Globalization and the failing economy

Paul Craig Roberts has a PhD in Economics and a conservative background. As the Assistant Secretary of the US Treasury in the Reagan administration he was a big believer in supply side economics.  He was a very establishment economist who was editor of the Wall Street Journal, Senior Research Fellow at the Hoover Institution, Stanford University, and holder of the William E. Simon Chair in Political Economy at Georgetown University.  He was a regular on FOX news until he turned on the Bush administration in 2002.
He has a new book, The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West (Towards a New Economics for a Full World).  (Unfortunately it is only available in Kindle E-Book format) He sounds more like  a very shrill Thom Hartmann.

Dr Roberts explains why the job creation has been slower than in any recession in recent history and no it's not just because of the Republicans alone - it's globalization and the offshoring of jobs.

The fact that millions of jobs have been moved offshore is the reason why the most expansionary monetary and fiscal policies in US history have had no success in reducing the unemployment rate. In post-World War II 20th century recessions, laid-off workers were called back to work as expansionary monetary and fiscal policies stimulated consumer demand. However, 21st century unemployment is different. The jobs have been moved abroad and no longer exist. Therefore, workers cannot be called back to factories and to professional service jobs that have been moved abroad.
Economists have failed to recognize the threat that jobs offshoring poses to economies and to economic theory itself, because economists confuse offshoring with free trade, which they believe is mutually beneficial. I will show that offshoring is the antithesis of free trade and that the doctrine of free trade itself is found to be incorrect by the latest work in trade theory. Indeed, as we reach toward a new economics, cherished assumptions and comforting theoretical conclusions will be shown to be erroneous.

The economies of the United States and Western Europe are in decline because they now produce little that can be exported and most of what we consume is imported.  An economy that doesn't turn raw materials into something more valuable is not sustainable.

This book is organized into three sections. The first section explains successes and failures of economic theory and the erosion of the efficacy of economic policy by globalism. Globalism and financial concentration have destroyed the justifications of market capitalism. Corporations that have become “too big to fail” are sustained by public subsidies, thus destroying capitalism’s claim to be an efficient allocator of resources. Profits no longer are a measure of social welfare when they are obtained by creating unemployment and declining living standards in the home country.
The second section documents how jobs offshoring or globalism and financial deregulation wrecked the US economy, producing high rates of unemployment, poverty and a distribution of income and wealth extremely skewed toward a tiny minority at the top. These severe problems cannot be corrected within a system of globalism.
The third section addresses the European debt crisis and how it is being used both to subvert national sovereignty and to protect bankers from losses by imposing austerity and bailout costs on citizens of the member countries of the European Union.

There is not a lot in the book but Dr Roberts puts it all together in a concise if shrill way.  He explains what could be done to turn it around but then says it won't be because Wall Street and the large financial institutions have captured the government - we have essentially become an Oligarchy.  Much of his discussion of the financial system comes from Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History by Matt Taibbi.

He also explains why nearly all economists get it so very wrong.

Economists do a poor job of adjusting economic theory to developments brought by the passage of time.   Just as capital theory originated prior to the income tax and free-trade theory originated at a period in history when capital was internationally immobile and tradable goods were based on climate and knowledge differences, economists’ neglect of the ecosystem as a finite, entropic, non-growing and materially closed system dates from an earlier “empty world.”     In an empty world, man-made capital is scarce and nature’s capital is plentiful.   In an empty world, the fish catch is limited by the number of fishing boats, not by the remaining fish population, and petroleum energy is limited by drilling capability, not by geological deposits.   Empty-world economics focuses on the sustainability of man-made capital, not on natural capital.   Natural capital is treated as a free good. Using it up is not treated as a cost but as an increase in output.   Economic theory is based on “empty-world” economics. But, in fact, today the world is full.
In a “full world,” the fish catch is limited by the remaining population of fish, not by the number of fishing boats, which are man-made capital in excess supply.   Oil energy is limited by geological deposits, not by the drilling and pumping capacity of man-made capital. In national income accounting, the use of man-made capital is depreciated, but the use of nature’s capital has no cost other than extraction cost.   Therefore, the using up of natural capital always results in economic growth.

In other words economic theory is based on a world that no longer exists.  Nature's capitol is nearly exhausted. 

This is an important book not because there is anything really new in it but because it puts all the pieces together and is a must read

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