War, Outsourcing and Debt: Delusion Rules

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Sat, 2 Oct 2004 21:54:

WAR, OUTSOURCING, AND DEBT

 

War, Outsourcing and Debt

Delusion Rules

By PAUL CRAIG ROBERTS 10-1-04

 

The US might be a superpower, but it is not a country that

controls its own fate. Delusion does. Much of the US public is deluded

about the invasion and occupation of Iraq and its consequences and

about the state of the US economy. Just as Americans are deceived

into believing that Iraq was involved in the September 11 terrorist

attack on the US and threatened America with weapons of mass

destruction, Americans are deceived into believing that they benefit

economically from outsourcing, offshore production, and an

unprecedented trade deficit.

The deceivers emphasize the lower prices, not the lost incomes and

destroyed careers, that result when American workers are replaced by

cheaper foreign labor.

 

The deceivers allege that the trade deficit means that we get to

consume more of the world's goods than we produce, with the added

benefit that foreigners pay for our excess consumption by investing in

America. The truth of the matter is that " foreign investment " in the

US today consists of Asian central banks, mainly Japan and China,

using surplus earnings from massive trade surpluses to prop up the US

dollar by purchasing US government bonds.

 

By propping up the dollar, Asians keep their goods and services

cheap, thus worsening the US trade deficit. Washington goes along

because Asian countries use their export surpluses to finance the US

budget deficit. Propping up the dollar undermines investment in

factories or businesses that produce jobs for Americans. Stephen

Roach, chief economist for Morgan Stanley, reports that in 2003 net

investment in the US business sector was 60% below the level in 2000.

The US has become the world's largest debtor, in hock to foreigners

for one-fourth of our Gross Domestic Product. The ratio of US external

debt ( what we owe to foreigners) and US exports is approaching the

crisis ratios of banana republics.

 

It is inevitable: America's mounting debts will produce a crisis.

The dollar's value will plummet, and US living standards will drop.

Everything will become more expensive for Americans. The perilous

condition of the dollar is one of the reasons Bush invaded Iraq. What

keeps the overvalued dollar up is the fact that it is the currency in

which the Middle East bills its oil. Every country has to purchase

dollars in order to pay for its oil, and these purchases keep the

dollar afloat. Just prior to the US invasion, sanctions on Iraqi oil

had run their course and were about to be removed. Saddam Hussein

intended to bill Iraqi oil in Euros, which could have started the

abandonment of the dollar by the oil producing countries.

 

Instead of fixing our economic problems, we started a war.

 

In the m eantime, America continues to lose high-paying jobs and

entire occupations to foreigners, because US corporations outsource

jobs and produce offshore. University of California professor Norm

Matloff warns that outsourcing and H1-B visas, which bring foreign

workers into US firms, are destroying the US software engineering

profession. (Matloff's writings are available online* and are worth

more attention than this column provides.) The shrinking computer

science enrollments in American universities have finally caught the

attention of the academic establishment. Computer science departments,

which should have been speaking out long ago, have been muzzled,

because they ar e heavily dependent on research and faculty funds from

the very firms whose outsourcing practices are destroying the

occupation in America.

 

Falling enrollments mean fewer faculty positions and graduate

students. Despite their funding being threatened by fewer enrollments,

most computer science professors are unwilling to contradict their

corporate benefactors' false claim that " outsourcing is good for

America. " Another year of biting the tongue, another grant received.

Instead, the professors acknowledge that programming is a lost

occupation for Americans and claim that there is still a future for

American students in designing computer systems-- " computer software

systems architecture. " Nonsense, says Matloff, a computer science

professor himself. He notes that it is impossible to design computer

systems without having years of programming experience.

 

If you lose programming, you lose the base for the occupation, and

all the rest goes offshore as well.

 

Some economists claim that lost occupations will return to the US

once wages rise in India and China. Matloff's answer: " Did

manufacturing work return to the US over time as wages rose in

developing countries? Of course not. " Only America is stupid enough to

give away its manufacturing and high tech occupations. Other

economists allege that new high tech professions will rise to take the

place of the lost computer engineering profession. Matloff punctures

that delusion: Venture capitalists routinely demand that the new

companies they finance outsource to the hilt. US universities have

educated enough Indians and Chinese to fill every high tech job

American firms have to offer. The false claim that only drudgery jobs

are outsourced is laughable.

 

If you believe that lie, you believe Saddam Hussein was in cahoots

with Osama bin Laden and had weapons of mass destruction.

 

*http://heather.cs.ucdavis.edu/Archive

 

Paul Craig Roberts is John M. Olin Fellow at the Institute for

Political Economy and Research Fellow at the Independent Institute. He

is a former associate editor of the Wall Street Journal and a former

assistant secretary of the U.S. Treasury. He is the co-author of The

Tyranny of Good Intentions.