How the Economy Was Lost: The War of the Worlds (Counterpunch) (9 page)

Chapter 17: The Science & Technology Jobs Shortage Myth

I
n June, 2007, a revealing marketing video from the law firm
Cohen & Grigsby appeared on the Internet. The video demonstrated the law firm’s techniques for getting around U.S. law governing work visas in order to enable corporate clients to replace their American employees with foreigners who work for less. The law firm’s marketing manager, Lawrence Lebowitz, is upfront with interested clients: “our goal is clearly not to find a qualified and interested U.S. worker.”

If an American somehow survives the weeding out process, “have the manager of that specific position step in and go through the whole process to find a legal basis to disqualify them for this position—in most cases there doesn’t seem to be a problem.”

No problem for the employer he means, only for the expensively educated American university graduate who is displaced by a foreigner imported on a work visa justified by a nonexistent shortage of trained and qualified Americans.

University of California computer science professor Norm Matloff, who watches this issue closely, said that Cohen & Grigsby’s practices are the standard ones used by hordes of attorneys, who are cleaning up by putting Americans out of work.

The Cohen & Grigsby video was a short-term sensation as it undermined the business propaganda that no American employee was being displaced by foreigners on H-1B or L-1 work visas. Soon, however, business organizations and their shills were back in gear lying to Congress and the public about the amazing shortage of qualified Americans for literally every technical and professional occupation, especially IT and software engineering.

Everywhere we hear the same droning lie from business interests that there are not enough American engineers and scientists. For mysterious reasons Americans with university degrees prefer to be waitresses and bartenders, hospital orderlies, and retail clerks.

As one of the few who writes about this short-sighted policy of American managers endeavoring to maximize their “performance bonuses,” I receive much feedback from affected Americans. Many responses come from recent university graduates such as the one who “graduated nearly at the top of my class in 2002” with degrees in both electrical and computer engineering and who “hasn’t been able to find a job.”

A college roommate of a family member graduated from a good engineering school last year with a degree in software engineering. He had one job interview. Jobless, he is back at home living with his parents and burdened with student loans that bought an education that offshoring and work visas have made useless to Americans.

The hundreds of individual cases that have been brought to my attention are dismissed as “anecdotal” by my fellow economists. So little do they know. I also receive numerous responses from American engineers and IT workers who have managed to hold on to jobs or to find new ones after long intervals when they have been displaced by foreign hires. Their descriptions of their work environments are fascinating.

For example, Dayton, Ohio was once home to numerous American engineers. Today, writes one surviving American, “I feel like an alien in my own country—as if Dayton had been colonized by India. NCR and other local employers have either offshored most of their IT work or rely heavily on Indian guest workers. The IT department of National City Bank across the street from LexisNexis is entirely Indian. The nearby apartment complexes house large numbers of Indian guest workers filling the engineering needs of many area businesses.”

I have learned that Reed Elsevier, which owns LexisNexis, has hired a new Indian vice president for offshoring and that now the jobs of the Indian guest workers may be on the verge of being offshored to another country. The relentless drive for cheap labor now threatens the foreign guest workers who displaced America’s own engineers.

One software engineer wrote to me protesting the ignorance of Thomas Friedman for creating a false picture of American engineers being outdated and for “denouncing American engineers and other workers as ‘xenophobes’ for opposing their displacement by foreign guest workers.” The engineer also took exception to the “willful ignorance or cynicism” of pundits who he described as “bootlicks for pro-outsourcing lobbies.”

On November 6, 2006, Michael S. Teitelbaum, vice president of the Alfred P. Sloan Foundation, explained to a subcommittee of the House Committee on Science and Technology the difference between the conventional or false portrait that there is a shortage of U.S. scientists and engineers and the reality on the ground. The reality is that offshoring, foreign guest workers, and educational subsidies have produced a surplus of U.S. engineers and scientists that leaves many facing unstable and failed careers.

As two examples of the false portrait, Teitelbaum cited the 2005 report,
Tapping America’s Potential
, led by the Business Roundtable and signed onto by 14 other business associations, and the 2006 National Academies of Science report,
Rising Above the Gathering Storm
, “which was the basis for substantial parts of what eventually evolved into the American COMPETES Act.”

