Cheap Products vs. High Wages... Americans Want BOTH!

Discussion in 'Economics' started by gnome, Aug 29, 2008.

  1. CN-BS rarely has anything to say of merit, but earlier this week they along with guests were discussing aspects of unions.

    One statement was made which explains much of our economic condition...

    "Americans want to buy cheap products"... atta boy Wal Mart.

    "American middle class wants higher wages"... as might be gained through union influence.

    Unfortunately, these are as incompatible as oil and water.

    There appears to be no solution to the conflict...
  2. Not me. Like most of the rest of the world, I want expensive products and low, low, low wages.

    So are you upset that people want the lowest prices for the things they buy? Or are you upset that unions tend to force wages higher? Not sure what you're getting at.

  3. I am not personally upset.

    Part of America's economic problems stem from Western corporations outsourcing well-paying middle class jobs to Asia. This is good for the consumer who can buy cheap goods at Wal Mart and good for the corporation which can reduce its labor costs. But outsourcing is bad for the middle class. Well-paying jobs are lost and those who had them must accept lower paying jobs and a lower standard of living.

    Unions are all about "higher wages and protection of workers"... but in an era of globalization, unions lose bargaining power.
  4. The only way to win this game is to develop a comparative advantage (via educational system and culture) with technological and research skills versus everyone else in the world. When that happens, we export our *expensive* products to the rest of the world (err... the oil producing nations) and import products produced by cheap labor.

    But of course, that'll require the middle class to smarten up.
    When we can compete and add value in a market where there is demand (or where we can create demand), that is where the best can happen.

    Only in that case might high wages not be purely a function of money supply, but instead actual business success and competitiveness.
  5. gnome, you are correct.

    The joke is on those who think they can sustain an economy, and therefore a lifestyle, while having both imported goods and exported wages.

    Bush Sr. and Slick Willy are primarily responsible for NAFTA and GATT that materialized the globalist economic policy born generations ago. The citizens voiced "NO" to NAFTA, and the politicians pushed it through anyway. One reason why I trust my attorney more than politicians (or realtors). Back to trading.

  6. 20 or so years ago and before, American had it all. We had high union wages producing decent goods which could only be afforded by middle-class and richer Westerners. But then we decided to "outsource" to take advantage of lower wage costs.

    We actually stabbed ourselves in the foot in the process. Oops... untended consequences...

    Multinational Monitor: Why are you opposed to so-called global free trade and GATT?

    James Goldsmith: Global free trade has become a sacred principle of modern economic theory, a sort of moral dogma. That is why it is so difficult to persuade our politicians and economists to reassess its effects on a world economy which has changed radically. I believe that GATT and the theories on which it is based are flawed and that, if they are implemented, they will impoverish and destabilize the industrialized world whilst at the same time cruelly ravaging the Third World.

    MM: What is the economic theory on which GATT is based?

    Goldsmith: A leading theoretician of free trade was David Ricardo, the early-19th century British economist. He developed two interrelated concepts: specialization and comparative advantage. According to Ricardo, each nation should specialize in those activities in which it can have a comparative advantage relative to other countries. Thus, a nation should narrow its focus of activity, abandoning certain industries and developing those in which it has a comparative advantage. The results would be that international trade would grow as nations export their surpluses and import those products that they no longer manufacture, efficiency and productivity would increase and prosperity would be enhanced. But these ideas are not valid in today's world.

    MM: Why not?

    Goldsmith: During the past few years, four billion people have suddenly entered the world economy. They include the populations of nations such as China, India, Vietnam, Bangladesh, and the countries that were part of the former Soviet empire, among others. These populations are growing fast. Barring catastrophes, they are forecast to reach over 6.5 billion in 35 years. They have very high levels of unemployment and those who do find jobs offer their labor for a tiny fraction of the pay earned by workers in the developed world. For example, 47 Vietnamese or 47 Filipinos can be employed for the cost of one Frenchman. Until recently, these four billion people were separated from our economy by their political systems, usually communist or socialist, and because of a lack of technology and of capital. Today all of that has changed. Their political systems have been transformed, technology can be transferred instantaneously anywhere in the world [via] microchip, and capital is free to be invested worldwide, wherever the anticipated yields are highest.

