America's official unemployment rate remains stubbornly near 10%, the real unemployment rate is likely well north of 20% and neither the president nor any of the major presidential challengers appear to understand this essential truth: Our malaise is NOT simply a short term cyclical problem amenable to (even) more profligate Democratic stimulus or knee jerk Republican flat taxes. Rather, we have been sucked into the dark vortex of a much longer term structural problem that dates back as far as 2001.
To fully grasp the stark reality of this structural economic problem, every American citizen needs to have this set of statistics seared into their consciousness: In the five and half decades prior to 2001, from 1947 to 2000, our economy grew at an average annual rate of 3.5%. However, since 2001, our Gross Domestic Product (GDP) has grown at only a rate of 1.6% annually.
To the lay person, the loss of almost two GDP growth points a year since 2001 may not seem like much. However, to any economist, such a loss borders on the catastrophic because of this Iron Law of Job Creation: For every additional GDP growth point our economy generates annually, we create one million new jobs.
It follows from this Iron Law that the loss of almost two GDP growth points a year since 2001 has meant a cumulative failure to generate almost 20 million new jobs over this last decade. Not coincidentally, this is almost the exact number of jobs we need right now to get America fully back to work.
So what structural change happened to our economy in 2001 to so profoundly slow down our rates of growth and job creation? While the advent of a new war on terror would seem to be the most obvious suspect, the real culprit that has done far more damage to our industrial base than Al Qaeda has been China.
In 2001, China joined the World Trade Organization with the strong support of a Democratic president and a Republican Congress and thereby gained unprecedented access to U.S. markets. In exchange for such market access, China promised to put an end to unfair trade practices ranging from currency manipulation and counterfeiting and piracy to illegal export subsidies and a wide array of worker abuses. But rather than lay down these weapons of job destruction, China has used them to put millions of Americans out of work, help shutter over 50,000 American manufacturing facilities, and usher in our new decade of much slower GDP growth.
In fact, the biggest drag right now on our GDP growth rate is the large and chronic trade deficits we run while the biggest source of that trade deficit is China. Indeed, almost half of America's trade deficit is with China alone, and our Chinese import dependence is more than 70% of the total deficit when oil imports are excluded.
Structurally, our large and chronic trade deficits represent the single most important difference between a fully employed America and the despair and devastation that we are now bearing stark witness to. That's why until our president and his challengers fully understand the real source of our economic problems, they will continue to offer up fiscally irresponsible "solutions" that will merely drive us deeper into our budget deficit abyss while doing nothing to pull us out of our trade deficit-driven slow growth oblivion.
The structural bottom line: The best jobs program is trade reform with China. That is because until we re-balance our trade with China, our economy will be doomed to continued slow growth rates well below our historical pre-2001 average.