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War, Outsourcing and Debt

Delusion Rules

by PAUL CRAIG ROBERTS

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 meantime, 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 are 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.

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.