Why is America suffering so much from a recession that Germany largely bypassed?

PrintFriendly and PDF
As most everyone knows by now, ever more American jobs, recently even white-collar jobs, have been, and are now being, transferred to low-wage workers in other countries. Since 2000, the U.S. has lost 5.5 million manufacturing jobs, with 2.1 million of those jobs being lost in the last two years alone. Since 2001, over 42,400 factories have closed in the U.S., and another 90,000 are considered to be at severe risk of closing. The last time so few people were employed in manufacturing was in 1941, before World War II spending pulled that sector out of its Great Depression slump.
By Richard Clark | August 28, 2010 | [print_link]
As a result of the loss of all these outsourced jobs, poverty in America is going to keep getting worse if they cannot be brought back, and ever more American children are as a result going to be raised in poverty and violence, with ever more hellish societal and personal consequences. Thankfully, President Obama has come up with a big, bold solution to deal with the problem: He’s going to shut down the federal office that counts how many jobs are being shipped overseas! (Click here for source article)
.
What permitted and even triggered all this job outsourcing? Something you will never hear about or read about in our oligarchic, corporate-owned mainstream media: It was a simple change in tax law that occurred during Ronald Reagan’s first term in the White House — a huge gift to the corporate bigwigs who helped get Reagan elected. As a result of this one new law, the importation of products made in American factories located in low-wage countries was no longer taxed the way it was before Reagan took the White House. As a result, virtually everything we buy these days is made by dirt-cheap workers making a buck or two an hour in some low-wage country.
.
Does it have to be this way? No. Proof: This is not the way it is in Germany — the Germans still slap import taxes on stuff that their companies might be tempted to manufacture abroad, and by this means and others, the German government protects German jobs and incomes. As a result, last quarter saw more German GDP growth than at anytime since the reunification of the country. Plus, their unemployment rate during the recent recession was never anywhere near as high as ours in America. Why not? Because the German government subsidized worker salaries after it asked employers to cut their hours down to 30 or even 20 a week (rather than terminate any of them) if there wasn’t enough work to keep all of them busy full time. This enabled all workers to keep on spending just as they had been, and so a German recession was for the most part, by this two means, avoided.
.
In short, high-wage countries like Germany figured out a way to compete with China and Mexico. The proof of this: In 2008, Germany ran a $267-billion trade surplus, while the United States ran a $568-billion trade deficit. In a nutshell, Germany came up with a comprehensive plan to encourage manufacturing in Germany, while the U.S., under Obama’s leadership, has simply stopped counting how many jobs we are losing, as US corporations continue to transfer our jobs to low-wage countries, so as to manufacture (at the lowest possible cost) the products we are supposed to buy once they are “imported” into the country.
.
But with what money are we supposed to buy them?! — most Americans no longer have a house that can be refinanced, their credit cards are already maxed out, and their median wage, adjusted for inflation, has been reduced to the 1972 level.
.
If President Obama really wanted to deal with this problem, he would develop a national manufacturing strategy just like Germany did. Problem is, Obama and the Dems are totally cowed by big corporations and would never dream of passing a law that would impose stiff import taxes on stuff that US corporations manufacture in low-wage countries and ship back here for US consumption. Explanation: If the Dems did something like that, they would be kissing goodbye all future corporate campaign contributions, without which they could never get reelected.
.
So what good is stimulus money given to Americans who are unemployed or underemployed? — they just spend it on stuff that was manufactured in other countries. So the money they spend either goes to people in those countries (instead of to other Americans, thanks to the inherent multiplier effect) and/or it goes to corporate honchos and corporate stock holders, 95% of whom are in the top 2% of income receivers. In other words, the money is received by a very select and privileged group of Americans, i.e. the upper-income people who own the factories that manufacture stuff cheaply in low-wage countries, for duty-free import back into the US.
.
More and more, we have monopoly capitalism in America and the Dems are now too afraid to take on these big monopolies and oligopolies. Republican Teddy Roosevelt wasn’t afraid of them, and broke up some of the trusts and monopolies. FDR did the same. Even Republicans Eisenhower and Nixon took steps to take the monopolies and trusts down a notch or two. But you won’t see Obama and the Dems do anything like that unless the electorate raises holy hell in the coming year or two. And ithat could happen if unemployment and underemployment keeps growing and ever more folks lose their homes to foreclosure, which they most probably will.
.
Foreclosures have exceeded 300,000 per month for 17 months in a row. Fully 10% of our population is presently subsists on food stamps and handouts. The unemployment lines have lengthened in virtually every city and town across the country. The shelters are full, the food banks are increasingly either empty or short on food, and the economy is flat on its back. Six trillion dollars in home equity has been wiped out, leaving baby boomers scrambling to make up for lost wealth so they can add something to their battered retirement savings.
