Globalism’s Killing US Economic Engine

Posted on | July 25, 2010 | No Comments

By Xelan Bonn (July 25, 2010) www.xelanbonn.com
(Note: Source fact correction made on July 30, 2010)
We open with a top German publication quote that sums things up nicely…

…globalization is striking back. The United States has promoted the worldwide exchange of commodities like no other nation, and the result is that their local industry has begun to be eroded. Some production sectors — such as the furniture industry, consumer electronics, many automobile part suppliers, and now computer manufacturers — have left the country for good. In the recent past, free trade has primarily benefited the very rival states that are now mounting an economic offensive on the United States — and which have cut off a large slice of America’s global market share for themselves…

But then the trend reversed… and global trade had shifted directions. Capitalists left their home turf and went looking for suitable locations to invest in. Direct investment abroad – which had been more or less in harmony with exports until then – rose dramatically. –Spiegel (11)

Investors left the US because there were no financial penalties for doing so and the same nonsensical government approach is well aligned with transnational corporations this moment—corrupt government bending to the will of essentially foreign entities with no allegiance to America or Americans, or concern for the nation’s or middle class well being. The transnational has become, essentially, a modern day pirate, conqueror of nations and the middle class is preferred prey.

In the 1970s, the trend towards supporting globalism on US soil by consumers was just gaining traction and turning toward common reality. Today, everybody proclaims we live in a global market—as if that’s a good thing—for ignorance is truly bliss.

Little do most Americans know that globalism is killing America and its middle class engine which runs our great economy—and that, in turn, is killing the American Dream and Superpower while dangerously weakening our ability to defend ourselves—every American will soon be in high jeopardy.

To better understand how it all works, we need to first boil down some basic elements.

Consumer Based Economy
America is a consumer based economy. This means consumers buy the products or services sold in the US, and that keeps most of our businesses, hence economy, going. About 70% of the nation’s economy is reliant on consumerism. Other aspects, such a out-going trade, business to business aspects, energy making, and so forth make up the remaining 30% of our economy, and are often interactively dependant on the consumer side being strong—fall the consumer side and you fall the entire US economy.

Middle Class Economy
The largest portion of our consumer based economy comes from middle class consumers who have the extra income needed to buy most-all non-staple products and services (staple items are basic food and clothing items and non-staples are considered luxury items, such as IPods, TVs, movie tickets, etc.).

Consumer Income
Of course, consumers can not consume unless they have the discretionary income needed to do the consuming. Economist are quick to disregard the question, “where do consumers get their money to consume?” Or, “How do we safeguard this economic powerhouse engine?” For too long these questions have been left unanswered and under served.

Consumer Earning Drives Our Consumer Economy
Should consumers suddenly have less money to consume with, then common sense tells us they will consume less—which, in turn, requires our consumer based economy to shrink or fall accordingly. As consumers buy less American products or services, there is less demand for such, thus jobs decline in the market, reducing opportunities for middle class employment. As employment opportunities decline, thus does consumerism.

Dollar-Kill On The Rise
There are several forms of “dollar kill” but the most prevalent form results when consumers (or businesses) purchase goods or services originating off shore. The dollar is thus removed from the US economy, effectively “killed” from market circulation. This means there are less dollars circulating, thus available, to keep the economy moving. Consumers are “killing the dollar” like never before in US history as largely non-American made product stores like Wal-Mart sweep the nation.

Aspects That Shrink The Middle Class
If we lower the incomes or buying power of the middle class either by wage stagnation or devaluation, or by job diminishment or loss, or by consumer product or service cost/price inflation, or other aspects or combinations of one or more, the middle class begins to decline. Those on the lower income levels fall into the poverty class first and are thus less able to make non-staple purchases—hence are removed from the consumer engine. And those at the upper levels may also feel the pinch and find their dollars not going as far so they, then, slip farther down the economic ladder—yet still remain within the middle class.

Forces That Cause Shrinkage
There are many forces that can cause shrinkage aspects in the middle class. They include, but are not limited to: economic decline, over taxation, over regulation, contraband labor, de-regulation, international price of money (monetary exchanges or interest rates), money supply and monetary policy, excessive foreign trade, job losses, wage devaluation, inflation, obsolesce, outsourcing, off shoring, geo-politics, and more. Basically, a great many things can have a large effect on the soundness of the middle class, hence their collective ability to be consumers with sufficient buying power to sustain the bulk of our economy.

