to not believe in conspiracy theories but even theories may have some truth to them.

You must have Javascript enabled to use this form.

Austerity Plan?

This from Doug Henwood:

I’ve been coming around to the idea that in their heart of hearts, Obama & Co. are planning an eventual austerity program. That is, the only way to pay for all this stimulus, if you don’t want to tax the rich heavily (and it’s looking like neither Obama nor the Congressional Dems want to do that), then there’s only one other way to fund all these trillions of stimuli and bailout: cutting social spending to the bone. More broadly, it would be economically rational, in the harsh orthodox sense, to prolong and even deepen the sharp contraction in consumption that this recession has brought with it. Less consumption means fewer imports, which means less money we need to borrow abroad. This is precisely the structural adjustment strategy that the U.S., via the IMF, has imposed on scores of countries around the world over the last 25 years. Could it be that a candidate elected on high progressive hopes would turn into the agent of a home-grown structural adjustment program? He’d be the ideal agent for such a thing, in fact, because it would disarm the natural opposition to such a strategy. Were I given to cliches, I might say that this could turn into Obama’s Nixon in China moment.

You must have Javascript enabled to use this form.

Time to Look Out For Numero Uno-The Good Ol' US of A

Midtowng's analysis of the problem is dead-on. I, too, am old enough to remember all the promises that those valuable manufacturing jobs would be replaced by "thinking" jobs.

Remember, also, when they used to say America enjoyed the "highest standard of living in the world." They don't say that anymore, do they?

The bottom line is this: We need to bring these industries back to the United States of America. We are so de-industrialized now, what's to stop the Chinese from invading us right now? We get all of our steel from them and others overseas. The policymakers have forgotten: these guys are still the Communists and they still have the same goal--World domination. Economic conquest is just the beginning.

We need to bring back steel, textiles, auto production, televisions and electronics--everything that we can until our people have enough good jobs and everything used by our armed forces is produced here in the United States. Free trade isn't free. It's been a cruel joke.

People need to wake up.

You must have Javascript enabled to use this form.

Protectionist

I guess were going to have to wait to hit rock bottom; 20%, 30%, 40% unemployment for you dummies to want the Tariff back.

You must have Javascript enabled to use this form.