.
What we see here is evidence of the greatest heist in the history of the world, and yet not one bankster has been indicted, prosecuted, arrested, convicted or sent to prison.
.
As economics analyst and Europe-based pundit Max Keiser recently said, America is a walking dead-zombie country:
.
The key to understanding the current situation is to understand that house prices, jobs, wages, and pensions in the US are all being attacked with original-issue-debt-dollar junk. (Translation: trillions of our tax dollars have been, and are being, surreptitiously distributed by the Fed to otherwise bankrupt megabanks that have used our bank deposits to gamble on derivatives as well as in our casino-like stock market.) Unless it is somehow stopped, this profoundly lucrative attack on, and theft from, America’s middle class could well continue until it (the middle-class) has been reduced to a small vestige of what it once was.
.
America’s megabanks and policy makers are continuing a program, at the behest of Wall Street, to essentially commit a kind of Financial Holocaust, the ultimate result of which will be to virtually eliminate the middle-class majority in America. Wall Street banks with their CDSs, High Frequency Trading and bogus market making are injecting the equivalent of financial Zyklon B into the American and world economy. Just as the goal in Nazi Germany was to eliminate virtually all of the Jews, the goal of Wall Street banks and the associated top half of one percent of income receivers and wealth holders in America is to eliminate the large majority of America’s middle class, not by killing them, of course, but by other means.
.
Through Chinese-based factories and cheap exports from China, the financial elite wants to squeeze every last drop out of the brain-dead American consumer. When the American consumer has bought the last Chinese-made plastic toy and snow shovel from WalMart that s/he can buy using the borrowed money on her/his 100th uncollateralized credit-card, and s/he/they can’t hyper-consume one penny more, then China will drop their special double-header “bomb’ by announcing: 1) a new gold-backed reserve currency for the world and 2) the sale of a trillion dollars worth of US-government securities.
.
At least with Bush you knew where he stood. With Obama there is essentially “nobody home.” He is essentially a ghost. He doesn’t do anything. He is a Manchurian Candidate, a robot, he is nothing but a talking head. He has done nothing, he is doing nothing, he will never do anything. The BP oil spill revealed that America is running with no leadership at all. There is nobody at the helm of the ship.
.
America died two years ago. It’s now a walking dead-zombie country, and anybody who still lives in that country should re-familiarize themselves with cotton-picking, because once the dollar crashes internationally, the only crop that America will be able to export is cotton. It will be King Cotton again. It will be 1840 again. The only job available will be as a cotton-picker working on a WalMart or Goldman Sachs plantation. This is the reality of the situation. There is no turning back at this point.
.
An interviewer asks Mr. Keiser for clarification
Interviewer: In your initial email you wrote to me as follows:
“The key to understanding the current situation is to understand that house prices, jobs, wages, and pensions in the US are all being attacked with original-issue debt dollar junk. This will continue until the middle class has been completely wiped out.”
Can you elaborate on this, please?
.
Keiser: Yes, what we have here is a Financial Holocaust that is designed to destroy the American middle-class. We face an original-issue deflation, if you will. It’s as if Michael Milken ran the Fed. If you look at the work of Steve Keen, an economist in Australia and one of a very few economists, who predicted the crisis of the past three years accurately, you understand that the banking system cannot not work within a system where deposits are the basis for the fractional reserve. Quite incredibly, our banking system works on the basis of loans used as the collateral for yet more loans!
.
That means that the origination of all the fractional reserve lending that is going on is just more debt! There are no retail deposit reserves or wholesale deposit reserves, just original-issue dollar-based junk debt. And when you understand that only debt is at the bottom of the pyramid, and that there’s no equity at all (or capital as this term is usually understood), then you can begin to understand that the banks and the policy makers are continuing a program at the behest of Wall Street to commit a Financial Holocaust to eliminate (reduce to insignificance) the majority in America, which is its middle-class. Wall Street banks (with their CDSs, High Frequency Trading and bogus market making) are injecting the equivalent of financial Zyklon B into the American and world economy. PHOTO (Left) The Goldman Sachs boys, headed by Lloyd Blankfein (first from left).
.
Houses and many other things have been encouraged to rise above their true user value through bad-risk lending — thus the collateral is very suspect. And now the faulty risk has been passed down to the pension funds, etc. putting all middle-class retirements into jeopardy. Who will profit from the coming depression, and to what extent is its development being orchestrated and even planned by them?
.
As Sam Hamod, Ph.D., recently commented at OpEdNews:
.
Somehow, people have overlooked how the Fed, the banks, and Wall Street went wild under Clinton, then to be followed in style by G.W. Bush. They’ve also forgotten that it was under Clinton that the exporting of jobs grew at an enormous rate; the corporations made money and American citizens lost jobs, homes and hope, yet the media and Clinton made it seem as if America was in a boom. Yes, it was a boom . . for Wall Street and the corporatocracy, but not for individual Americans, too many of whom did not realize the truth, but believed a media that was (unbeknownst to most of them) in league with the administration and the corporations that owned the media.
