The Great Betrayal

There’s a memorable scene from the film Top Gun where the carrier captain, Stinger, is ripping Tom Cruise’s character, Maverick,  a new one. As a parting shot in his tirade the captain closes up to Maverick’s face and delivers the immortal line:

“And if you screw up just this much, you’ll be flying a cargo plane full of rubber dog shit out of Hong Kong!”

Then in 1986 the F-14 that Maverick flies from the carrier epitomized American strength. And “rubber dog shit out of Hong Kong” aptly summed up China’s then contribution to the world’s productive efforts.

That was then, and this is now.

Between 1965 and 2000 manufacturing employment in the States fluctuated around 18m.

Between 2000 and 2012 manufacturing employment fell by 6 million to 12m.

The very basis of real American wealth has been gutted.

Various snake oil salesmen said it didn’t matter. This was the new economy and manufacturing belonged with the steam engine in a museum.

They might have had a point if it wasn’t for the fact that manufacturing jobs paid much better than those that replaced them. The average metal basher earns $77,000 as opposed to the $60,000 norm for the economy as a whole, and the generally much less for the new service sector jobs.

While the last couple of decades have been just fine for white collar professionals, working class America has been living a Great Depression. The regular guys, the salt of the earth, the guys who unashamedly loved their country have been sold down the river.

And when they took away their jobs, their self-respect followed close on behind. Obama mocked those simple types that “cling to their guns and religion”, but because of people like him that’s all they had left. Lots, of course, didn’t even have that. And so this former rock of American virtue, its self-reliance torn away, has become prey to all the social pathologies pedaled by liberal intellectuals and Hollywood. The old working class has now become so pathetic and embarrassing that even the Dems now look elsewhere for a sense of who they are.

The new economy guys also might have had a point about the how wonderfully un-polluting the modern economy is if it wasn’t for the fact that the 12% of the U.S. economy that is manufacturing provides 57% of American exports.

Those mega trade deficits of the last 20 years that will someday have to be repaid are a direct result of the evisceration of the productive sector. God love ‘em, all those well paid professionals in law, racial baiting, and government service are obviously wonderfully useful and vital to national well-being, but for the most part what they do cannot be sold abroad. And essentially most of their activities are wealth consuming and depend ultimately on the wealth producers.

If America is ever to return to balance of trade surplus (and it will have to if those foreign deposits hanging over America like a sword of Damocles are ever to be repaid) it will only be through a renaissance of its manufacturing industry.

And those new paradigm junkies might be on to something about how sexy the new economy is if it wasn’t for the fact that productivity growth in manufacturing is more than twice what is in the service sector.

“So what!”

Well, ALL the higher standard of living we’ve come to expect as a right from the future, ALL of it, comes from increased productivity. Ask yourself why those services you enjoy with the human touch all cost five times as much these days, while your computer is half the price in dollar terms of your old PC. Productivity, that’s why.

And those smooth tongued modern types could be on to something with their new economy shtick if it wasn’t for the fact that two thirds of private sector R&D is conducted by that manufacturing 12% of the economy. This is, incidentally, how those coarse types in industry are so productive.

So, less manufacturing = less R&D = less productivity = a poorer tomorrow.

So What Went Wrong?

The biggest part of what went wrong is America’s trade relations with the People’s Republic of China .

In 1994 when Clinton conferred most-favored-nation status on China the U.S. ran a trade deficit in goods with them of $29 billion.

In the first 11 months of 2012 it was $290billion.

It’s not because the Chinese are 10 feet tall (economically speaking). The U.S. is seventh in the World Economic Forum’s competitiveness rankings and China comes in at 29!

It’s true that the Chinese earn less, but if low earnings were the secret of economic success, India would be the world’s mega-power.

No, the reason for success is much less justifiable: China is a power hungry authoritarian dictatorship.

When the Clinton administration gave the Chinese a most-favored-nation trading status, and negotiated their entry into the World Trade Organization (WTO) they assured Congress and opinion formers that the Chinese would open their markets to American products.

This didn’t happen. And almost 20 years down the line China still maintains high administrative barriers and tariffs to U.S. imports, while theirs sail past U.S. customs direct to Wal-Mart. Even without the official Chinese barriers to American goods it’s obvious that the Chinese would find entry into America’s free market much easier than Americans would find it to crack the labyrinth of Chinese obstructionism.

But much worse by far than that has been America’s tolerance of the Chinese manipulation of their currency. The yuan exchange rate has been artificially held at an extremely advantageous rate for its exporters for decades. It is currently estimated to be about 40% undervalued.

No matter how hard U.S. manufacturers squeeze costs they can’t compete with this and thousands of companies that form the bedrock of American wealth creation have been forced to the wall, not by fair competition, but because the system has been rigged against them.

And, amazingly, successive U.S. administrations have sat back and watched with equanimity as America’s vital force drained away.

Why?

First of all, that cheap stuff pouring into Wal-Mart kept inflation down and made everyone (not working in manufacturing) feel well off. This was popular, so even though George Bush had that mysterious “jobless” recovery he was still voted back in for a second term.

Second, U.S. governments were looking at the geo-political advantages of bolstering China’s capitalist sector and bolting China itself into the western camp.

But set against the crippling of America these benefits are distinctly subsidiary.

So why did successive administrations let it happen?

Fundamentally, because with all their Ivy League smarts, the elites in America haven’t a clue where the money comes from.

Congress and the presidency have been in the hands of the sharp suit brigade for so long that now it’s not the sons of company founders that run America, but their great-grandsons. And, of course, the sons of Marxist malcontents who dream of a “fairer” society.

The annual taxable bounty from productive America is seen as a given, an inalienable right, much as the plains Indians saw the return of the bison herds each year. The emphasis these days of America’s government by lawyer is on what lawyers do best: dividing up the spoils.

And so for reasons of ignorance, convenience and sloth America’s productive base has been eroded away.

And the heartland paid with their livelihoods.

And the future will be poorer.

And the guardian of the west will be weaker.

And America’s children are being stuck with the bill for today’s profligacy.

And the bill for all those imports will someday come due for payment.

And then the Chinese will teach America a lesson in the real use of power.