Biggest Forces Causing Middle Class Shrinkage
Today, globalism is the single great destroyer of the middle class in America. (11) In every First World nation where globalism (free trade between First World and Third World nations) occurs, the middle class and country’s over-all wealth have declined markedly.

Middle class incomes are kept stagnate or made to shrink as workers in Third World countries create products and services for pennies on the dollar in comparison to American workers. And, in turn, America’s middle class consumes those cheaper foreign products and displaces American workers. Thus the importation of cheaper goods and services and consumer’s acceptance of such ensure the digressive economic cycle continues. It is essentially middle class cannibalism.

The Wal-Mart toaster from China may cost $2 less than the American made one, but the American made one kept 50 Americans employed and in the middle class consumer pool. When the American in the middle class bought the toaster from China, they saved $2 but also helped to shrink their own middle class pool of opportunities. The average US consumer cares not about America, only about low prices—and American workers, once safeguarded by cheap import tariffs and other restrictions, now must compete with $1 per hour labor at work—of course the middle class is dying!

The globalism cycle is eroding the nation’s economic engine by dramatically reducing the size of the middle class. In 1973, over two-thirds of Americans fell into the middle class, and today, only about half—and in the last few years, evidence suggests another big slice was lost. (1)

As the middle class continues to shrink, the fundamental supports of our consumer based economy will begin to collapse more quickly. We are now seeing a result of such outcrops today, although many economists are falsely blaming the Bush financial collapse for the shortfalls in our current economy. However, the Bush 2008 banking collapse, although a contributor, does not explain decades of erosion to America’s middle class, hence buying power and high paying job declines.

Higher unemployment rates are inevitable and just one of the natural outcrops we should expect to see from here on out as globalism supplants the US worker and/or erodes their wages (wage devaluation). Our current 9.5% national unemployment rate is likely about as low as we should see this rate over the next few decades, albeit we should see minor spurts of economic growth that should be followed by sharp declines as the economic engine clanks along towards its inevitable death, occasionally trying to regain lost ground.

Yet as the market continues to constrict, we will kill off more of our jobs and our middle class in an accelerated pace. And we are seeing that acceleration begin to take hold now.

• Today, about 1% of all Americans hold 83% of all stocks.
• And 50% of all income earners own less than 1% of the nation’s total wealth.
• Between 2001 and 2007, the top 1% reaped 66% of all income growth.
• Shockingly, although housing prices have risen tremendously, only the top 5% of households have been able to earn enough additional income to keep up.
• Banks now have a higher ownership or net worth rates than all Americans combined when it comes to residential housing—the first time in US history.
• About 40% of all Americans now work in the low paying service sectors.
• And 21% of all children in the US now live below the poverty line.
• Amazingly, 61% of Americans “always or usually” live hand to mouth, paycheck to paycheck (dramatically up from just 43% in 2007). (2)

Contraband Labor Impacts
An estimated 8.5 million jobs, mostly high paying, are currently being consumed by contraband labor (illegal aliens) while over 23 million Americans are either out of work or forced to work part-time because jobs are not available. (3) Contraband labor is proven to devalue wages for all workers because illegal labor will work for less, thus employers use the lower wages as an excuse to lower legal worker’s pay rates. Not only does contraband labor displace middle class workers, but it also forces those displaced workers to impact taxpayer funded social systems (i.e. unemployment extensions, welfare, food stamps, etc.). As social service support impacts increase, so, too, does the need for government funding to pay for such services, which in turn results in either higher taxes or budget deficits and debt—both of which deepen the harmful effects on the job market and middle class by restricting the amount of money available in the market for both consumers and businesses.

Globalism’s and Inflation’s Big Picture Impacts
In 2007, median household income was $50,233 annually and in 1967 it was $38,771 (a 77% increase over 30 years). (4) Yet combined yearly inflation over that same period was 515%, which means consumer buying power should have dramatically declined. However, this was off set largely by Americans buying lower cost imported goods (often made by foreigners earning less than $1 hour). Thus buying power was actually able to sustain itself during the transition stage from a healthy US-based domestic economy to a globalist importing and off shoring or outsourcing economy as wages declined in relation to inflation. Saving the day was the fact that the cost of non-staple products (and some staple products) also declined markedly so workers-turned-consumers felt no major pain.

In other words, foreign trade deficits (short terms fixes) were used instead of allowing wages to rise appropriately (which is another reason why so many business posted record profits during this timeframe).