.
What they came to realize too late was that G.W. Bush had no equal in spending America into the tank, no equal in:
.
  1. helping Wall Street and corporate war industries make profits like never before,
  2. being responsible for the deaths and illnesses of hundreds of thousands of American troops in Iraq and Afghanistan,
  3. greatly expanding our overseas bases, and
  4. spending us into the toilet so that even the IMF is now looking at America cross-eyed, the way it used to look at 3rd-world countries.
This is most likely because America has in many ways become a 3rd-world country, economically, politically and socially, with so many of our democratic Constitutional rights having been stripped away, the same way they were, and are, stripped away in dictatorships throughout the 3rd world. It happened first under Bush with his strange legal counsels, and is now being followed up in kind by Obama.
.
Make no mistake, many of those who started this downfall of the American economy under Clinton are the same people who surround Obama today: Rubin, Geithner, Summers, Wolin, Bernanke and others.Unfortunately, most Americans will hear nary a word from our Nobel Prize winning economists who have long disagreed with these instigators of our downfall. I refer to people like Joseph Stiglitz and Paul Krugman. Neither will most Americans hear from such perceptive and independent writers as Paul Craig Roberts or Mike Whitney. Nor will they ever read the independent and perceptive writing at such sites as this one or: The Greanville Post, www.opednews.com, www.informationclearinghouse.info, www.Counterpunch.org, and www.TodaysAlternativeNews.com. And more’s the pity.
.
Thus, as America heads blindly into this maw, it should be no surprise that the housing market recently fell 27%; unemployment played a big part in it because the real unemployment rate is most likely around 18%, and the banks are not loaning the money they have anyway, as they comfortably collect the easy interest they get from their readily purchased Treasury certificates, as they wait to gobble up real estate when prices finally bottom out. This will be real estate they can then sell at good prices to well-heeled buyers, including overseas buyers, when we finally begin to pull out of the full-scale depression that slouches toward us.
.
Most Americans these days cannot buy houses because: the prices are still too high, their jobs are not stable for the long run, and the banks (as has been shown by recent evidence) did not, and do not, want to loan the money they were given by the Bush and Obama administrations to help solve the housing crisis. (The banks have more profitable ways to invest that money, and to hell with the middle class whose tax revenues saved them.)
.
There has been testimony given to Congress that some of the banks have lied by saying people did not get the necessary documents to them, even though people had certified copies of receipts of mailing those very documents. At other times, the banks created extra paperwork, after deadlines, just to keep the loans from going through. And while many banks have said they were offering loans, when it actually came down to it, they did not offer said loans, nor did they actually offer the rates they later said they did.
.
With all this in mind, as well as the way Obama and the Fed threw money at the banks (which the banks then proceeded to either gamble in the Wall Street Casino or use to buy ultra-safe Treasury certificates), and with the country falling apart emotionally, financially, militarily, medically and educationally, how could any fully informed person wonder why housing sales would fall? As one would-be home buyer put it, “How can you buy a house when you don’t know if you’ll even have a job next month?”
.
Not all deficit spending is good. John Maynard Keynes never advocated bailing out underwater financial institutions run by crooks, and yet, that has been the essential Fed policy from Day One. Keynes believed that markets were fundamentally unstable, that government had a role to play in smoothing out capitalism’s excesses, reducing inequality and creating jobs. He also believed that slumps will last much longer than necessary if government does not intervene and stimulate demand.
.
The value of deficit spending depends on how the money is spent. The $700 billion TARP was largely wasted on financial institutions that should have been nationalized, broken up, and their toxic assets put up for auction.
.
The $787 billion stimulus, on the other hand, was largely a success, because it provided urgently needed relief for the states, benefits for unemployed workers, tax cuts and infrastructure programs. Experts believe the stimulus increased employment by roughly 2 million workers and raised GDP by 1.5% to 2.5%.
.
Stimulus is not a panacea, and no one ever said it was. It’s an emergency blood-transfusion to get a sickly patient through a violent trauma. It did what it was designed to do, and it paid for itself via the uptick in economic activity and growth.
.
Here’s how Paul Krugman sums it up:
.
“…increasing government spending in a slump more or less pays for itself: it leads to higher output not just in the short run but in the long run, and therefore leads to higher revenue that very likely more than offsets the original expense.” (Source: Paul Krugman’s blog, “The Conscience of a Liberal,” New York Times).
.
Author’s Bio: Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I’ve always been more interested in political economics and what’s going on behind the scenes in politics, than in mechanical engineering, and because of that I’ve rarely worked more than 6 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.
Did you like this? Share it:

Creative Commons License
Why is America suffering so much from a recession that Germany largely bypassed? by 39paTrivolensis, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

5 comments

  • Lots of good observations here from a left perspective, particularly regarding the impact of tax policy on the manufacturing sector, though regulation and Fed meddling play a big role as well. But a few quibbles;

    1) Teddy Roosevelt was no hero, he was a tool of Morgan, and his “trust-busting” was no more than a smashing of Morgan’s rivals, principally Rockefeller, followed by cartellization of all industries Morgan controlled. FDR was just as bad, but he played on the side of the Rockefeller – Harriman – Kuhn Loeb group, and busted up Morgan cartels.

    2) Technically, the US did not see real economic growth until 1946, when the war ended, and pent-up demand and de-regimentation of the wartime control economy erased 17 years of Depression.

    3)Subsidizing salaries is NUTS. It’s an admission as a government that you have broken the labor market and you refuse to let it clear. Germany’s labor market is vastly different than the US culturally, politically, ethnically, and with regard to harmful regulation. And protectionism just protects inefficient, uncompetitive industries that destroy wealth, and invites trade retaliation. E.G, Smoot-Hawley.

    4) On the other hand, a low, uniform tariff, coupled with VERY light regulation of the export sector tends to build wealth. But our economy is so rife with misregulation and cross-subsidy that it is impossible to know anymore what our leading industries should be.

    5)Gabriel Kolko and many others have shown, beyond refutation that in the US, regulation is written by and for the biggest players in the regulated industry to disadvantage competitors and cartellize most of the business into the hands of a few gigantic firms, who can then run roughshod over everybody, workers and customers alike. This is an important reason we are in the pickle we are in – the game is rigged, There is no free market, except at very local levels.

    6) Finally, Keynesianism is not economics, it is not science, it is superstitious voodoo like CDS and the Federal Reserve itself, a gigantic humbug fabricated to provide justification for the evil things the owners of this country want to do to us. Anyone in authority who puts forth such insane Kenesian notions as “stimulus” spending by government should have his head examined. When the government finally defaults on its paper promises, as bad as things MIGHT have gotten, had Hank Paulson not bailed out his buddies, followed by Obama and Geithner doing the same, it will be a thousand times worse when the stimulus fails. We are talking about hyperinflation, like we experienced in the 1970’s, or worse, like Weimar Germany, and we all know how THAT turned out.

