Sunday, July 31, 2005

The decline of the U.S. economy

In yet another article by Paul Craig Roberts on CounterPunch about the dramatic changes to the U.S. economy wrought by globalization:

In recent years I have stressed the erosion of the conditions on which the case for free trade rests. Production functions based on acquired knowledge lack the uniqueness required for the operation of comparative advantage, and the international mobility of capital and technology allows those factors of production to seek absolute advantage abroad in skilled, disciplined, low-cost labor. The real conditions in the world today no longer conform to the assumptions of free trade theory.

Thus, once world socialism collapsed and the highspeed Internet was up and running, first world living standards were no longer protected by unique accumulations of capital and technology. The changed conditions made it possible for American companies to use employees drawn from large excess supplies of foreign labor as cheaper substitutes for American employees.

Using the nanotech sector to illustrate his point, Roberts argues that it isn't enough for the United States to have a strong research sector, where new ideas are spawned and patented (although the ability of the US education system to provide an ample supply of well-trained minds should be questioned as well). Most of the money is not in intellectual property. It's in the utilization of intellectual property:
An equally important part of intellectual property is manufacturing process knowledge-the manufacturing ability to turn a new principle into salable things. Without the ability to commercialize and manufacture products based on the new ideas, we not only lose the ability to capture most of the economic rewards but also eventually lose the ability to think up the ideas. Without process knowledge from manufacturing, it is difficult to recognize promising nanotech innovations.

Part of the solution to redress the imbalance being created by cheap labor overseas and capital mobility, argues Roberts, is "to abandon the income tax and replace it with a value-added or sales tax or even tariffs." Roberts argues that the U.S. income tax places a burden on U.S. manufacturers that foreign manufacturers don't have:
[The U.S. income tax] imposes no appreciable tax burden on foreign goods and services sold in the US but imposes a heavy tax burden on US producers of goods and services regardless of whether they are sold within the US or exported to other countries.

It's beyond my scope of understanding to remark on Roberts' radical conclusion. I simply offer it as food for thought.


At 8/01/2005 09:39:00 AM, Blogger Rob said...

That's pretty interesting. Be nice to hear some economists from across the spectrum discuss it (there I go fantasizing again).

At 8/01/2005 01:47:00 PM, Blogger oyster said...

Well, I'm not an economist but I think protectionist tariffs are hurtful in the long run.

Converting the income tax to a sales tax would require about a 30% increase in the price of all goods. This sort of "flat tax" would be brutal on lower income folks, who pay a larger share of their salary on the basic necessities.

And this income tax as "enslavement" idea is a bit much. Our taxes fund things from which we all benefit-- that's the idea, anyways. America has had it's best years since the introduction of the income tax, whereas the Great Depression was precipitated by the Smoot-Hawley tariffs (among other things).

At 8/01/2005 04:53:00 PM, Blogger Schroeder said...

Unfortunately, even with the income tax, I'm afraid, some people don't pay their fair share. Generally I agree with you oyster. It should be remembered that while Roberts is critical of the Bush administration, he's still, at the very least, a conservative economist from what I can tell.


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