- On December 8, Chinese and French news services reported
that Iran had stopped billing its oil exports in dollars.
-
- Americans might never hear this news as the independence
of the US media was destroyed in the 1990s when Rupert Murdoch persuaded
the Clinton administration and the quislings in Congress to allow the US
media to be monopolized by a few mega-corporations.
-
- Iran's oil minister, Gholam Hossein Nozari, declared:
"The dollar is an unreliable currency in regards to its devaluation
and the loss oil exporters have endured from this trend." Iran has
proposed to OPEC that the US dollar no longer be used by any oil exporting
countries. As the oil emirates and the Saudis have already decided to reduce
their holdings of US dollars, the US might actually find itself having
to pay for its energy imports in euros or yen.
-
- Venezuela's Chavez, survivor of a US-led coup against
him and a likely target of a US assassination attempt, might follow the
Iranian lead. Also, Russia's Putin, who is fed up with the US government's
efforts to encircle Russia militarily, will be tempted to add Russia's
oil exports to the symbolic assault on the dollar.
-
- The assault is symbolic, because the dollar is not the
reserve currency due to oil exports being billed in dollars. It's the other
way around. Oil exports are billed in dollars, because the dollar is the
reserve currency.
-
- What is important to the dollar's value and its role
as reserve currency is whether foreigners continue to consider dollar-denominated
assets sufficiently attractive to absorb the constant flow of red ink from
US trade and budget deficits. If Iran and other countries do not want dollars,
they can exchange them for other currencies regardless of the currency
in which oil is billed.
-
- Indeed, the evidence is that foreigners are not finding
dollar-denominated assets sufficiently attractive. The dollar has declined
dramatically during the Bush regime regardless of the fact that oil is
billed in dollars. Iran is dropping dollars in response to the dollar's
loss of value. This is a market response to a depreciating currency, not
a punitive action by Iran to sink the dollar.
-
- Oil bills are only a small part of the problem. Oil minister
Nozari's statement about the loss suffered by oil exporters applies to
all exporters of all products.
-
- A quarter century ago US oil imports accounted for the
US trade deficit. The concerns expressed over the years about "energy
dependence" accustomed Americans to think of trade problems only in
terms of oil. The desire to gain "energy independence" has led
to such foolish policies as subsidies for ethanol, the main effect of which
is to drive up food prices and further ravage the poor.
-
- Today oil imports comprise a small part of the US trade
deficit. During the decades when Americans were fixated on "the energy
deficit," the US became three to four times more dependent on foreign
made manufactures. America's trade deficit in manufactured goods, including
advanced technology products, dwarfs the US energy deficit.
-
- For example, the US trade deficit with China is more
than twice the size of the US trade deficit with OPEC. The US deficit with
Japan is about the size of the US deficit with OPEC. With an overall US
trade deficit of more than $800 billion, the deficit with OPEC only comprises
one-eighth.
-
- If abandonment of the dollar by oil exporters is not
the cause of the dollar's woes, what is?
-
- There are two reasons for the dollar's demise. One is
the practice of American corporations offshoring their production for US
consumers. When US corporations move to foreign countries their production
of goods and services for American consumers, they convert US Gross Domestic
Product (GDP) into imports. US production declines, US jobs and skill pools
are destroyed, and the trade deficit increases. Foreign GDP, employment,
and exports rise.
-
- US corporations that offshore their production for US
markets account for a larger share of the US trade deficit than does the
OPEC energy deficit. Half or more of the US trade deficit with China consists
of the offshored production of US firms. In 2006, the US trade deficit
with China was $233 billion, half of which is $116.5 billion or $10 billion
more than the US deficit with OPEC.
-
- The other reason for the dollar's demise is the ignorance
and nonchalance of "libertarian free market free trade economists"
about offshoring and the trade deficit.
-
- There is a great deal to be said in behalf of free markets
and free trade. However, for many economists free trade has become an ideology,
and they have ceased to think.
-
- Such economists have become insouciant shills for the
offshoring interests that fund their research and institutes. Their interests
are tied together with those of the offshoring corporations.
-
- Free trade economists have made three massive errors:
(1) they confuse labor arbitrage across international borders with free
trade when nothing in fact is being traded, (2) they have forgot the two
necessary conditions in order for the classic theory of free trade, which
rests on the principle of comparative advantage, to be valid, and (3) they
are ignorant of the latest work in trade theory, which shows that free
trade theory was never correct even when the conditions on which it is
based were prevalent.
-
- When a US firm moves its output abroad, the firm is arbitraging
labor (and taxes, regulation, etc.) across international borders in pursuit
of absolute advantage, not in pursuit of comparative advantage at home.
When the US firm brings its offshored goods and services to the US to be
marketed, those goods and services count as imports.
-
- David Ricardo based comparative advantage on two necessary
conditions: One is that a country's capital seek comparative advantage
at home and not seek absolute advantage abroad. The other is that countries
have different relative cost ratios of producing tradable goods. Under
the Ricardian conditions, offshoring is prohibited.
-
- Today capital is as internationally mobile as traded
goods, and knowledge-based production functions have the same relative
cost ratios regardless of the country of location. The famous Ricardian
conditions for free trade are not present in today's world.
-
- In the most important development in trade theory in
200 years, the distinguished mathematician Ralph Gomory and the distinguished
economist and former president of the American Economics Association, William
Baumol, have shown that the case for free trade was invalid even when the
Ricardian conditions were present in the world. Their book, Global Trade
and Conflicting National Interests, first presented as lectures at the
London School of Economics, was published in 2000 by MIT Press.
-
- While free trade economists hold on to their doctrine-turned-ideology,
the US dollar and the American economy are dying.
-
- One of the great lies of the offshoring interests is
that US manufacturing is in trouble because of poor US education and a
shortage of US scientists and engineers. Pundits such as Thomas Friedman
have helped to spread this ignorance until it has become a dogma. Recently,
General Electric CEO Jeffrey Immelt lent his weight to this falsehood.
(See "The US No Longer Drives Global Economic Growth," Manufacturing
& Technology News, Nov. 30, 2007.)
-
- The fact of the matter is that the offshoring of US engineering
and R&D jobs and the importation of foreign engineers and scientists
on work visas have combined with educational subsidies to produce a surplus
of American scientists and engineers, many of whom are unable to find jobs
when they graduate from university or become casualties of offshoring and
H-1b visas.
-
- Corporate interests continue to lobby Congress for more
foreign workers, claiming a non-existent shortage of trained Americans,
even as the Commission on Professionals in Science and Technology concludes
that real salary growth for American scientists and engineers has been
flat or declining for the past 10 years. The "long trend of strong
US demand for scientific and technical specialists" has come to an
end with no signs of revival. (See "Job and Income Growth for Scientists
and Engineers Comes to an End," Manufacturing & Technology News,
November 30, 2007.)
-
- What economist has ever heard of a labor shortage resulting
in flat or declining pay?
-
- There is no more of a shortage of US scientists and engineers
than there were weapons of mass destruction in Iraq. The US media has no
investigative capability and serves up the lies that serve short-term corporate
and political interests. If it were not for the Internet that provides
Americans with access to foreign news sources, Americans would live in
a world of perfect disinformation.
-
- Offshoring interests and economic dogmas have combined
to create a false picture of America's economic position. While the ladders
of upward mobility are being dismantled, Americans are being told that
they have never had it better.
-
- Paul Craig Roberts was Assistant Secretary of the Treasury
in the Reagan administration.
-
|