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Tuesday, December 06, 2005

An Economy Driven By Debt

Don't Confuse the Jobs Hype with the Facts

By PAUL CRAIG ROBERTS


The November payrolls job report was announced Friday with the usual misleading hype. Spinmeisters made the most out of the 215,000 jobs. Looking beyond the glitter at the real facts, this is what we see. 21,000 of those jobs were government jobs supported by taxpayers. There were only 194,000 new jobs in the private sector.
Of those new jobs, 37,000 are in construction and only 11,000 are in manufacturing. The bulk of the new jobs--144,000--are in domestic services.

Wholesale and retail trade account for 20,000. Food services and drinking places (waitresses and bar tenders) account for 38,000.
Health care and social assistance account for 27,000. Professional and business services account for 29,000. Financial activities gained 13,000 jobs. Transportation and warehousing gained 8,000 jobs.

Very few of these jobs result in tradable services that can be exported or help to close the growing gap in the US balance of trade.

The 11,000 new factory jobs and the 15,000 of the previous month are a relief from the usual loss. However, these gains are more than offset by the job cuts recently announced by General Motors and Ford.

Despite the gain in jobs, total hours worked declined as the average workweek fell to 33.7 hours. The decline in the labor force participation rate, a consequence of the shrinkage in well-paying jobs, masks a higher rate of unemployment than the reported 5 percent. The ratio of employment to population fell again in November.

Average hourly earnings (up 3.2 percent over the last year) are not keeping up with the consumer price index (up 4.3 percent).
Consequently, real incomes are falling.

This is not the picture of a healthy economy in which growth in high productivity, high value-added jobs fuel the growth in consumer demand and provide savings to finance Washington's red ink. What we are looking at is an economy that is coming unglued from the loss of jobs that provide ladders of upward mobility and from massive trade and budget deficits that are resulting in unsustainable growth in indebtedness to foreigners.

The consumer price index measures inflation at 4.3 percent over the past year. Many people, experiencing household budgets severely impacted by fuel prices and grocery bills, find this figure unrealistically low. PNC Financial Services has a Christmas price index consisting of the gifts in the song, "The 12 Days of Christmas." The index reports that the cost of the collection of gifts has risen 6 percent since last Christmas. Some of the gifts have risen substantially in price. Gold rings are up 27.5 percent, and pear trees are up 15.4 percent. The cost of labor (drummers drumming, maids-a-milking) has remained the same.

Populations are hard pressed when the prices of goods rise relative to the price of labor, because this makes it impossible for the population to maintain its standard of living.

The US economy has been kept alive by low interest rates, which fueled a real estate boom. Consumers have kept growth alive by refinancing their home mortgages and spending the equity in their houses. Their indebtedness has risen.

Debt-fueled growth is qualitatively different from economic growth that results from an increase in high value-added jobs. Economists who look at the 3+ percent economic growth rate and conclude that things are fine are fooling themselves and the public. When the real estate boom ends, what will be the source of new spending power?


Paul Craig Roberts has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions. He can be reached at: paulcraigroberts@yahoo.com

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