Bush's Black Hole Economic Policy By Stephen Pizzo, AlterNet

What's going on? The DOW and NASDAQ are way up. Interest rates are way down.
Wall Street analysts are humming "Happy Days are Here Again." And President
Bush has all but unfurled a "Mission Accomplished" banner over at Treasury.

But apparently not everyone is so sanguine. Against all these bullish Wall
Street indicators are indicators heading in the opposite direction. Gold,
which generally moves in the polar opposite direction of stocks, has also
soared in recent weeks.

And the U.S. dollar plumbs new lows against other key currencies. Meanwhile
the once iffy euro is now worth more than the dollar - a lot more. It now
takes nearly $1.30 to purchase a single euro. The dollar and the Japanese
yen are now nearly at par. This can mean only one thing - investors are
dumping dollars.

So far foreign governments have restrained from throwing their dollar
reserves into the bonfire, but that could change at any moment. If
governments begin selling, the dollar will slide further.

The kinds of investors who trade precious metals and foreign currencies are
a different breed than the cheerleader types who trade stocks. These folks
are steely-eyed speculators with ice water in their veins who would
foreclose on their mothers. They are quintessential realists immune from
hype, spin or "irrational exuberance."

So when these folks start shorting America it's prudent to ask why. These
savvy investors are aware that U.S. fiscal policy has fallen back into its
old ways. Record deficits are on tap for at least the next decade, and there
appears to be no political will in either party to change that.

But the U.S. economy has survived deficit spending before, so there must be
more than that spooking these folks. And there is, a lot more.

First there's the much-ballyhooed "recovery." These speculators do not see
the bounce in U.S. stocks or GDP numbers as a result of any fundamental
growth in the American economy, but rather a spike spending fueled by overly
generous tax cuts. Only job growth can sustain a true recovery and that's
not happening.

The latest job numbers fuel such worries. The December jobs report shows
payrolls grew by only 1,000 new (non-farm) jobs that month - 299,000 jobs
short of the 300,000 new jobs a month the President promised his tax cuts
would soon create.

Job outsourcing further clouds the future of the U.S. economy. What had been
a slow leak of U.S. manufacturing jobs to cheaper overseas markets has
become a high-pressure stream of jobs heading east. A tipping point appears
to have been reached during 2003. Companies with large U.S. operations
discovered that they either had to compete against companies producing
similar products from cheaper labor venues or fold. A manufacturer paying
U.S. workers $9.50 an hour cannot compete against a competitor paying
Mexican workers 78 cents an hour.

Until 2002 primarily U.S. manufacturing jobs were being off-shored. But in
recent months that trend spread with a vengeance to America's high-value,
high-wage white-collar jobs. Programmers, engineers and even architects, can
be had in India or China for a tenth of what employers pay similarly skilled
American professionals. The loss of these top-tier jobs puts into serious
question assurances from open market advocates that when one class of jobs
is off-shored it simply opens the way in the U.S. for new kinds of higher
value, higher wage jobs.

In fact, what appears to be afoot is a great leveling of wages across
national boundaries. The migration of U.S. and European companies to the
cheap-labor venues is boosting wages in those countries while conversely
exerting downward pressure on the wages of workers in the developed nations.
This leveling effect is already showing up in government numbers. According
to the December jobs report, average weekly earnings fell $2.08, to $522.35
from $524.43 in November - during a "recovery."

President Bush's new temporary worker-immigration reform proposal, if
enacted, would only accelerate this process by putting additional downward
pressure on U.S. wages, especially for service industry workers who are
already at the bottom of the wage scale. While better wages and improved
working conditions may be long overdue good news for the developing world,
it is difficult to see how the trend can result in anything but steady
erosion in the standard of living of American workers. Wage competition is
not a zero-sum game. At the end of the day someone gets less.

Henry Ford fathered the notion that workers should at least earn a wage high
enough to enable them to buy the products they build. Ford's industrialist
contemporaries thought he was nuts to pay workers more than the prevailing
wage. History, however, proved Ford a visionary whose egalitarian notion
spurred the most vibrant, self-sustaining economy in history. The current
trend of driving wages down reverses that logic, threatening to reverse the
result as well.

While American consumers currently benefit from lower prices by feeding on
foreign-produced goods, it is a short-term benefit. Over time, more well
paying U.S. jobs will be lost and replaced by lower-paying jobs. Eventually
American workers will be less and less able to fuel the product-consumption
continuum that has been the engine of the American economy for the past 60
years.

And then begins the death spiral. Fewer companies will be paying U.S. taxes.
Those still domiciled in the U.S. will have lower profits, resulting in less
tax revenue. American workers will be paying less in withholding taxes as
well since they will be earning less. It is a downward spiral that feeds on
itself; a kind of black hole from which no energy or light - or economy -
can escape.

======================================================================
Stephen Pizzo is a freelance journalist in Sonoma County, California.