The short answer is that they are not made in America anymore. The long answer is that the government has three levers on the economy and jobs. The levers are taxation, interest rates and foreign trade policy.
Interest Rates
Interest rates are set by the Federal Reserve Board. Their objective is to maintain a stable growing economy. They use interest rates to fight inflation on the one hand and to prevent a depression on the other. They do a fairly good job. They lower interest rates to stimulate the economy, preventing a depression, and raise them to reign in the economy, preventing inflation.
Taxes
Taxes go to operate the government and we’ll deal with whether you agree with how the government is spending your money later. Believe it or not, government spending is counted as part of the economy. That’s because it is spent as fast or faster than it is collected from you and goes back into your pocket or your neighbor’s pocket. You just don’t get to spend it on a six-pack instead of a schoolbook. So, the tax lever on the economy has more to do with the direction of the economy than the mass of the economy.
Taxation is said to divert the capital necessary to finance business and therefore jobs. The government, in a very true sense, is competing with capitalists for capital. But the government does not send the money it collects to the Moon, at least not too often. Government programs create jobs too, both directly and indirectly. Even Social Security payments create jobs as the payments are most often recycled immediately back into the economy.
Trade policy
So if the Federal Reserve is doing a good job, and all things being equal, your taxes are folded back into the economy, why are jobs disappearing?
Productivity growth, as natural consequence of innovation and economic growth, does temporarily displace workers. Workers displaced by innovation are generally reabsorbed into the workforce. That has been the pattern since the wheel displaced the camel. Historically, innovation that reduces demand for a given skill increases demand for another, or new skill. So, innovation displaces workers but creates new opportunities in a reliable if not precisely predictable way. In the global economic system, innovation operates the same way. Net improvements in technology and methodology eventually result in net employment gains and economic prosperity.
Productivity growth as a result of cost cutting has the opposite effect of productivity growth through innovation. No new opportunities are created and the workers displaced remain displaced. Displaced workers reduce their consumption of goods and services and the economy as a whole is diminished. It is amusing to hear economists say that two thirds of the economy is personal consumption. Since the other third is government and investment in producing goods and services, it is inescapable that the entire economy is driven by personal consumption. Factories, office buildings and government can serve no other purpose.
The orgy of mergers and acquisitions of the 1980s and the downsizing and rightsizing of the 1990s displaced tens of millions of workers. Many were reabsorbed into the workforce through the boom in technology that drove the economy ahead in spite of corporate malfeasance. That boom is now over for Americans. Now we are experimenting with globalization to cut corporate costs. It works for the corporate bottom line, but where will it take our economy?
We have had substantial job loses because American trade policy has been globalization. Add to that problem, illegal immigration, liberalized work visas and outsourcing and you, making $25 an hour, can’t compete. You can’t compete with a person asking $6 dollars and hour at home and you certainly can’t compete with someone making $1 overseas. Put another way, currently there is no more profound influence on the employment prospects of Americans than globalization.
Scope of the loses
America needs to create about 1.3 million jobs a year to match population growth. As the Bureau of Labor and Statistics chart below shows, we have more or less been doing that up until the year 2000. Currently, America is outsourcing something like 500,000 jobs a year. America is issuing 500,000 new work visas a year. Illegal immigration is about 350,000 people per year. Work visas are issued to people with a job on the books. Outsourcing happens when a job is secured by a foreign worker. Illegal immigrants can underbid virtaully all Americans. So we effectively have an economic climate that does not create any jobs for Americans.
Source BLS http://stats.bls.gov/bdm/charts1.htm#chart1
Some economic talking heads have suggested that 500,000 jobs lost to outsourcing is not significant compared to the turnover created by increasing productivity. Since there are two means to increase productivity, innovation, which is positive for the economy, and cost cutting, which is negative for the economy, it must be true that at least some of the job loss attributable to productivity growth will not be recouped. Further, outsourced jobs are jobs lost to cost cutting and will not be replaced without some unforseen miracle of innovation creating new demand. It is true that 500,000 is only 3 tenths of one percent of the all the jobs in America. However it is cumulative. In 3 years 1% of Americans who could have had jobs will be unemployed. In 9 years, 3% will be unemployed. Since globalization has been going on for some time now, there has already been an effect on employment levels. See Is our government "cooking the books"?