The US trade deficit was $711.6 billion for 2007. (7) This means we gave away $711.3 billion of US wealth to foreign workers and businesses rather than supporting our own country and countrymen and middle class engine. This allowed both jobs and wages to further diminish and help create a sort of “consumerism addiction to cheaper foreign imports” that is now difficult to break away from.

National Security Implications
Meanwhile, things like the national debt and year-after-year deficit spending are also harming our economy and middle class through over taxation pressures.

For 2009, the Gross Domestic Product was $14.26 trillion, according the CIA World Fact Book. (10) The national debt was $11.9 trillion in 2009. (14) Interest payments on the national debt were $383 billion while the government took in $2.1 trillion in total revenues. (9, 11) In other words, 14.7% of our total GDP is being taxed.

Contributing aspects worth examining include the reality that our military budget is about 4 times greater than the average NATO country. (8) According to Donald M. Snow, Professor Emeritus at the University of Alabama, about 58% of all discretionary funding is defense related. (8)

These aspects allow us to better understand some of the root issues with our government spending and areas where we should focus if we want to eventually reduce taxation that negatively impacts both our economy and middle class workers—you can only put so much straw on the camel’s back before it collapses.

One Pentagon report estimated that the interest on the national debt will, by 2012, exceed the total defense budget, steeply impacting America’s ability to defend itself as it shifts more of its revenues toward interest payments. (13)

Summary Analysis
Here is an ironic quote from one of the primary groups responsible for the nation’s harmful globalism policies–a group that should understand the problem well, given that they helped create it…

…all this good-versus-evil rhetoric obscures one key fact: while globalization has benefited many, it has squeezed the middle class, both within societies and in the international system. In today’s global markets, there are only two ways to get ahead. People and countries must be competitive in either the knowledge economy, which rewards skills and institutions that promote cutting-edge technological innovation, or the low-wage economy, which uses widely available technology to do routine tasks at the lowest possible cost. Those who cannot compete in either include not only the erstwhile industrial middle class in wealthy nations, but also most countries in the middle of the worldwide distribution of income, notably in Latin America and eastern and central Europe. –Council On Foreign Relations (12)

Since World War II’s end, the middle class have enjoyed a steep rise due to America opening up of trade and consumerism in other countries, but many of those same countries are now America’s primary competitors, thus our nation’s economic model must be adjusted accordingly. Ironically, our salvation comes by doing precisely the opposite—focusing on serving Americans and restricting outside trade and labor access and usage (like through highly restrictive tax penalty schemes).

Although other aspects will exert themselves, the pressures of globalism will continue to drive up trade deficits while low cost imports will erode middle class opportunities, hence shrink consumer markets.

The market will soon begin to free fall as less jobs become available to America’s middle class resulting in their mighty economic engine faltering more and more. As the cycle continues, it will force government revenues downward and increase deficits and debt interests costs needed to support them while lawmakers continue to avoid cost cuts as policy. In turn government will mistakenly try to raise taxes and thus accelerate the downward decline of the economy. This is because lawmakers have failed to understand or appropriately value and protect the nation’s middle class and its economic engine.

In short, the global economy was able to survive off the rich middle class consumer fuel that ran the American powerhouse, but the very aspects of free trade itself consumed the middle class worker and thus killed the consumer engine it depended on.

The new American economy will be much smaller, likely closer to the $2 to $4 trillion level once the dust of globalism settles and the dollar finally collapses. And in so doing, the military might of the Superpower state will also fall, no longer able to generate the revenues needed to sustain it–Americans will be vulnerable to every kind of foreign threat.

Today, we are seeing the great middle class engine die before our very eyes. Some do not recognize it for what it is, some have self-serving approaches to denying it, still others are convinced of fool’s ploys. What we are left with is the sad reality that our past and current trends in the halls of power have shown us that this problem is insurmountable politically, for self-interests rule over national interests in the Belt Way and tough decisions are rarely forthcoming.

Congress and all administrations going back the end of the Regan era are to blame for their embrace and forwarding of run-away globalism, and they have taken America down a road from which is it likely never going to recover.

America will soon be a two class country like most of Latin America—rich or poor classes only, subject to massive levels of government fraud, corruption, and tyrannical oppressions. And this will likely be accelerated soon by the massive increases to our national debt which will work to undermine trust in the US dollar and thus ensure its total collapse, forcing America to walk away from its debt obligations—thus destroying its world reputation and trust. The end of an international reserve currency—the American dollar—is upon us and soon hyper-inflation will find its home in America to help finish off what remains of our dying middle class.

