How the Economy Was Lost: The War of the Worlds (Counterpunch) by Paul Craig Roberts

every one job that U.S. multinationals created abroad in their foreign affiliates, they created nearly two U.S. jobs in their parent operations.” How did Slaughter arrive at this conclusion—a conclusion that can find no support in the BLS jobs data? Slaughter reached his incorrect conclusion by failing to take into account the two reasons for the increase in multinational employment. One is that multinationals acquired many existing smaller firms, thus raising multinational employment but not overall employment. The other is that many U.S. firms established foreign operations for the first time and thereby became multinationals, thus adding their existing employment to Slaughter’s number for multinational employees.
    Another problem is that the corruption of the outside world has found its way into universities. Today, universities look upon “name” professors as rainmakers who bring in funds from well-heeled interest groups. Increasingly, research and reports serve the interests that finance them and not the truth. Money rules, and professors who bring money to universities find it increasingly difficult to avoid serving the agendas of donors.
    When a country gives up producing tradable goods, it gives up the occupations associated with manufacturing. Engineering and R&D move away with the manufacturing. It is impossible to innovate independently of the manufacturing and R&D base. Innovation is based on state-of-the-art knowledge of what is being done, and if the doing is done elsewhere, the would-be innovator will find himself at a disadvantage.
    Offshoring is causing dire problems for the United States. I have suggested that one necessary reform will be to break the connection between CEO pay and short-run profit performance. As long as CEOs can get filthy rich in a few years by dumping their U.S. workforce, the trade deficit will continue to rise, and more college graduates will be employed as waitresses and bartenders.
    The short-run time horizon of U.S. management endangers the long-term viability of U.S. firms. This short-run time horizon is the result of a “reform” that sought to give investors the most up-to-date financial information. The reformers did not consider the unintended consequences of quarterly reporting.
    To level the playing field for American labor, Ralph Gomory suggests that U.S. corporations be taxed not on income but on the percentage of the value added to their output that occurs in the U.S. Companies that produce in the U.S. would have low tax rates; companies that produce abroad would have high tax rates.
    Economists need to inject some realism into their dogmas. The U.S. economy did not develop on the basis of free trade. Whatever the costs of protection, the costs did not prevent America’s economic rise.
    Much American economic thinking is grounded in the fact of America’s past success. Many economists take it for granted that as long as the U.S. has free markets, it will continue to be successful. However, much of America’s success is due to World War I and World War II, which bankrupted rivals and destroyed their industrial capacity. It was easy for the United States to dominate world trade after World War II as America was the only country with an intact economy.
    Many economists dismiss the problems with which offshoring confronts developed economies with the argument that it is just a question of wage equilibration. As wages rise in China and India, the labor cost differential will disappear and wages will be the same everywhere. This argument overlooks the lengthy period required for the hundreds of millions of workers, who overhang labor markets in India and China to be absorbed into the workforce. During this time, hardships in currently high-wage countries will be severe. Moreover, once the wage adjustment is complete, the new developed countries will have the upper hand. Will they give up their competitive and strategic advantages?
    In the July 2006 issue of