People want to know where the economy is headed.  What they should be asking is does the US still have an economy?  My answer is no, it doesn’t.  I will explain why.

    For a quarter century I have pointed out the destructive effect of moving American investment and jobs to China and other points abroad.  Offshoring served the interests of corporate executives and shareholders. The lower labor costs raised profits and, thereby, executive bonuses and the prices of the stocks, resulting in capital gains for shareholders.  

    These benefits accrued to a small percentage of the population.  For everyone else these closely held benefits imposed huge external costs many times greater than the rise in profits.  The American manufacturing workforce was devastated, as was the tax base of cities, states, and the federal government. The middle class shrunk and the populations of St Louis, Detroit, Cleveland, Pittsburgh, South Bend and Gary Indiana, Flint Michigan and other cities declined as much as 20%. The hopes and aspirations of millions of Americans were crushed. Once thriving American cities became blighted. Supply chains and real estate values collapsed. (See Paul Craig Roberts, The Failure of Laissez Faire Capitalism, Clarity Press, 2013)

    As incomes fell for the bulk of the American population, incomes rose for the One Percent. Income and wealth gains have been concentrated at the top resulting in the United States today having one of the most unequal distributions of income and wealth in the world.

    As the offshoring of high productivity, high value-added manufacturing jobs reduced American incomes, US aggregate domestic demand was impacted and economic growth fell. The Federal Reserve expanded credit and substituted an increase in consumer debt for the missing growth in consumer income. This aggravated the indebtedness that economist Michael Hudson correctly emphasizes is exhausting consumer income to pay debt service—mortgages, car payments, credit card and student loan debts—which leaves little or no discretionary income to drive economic growth. 

    Hudson, who has been on the job of analyzing America’s eroding economy for a long time, emphasizes that the US economy is no longer a productive or industrial economy but a financialized economy in which bank lending is not used for new plant and equipment but for the financing of takeovers of existing assets in pursuit of interest, fees, and capital gains– what the classical economists called unearned income or “economic rent.”  In short, Hudson demonstrates that the American economy is no longer a productive economy.  It is a rent-seeking economy.

    Hudson points out that as the economy is increasingly financialized, looting shifts to the privatization of public assets. The examples are endless. In the UK the post office was privatized at a fraction of its value, along with public housing, transportation and British Telephone, resulting in huge private gains. The French also privatized public holdings. In Greece the municipal ports and water companies were privatized along with Greek protected islands. In the US, segments of the armed forces are privatized, along with prisons. Chicago sold 75 years of its parking meter fees to a private entity for one lump sum payment. Everywhere public assets, including services, are being sold to private interests. In Florida, for example, the issuance of the annual vehicle license tag is privately provided. When there is nothing left to privatize, what will banks finance?

    Hudson notes that the real economists, the classical ones, focused on taxing unearned economic rent, not labor income and productive activity. Today’s neoliberal economists are unable to differentiate between economic rent and productive activity. Consequently, GDP analysis fails to reveal the economy’s transformation from a productive to a rentier economy. Hudson terms neoliberal economists “junk economists,” and I concur. Essentially, they are shills for the financial sector and for the offshoring corporations who paid them to conflate job and investment offshoring with free trade.

    I am convinced that if the entirety of neoliberal economics were erased nothing of value would be lost.  Economists, particularly academic economists, are in the way of truth. They live in a make-believe world that they created with assumptions and models that do not bear on reality.

    I am familiar with universities and academic economics. I graduated from an engineering and scientific institution—Georgia Tech—and then was a graduate student in economics at the University of Virginia, University of California, Berkeley, and Oxford University. I had four Nobel prize-winners as professors. I have a Ph.D. in Economics. I have made contributions to major journals of economics and to others outside the field, 30 published articles altogether before I left academia. I served for years as a reviewer for the Journal of Political Economy with the power to decide publication of submitted research. 

    I have peer-reviewed books from Harvard University Press and Oxford University Press. I have debated Nobel prize winners before professional audiences. I served as a Wall Street Journal editor and as Assistant Secretary of the US Treasury, and have had many university appointments. Michael Hudson also has real world experience in major financial institutions,international organizations,and governments, as well as US and overseas professorships and contributions to academic publications in many languages.

    In other words, we know what we are talking about. We have no interest to serve except truth. No one pays us to serve an agenda. 

    But we are only two voices.

    Two decades ago I was presented with the prospect of a large increase in amplification of my voice about the deleterious effects of offshoring. In December 2003 I received a telephone call from US Senator Charles Schumer, Democrat, New York. Senator Schumer had been reading my columns in which I made the case that under the guise of free trade, jobs and investment were being moved offshore at the expense of US economic success. Senator Schumer shared my concern and asked if a Reagan Treasury official would agree to coauthor with a Democrat Senator an article for the New York Times raising the issue whether job offshoring was in America’s interest. 

Editor: Zhong Yao

https://www.globalresearch.ca/does-us-have-economy/5737015.