America suffers from major fundamental flaws in its economic system that can only be fixed with sustained, long term solutions and a national will that demands we act quickly to save the patient before it dies. And to save America, ironically, the focus needs to be on saving the middle class worker and not on businesses or helping foreigners or transnationals but on reigning in globalism. All wise decisions will have to be made around the US worker and their needs to re-enter or sustain a middle class living—only then will appropriate healing in America’s economy and national security begin—for the nation’s security is dependant upon a strong economic engine able to pay taxes and consume equal to the needs of the nation and its interests.

Yes, America could have prevented this and she may still be saved, but the repairs needed are so drastic they are assured never to take place in time, under the pressures of political weakness rampant in our leadership. Middle class voters have but one remote chance—they might affect salivation at the hand of voting out all incumbents—all manner of the “same old thinking” that has gotten America here in the first place. For the enemy is ourselves—we are the government we elect—and we will survive or fall with our collective choice–and for the last three decades, we have not chosen wisely so why should we expect to start now!

Note
I have devised a system that protects the world economy and re-grows the US economy and middle class at the same time, however, it will take an entire book to detail and describe it—if you are a publisher, you might want to contact me to see if you have any interest in getting this book out. I have no intentions of writing it unless it’s first sold.

About The Author
Xelan Bonn, MBA, is a political analyst and freelance journalist. He is past president of nonpartisan Patriot Union of America (and past Editor-in-Chief of PUA News), as well as past contributor to one time White House and Congressional think tank, Patriot Society. He has numerous original breaking news stories to his credit that have later been followed extensively by the mainstream press. His political news and analysis blog (www.XelanBonn.Com) is among the fastest growing in the US and draws loyal readers from around the world, including many members of the US Congress and politicians in top positions in dozens of foreign nations.

References

(1) Retail Traffic: “Twilight of the Middle-Class” (May 1, 2006)
http://retailtrafficmag.com/mag/retail_twilight_middle_class/

(2) Business Insider: “22 Statistics That Prove The Middle Class Is Being Systematically Wiped Out Of Existence In America” (July 15, 2010)
http://www.businessinsider.com/22-statistics-that-prove-the-middle-class-is-being-systematically-wiped-out-of-existence-in-america-2010-7#83-percent-of-all-us-stocks-are-in-the-hands-of-1-percent-of-the-people-1#ixzz0udF0l0ij

(3) Sources cited in Xelan Bonn: “New Bill Solves Illegal Immigration – Reduces Unemployment 50%” (July 21, 2010)
http://xelanbonn.com/3175/new-bill-solves-illegal-immigration-reduces-unemployment-50/

(4) US Census Bureau Report: “Table 1.
Income and Earnings Summary Measures by Selected Characteristics: 2006 and 2007”
http://www.census.gov/prod/2008pubs/p60-235.pdf

(5) Inflation Calculator: ”Jan 1967 to Jan 2007” (on July 24, 2010)
http://inflationdata.com/Inflation/Inflation_Calculators/Inflation_Rate_Calculator.asp

(6) U.S. Debt Clock (on July 24, 2010)
http://www.usdebtclock.org/

(7) CBS News: “U.S. Trade Deficit Declined In 2007”
http://www.cbsnews.com/stories/2008/02/14/business/main3830222.shtml

(8) Gather Business: “National Debt Reaching Critical Mass, Military Spending Bloats Budget” (June 24, 2010)
http://business.gather.com/viewArticle.action?articleId=281474978325767

(9) US Treasury, Bureau of Public Debt: “Interest Expense on the Debt Outstanding” (2009) (on July 25, 2010)
http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

(10) CIA: The World Fact Book: “Economy / GDP 2009” (on July 25, 2010)
https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

(11) Spiegel Editor Gabor Steingart: “A Superpower In Decline: America’s Middle Class Has Become Globalization’s Loser” (Oct 24, 2006)
http://www.spiegel.de/international/0,1518,439766,00.html

(12) Council On Foreign Relations, Foreign Affairs: “Globalization Missing Middle” (Nov / Dec 2004)
http://www.foreignaffairs.com/articles/60271/geoffrey-garrett/globalizations-missing-middle

(13) Fox News Report (July 2010)

(14) Treasury Direct
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm

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