What's at stake?
Globalization is a gamble by corporations and our government that we, as a nation, will be more able to sell product to the developing world than the developing countries themselves. At stake is access to an imaginary market of 6 billion people with the same buying power as Americans. It will never exist if offshore wages are not trending towards equal in buying power to the wages of America, Europe and Japan. Yet the entire thrust of globalization boils down to producing products more cheaply by finding cheaper labor. China estimates that 83 percent of China's trade surplus with the U.S. reflects exports by foreign firms that have built factories in China to take advantage of its cheap labor. So, the concept of globalization, to access developing markets, is an absurdity if developing nations do not increase the cost of labor, and in so doing make outsourcing offshore pointless.
In terms of size of markets, globalization in its current form, focused on exploitation of cheap labor is a poor bet. Do the math. If Americans average about $20 an hour and a well heeled Chinese worker makes $20 day, it will take 8 Chinese to create the demand for product that one American generates. I will take 2.4 billion Chinese to make a market the size of ours. Unfortunately, there are only half that many and they don't average $20 a day.
Why is this happening?
Somehow, we have surrenderd ourselves to a state of belief that tells us cheap labor is good for an economy. Nothing could be further from the truth. Economies aren't built on investment, they are built on demand. Put simply, you can't sell anything to a society of slaves, no matter how cheaply you produce it. On the other hand, investment is key to innovation, and in the classic theory of division of labor, innovation creates prosperity. So it is a conundrum, profits increase capitalization but markets are made by consumers. If the consumers have no money, investment is pointless. If there are 6 billion consumers and no investment, well, nothing changes.
The tension between lord and serf is as old as recorded history. What is happening now, with globalization is little more than a new window dressing of the same old conflict. The new lords, investors, seem to think that paying money for labor is an unessesary extravagance. To be competitive they must reduce and ever reduce the cost of product through reduction in labor cost. In doing this they destroy the market for the goods on which they are trying to make a profit. In psychiatry, if a person adheres to thoughts that are self destructive, they are arguably insane. In economics, it does not seem to matter. This vast experiment in globalization is predicated on the idea that we will somehow all have jobs in some unspecified service work that does not yet exist and that developing countries can't learn how to do. What is going to stop the inventor of this new magic service work from outsourcing it? The case for globalization is built on hope and the willingness of the American people to believe in a future that will be shaped on the fly. That is all well and good in prudent amounts.
Globalization as an economic policy of the United States exists only to placate American corporations, and their investors, that are seeking to increase their profit margins. That is the only context in which the concept of globalization makes sense. As U.S. policy, this is seriously flawed in terms of the future prospects of Americans, and the vast majority of Americans are paying for the incresing profits of our corporations with their own personal economic prospects.
As the U.S.A. is the largest market in the world, what other reason could there be for exporting jobs except to increase profits for outsourcers who re-import goods from third world operations. We are already competitive with all the major economic powers, including Japan. If exporting jobs enables U.S. corporations to under price other economic powers, then they will respond in kind. They will find cheaper labor than we found. We will find cheaper labor than they, and on and on. This is why tariffs were invented, to cut to the chase, and to protect our ability to produce economically and militarily strategic goods.
Conclusion
If you think that protectionism will create trade wars and that globalization will not, I strongly suggest that you do not understand the concept of warfare.
Continued…Is globalization creating global growth?
Continued...Is there a shortage of skilled labor?
What to do about this problem:
Protect America’s key strategic industries with trade policy that places tariffs on importation and re-importation.
Place a dollar for dollar limit on trade with developing nations.
Create an operating climate for business that discourages rather than encourages outsourcing, by placing punitive unemployment benefit premiums on outsourcers.