    7) I want to know why when Hayek won the Nobel prize for Economics, EVERYONE in the mainstream press, but particularly the left put it down, saying it isn’t really a “Nobel Prize”, they are a bunch of cranks, whatever; when Krugman wins, suddenly it’s a prestigious award, filling the winner with Godlike authority. Well Krugman is a Keynesian, and Hayek was not. When Keynsianism is shown up as a failure, AGAIN, will the mainstream and the left hail Hayek, and Mises, and Rothbard, who were right before the crisis hit, and have been proven right again and again?

    They will bollocks. There is no way the Austrians will ever be even grudgingly admitted to be right. It doesn’t serve the powers that be.

  • Harry Canary

    A Nobel in Economics for hayek or anyone else belongs on their mantle alongside the Nobel for Astrology, Alchemy and the one for Necromancy. The Austrian nonsense does not deal with several very real problems. They are glorified theoreticians with no practical real world experience. The first is how to break up corporate and monopoly power. In the past the government has been the vehicle for this despite you nonsense trashing of both roosevelt’s efforts. Their efforts were not perfect but far more real than any of your Austrian heroes let alone reagan, miltie friedmann or any of the other republicons and CONservatives who are all entirely in the pocket of big business. Today, due to reagan’s efforts corporate power has hijacked the government and any remotely viable parties including the teabagging party.

    The second problem the Austrians and their libertarian teabagging friends fails to address is the problem of inherited aristocracy. The American republic was founded on a disdain for aristocracy and an understanding of the devastating problems it causes. With inherited wealth, power and the means of production are passed on as a reward for who a persons grandma had sex with, not for productivity or benefit to society. The European Dark Ages are a direct consequence of this mentality. How do we continue with the creative churning necessary for a healthy economy if the rewards are hoarded based on inheritance? Capitalism assumes that ownership of the means of production is what moves society forward rather than work and effort. That assumption is proving to be disastrous as financiers crash our economy with non productive speculation. This speculation is a direct chain from the assumption that wealth alone begets wealth. No longer do they worry about investing productively or focusing on investment and work to produce. The finance weasels assume their personal superior genetics causes money to magically multiply.

    The Austrian and libertarian nonsense fails entirely to recognize the role of checks and balance, so fundamental to teh success of our government. President Roosevelt introduced them into our economy as well resulting in a long and successful preiod of growth till these checks and balances were removed by right wing and libertaricon ideologues. All of these right wingnuts condemned government from a position of having spent their lives in academics or government not having produced in the real world. The same applies to virtually every wingnut and libertarian as well as the Austrian academics sheltered in European government funded universities to spin their theories about the evil of government.

  • Harry, do monopolies exist? They do? And who do the Austrians say is responsible for the creation and maintenance of monopolies? Uh=huh, GOVERNMENT. The Keynesians are utterly defenseless against this rebuttal, I am surprised they even bring monopolies up anymore. No monopoly can exist in even a nominally free market without government enforcement.

    It is really easy to refute people like yourself who have made no attempt to understand what Austrian theory teaches, and its real-world applications, and who parrot Krugman’s asinine, facile dismissals. Here, BTW, is an incredibly good idea to compel Krugman to actually debate Austrian economist Bob Murphy;
    http://www.youtube.com/watch?v=6cFXRFlvE3s

  • Spotted some more fallacies, in no particular order;

    Labor Theory of Value

    Giving Democrats a free pass

    Saying Austrians favor aristocracy

    Villifying all speculation

    Roosevelt did WHAT? TR was a friend of the common man, and not a base Imperialist. FDR was not a fascist.

    Claims only Austrian scholars are insulated from reality

    Implies government monopolies like patent and copyright do not retard creativity in the economy

  • Harry, please make a cogent argument against ONE of my points i my original post, and I will debate it with you.

Leave a Reply

Your email address will not be published. Required fields are marked *

4 × four =