Teitelbaum posed the question to the U.S. Representatives: “Why do you continue to hear energetic reassertions of the conventional portrait of ‘shortages,’ shortfalls, failures of K–12 science and math teaching, declining interest among U.S. students, and the necessity of importing more foreign scientists and engineers?”

Teitelbaum’s answer: “In my judgment, what you are hearing is simply the expressions of interests by interest groups and their lobbyists. This phenomenon is, of course, very familiar to everyone on the Hill. Interest groups that are well organized and funded have the capacity to make their claims heard by you, either directly or via echoes in the mass press. Meanwhile those who are not well-organized and funded can express their views, but only as individuals.”

Among the interest groups that benefit from the false portrait are universities, which gain graduate student enrollments and inexpensive postdocs to conduct funded lab research. Employers gain larger profits from lower paid scientists and engineers, and immigration lawyers gain fees by leading employers around the work visa rules.

Using the biomedical research sector as an example, Teitelbaum explained to the congressmen how research funding creates an oversupply of scientists that requires ever larger funding to keep employed. Teitelbaum made it clear that it is nonsensical to simultaneously increase the supply of American scientists while forestalling their employment with a shortage myth that is used to import foreigners on work visas.

Teitelbaum recommends that American students considering majors in science and engineering first investigate the career prospects of recent graduates.

Integrity is so lacking in America that the shortage myth serves the interests of universities, funding agencies, employers, and immigration attorneys at the expense of American students who naively pursue professions in which their prospects are dim. Initially it was blue-collar factory workers who were abandoned by U.S. corporations and politicians. Now it is white-collar employees and Americans trained in science and technology. Princeton University economist Alan Blinder estimates that there are tens of millions of American high end service jobs that ultimately face offshoring.

As I predict, and as BLS payroll jobs data indicate, in 20 years the U.S. will have a Third World work force engaged in domestic nontradable services.

December 4, 2007

Chapter 18: Shrinking the U.S. Dollar From the Inside-Out

O
n December 8, 2007, 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 U.S. media was destroyed in the 1990s when Rupert Murdoch persuaded the Clinton administration and the quislings in Congress to allow the U.S. 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 U.S. 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 U.S. dollars, the U.S. might actually find itself having to pay for its energy imports in euros or yen.

Venezuela’s Chavez, survivor of a U.S.-led coup against him and a likely target of a U.S. assassination attempt, might follow the Iranian lead. Also, Russia’s Putin, who is fed up with the U.S. 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 U.S. 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’s remarks about the dollar 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 U.S. oil imports accounted for the U.S. 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 U.S. trade deficit. During the decades when Americans were fixated on “the energy deficit,” the U.S. became three times more dependent on foreign made manufactures. America’s trade deficit in manufactured goods, including advanced technology products, dwarfs the U.S. energy deficit.

For example, the U.S. trade deficit with China is more than twice the size of the U.S. trade deficit with OPEC. The U.S. deficit with Japan is about the size of the U.S. deficit with OPEC. With an overall U.S. 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 U.S. consumers. When U.S. corporations move to foreign countries their production of goods and services for American consumers, they convert U.S. Gross Domestic Product (GDP) into imports. U.S. production declines, U.S. jobs and skill pools are destroyed, and the trade deficit increases. Foreign GDP, employment, and exports rise.

U.S. corporations that offshore their production for U.S. markets account for a larger share of the U.S. trade deficit than does the OPEC energy deficit. Half or more of the U.S. trade deficit with China consists of the offshored production of U.S. firms. In 2006, the U.S. trade deficit with China was $233 billion, half of which is $116.5 billion or $10 billion more than the U.S. 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 on 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 U.S. 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 U.S. firm brings its offshored goods and services to the U.S. 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 U.S. dollar and the American economy are dying.

One of the great lies of the offshoring interests is that U.S. manufacturing is in trouble because of poor U.S. education and a shortage of U.S. 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 U.S. No Longer Drives Global Economic Growth,”
Manufacturing & Technology News
, Nov. 30, 2007.)

The fact of the matter is that the offshoring of U.S. 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 ten years. The “long trend of strong U.S. 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 U.S. scientists and engineers than there were weapons of mass destruction in Iraq. The U.S. 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.

December 13, 2007