    The principle of global free trade is that anything can be manufactured anywhere in the world to be sold anywhere else. That means that these new entrants into the world economy are in direct competition with the work forces of the developed countries. They have become part of the same global labor market. Our economies, therefore, will be subjected to a completely new type of competition. For example, take two enterprises, one in the developed world and one in Vietnam. Both make the identical product destined to be sold in the same market, say France or the USA; both can use identical technology; both have access to the same pool of international capital. The only difference between the two is that the Vietnamese enterprise can employ 47 people for the cost of only one Frenchman. You do not have to be a genius to understand who will be the winner in such a contest. In France, as in most developed nations, an average manufacturing company pays its employees, including social costs, an amount equal to about 30 percent of volume. If such a company decides to maintain in France only its head office and sales force, and to transfer its production to a low-cost area, then it will save about 20 percent of volume. Thus, a company with a volume of $500 million will increase its pre-tax profits by $100 million per year. If, on the other hand, it decides to maintain its production in France, the enterprise will be unable to compete with low-cost imports and will perish. It must surely be a mistake to adopt an economic policy which makes you rich if you eliminate your national work force and transfer your production abroad, and which bankrupts you if you continue to employ your own people.

    MM: Won't high tech jobs replace those that move offshore?

    Goldsmith: High tech industries can, indeed, survive and prosper under these circumstances. That is because they are highly automated and therefore employ only a few people. So labor is a minor item in the overall cost of the products that they make. But obviously the fact that they employ very few people means that they are incapable of employing very many. As soon as they need to employ many, they will be forced to move offshore. For example, IBM is moving its disk drive business from America and Western Europe to low labor cost countries. Boeing has also announced that it will transfer to China production of parts of certain of its planes to China.

    In France, proponents of global free trade constantly say that the exporting of such high tech products as very fast trains, airplanes and satellites will create jobs on a large scale. Alas, this is not true. The recent $2.1 billion contract selling very fast French trains to Korea has resulted in the maintenance for four years of only 800 jobs in France: 535 for the main supplier and 265 for the subcontractors. Much of the work is carried out in Korea by Asian companies using Asian labor. What is more, following the transfer of technology to South Korea, in a few years time Asia will be able to buy very fast trains directly from South Korea and bypass France. As for planes and satellites, the numbers employed in this industry in France have fallen consistently. Over the 5 years from 1987 to 1992, they have fallen from 123,000 employees to 111,000 and are forecast to fall to 102,000 in the short term.

    MM: Won't the growth of the service sector compensate for the jobs lost in manufacturing?

    Goldsmith: I am afraid that even service industries will be subjected to substantial transfers of employment to low-cost areas. Today through satellites you can remain in constant contact with offices in distant lands. That means that companies employing large back offices can close them and shift employment to low-cost areas. SWISSAIR has recently transferred a significant part of its accounts department to India, for example.
  8. Maybe the two problems are related, Maybe America doesn't really want cheap products, they just can't afford their current lifestyle. And I'm sure it's because the average person has thousands in CC debt, and because they're stupid, but it might also be the economy.

    Face it, if Wal Mart started selling ONLY expensive american products you wouldn't know the difference. But people are crazy about price and it happens China is benefiting.

    I really believe the problem is the loss of manufacturing jobs and technology. I watched a 18 year old documentary on Japan. They concluded that what was at stake back then was the future choices of americans. Note the word choices, that's maybe why we have this bubble economy. There aren't many other alternatives to keeping the country afloat.

    In fact back then Bush senior gave the same bullshit party line given today. Japanese were illegally dumping their goods at a loss to drive american businesses out of the market, and Bush was only saying that "we believe in free market competition and american entrepreneurism"

    Same shit is happening today. Recently I heard from an airline executive politely say that Emirates airlines don't suffer the same problems as everyone else, one they probably have very cheap gas, two they have much more (unlimited) capital. The outcome is clear. They can probably sell under breakeven too.

    So there are 2 reasons for this, the FUCKING DEBT. With the asians controlling most of the american debt, a president or congress can't go around raising import tariffs. Yet that is exactly what the asian countries do. They protect their industries. So of course as long as we don't have balanced budgets, we're fucked.

    The second reason is the classic conspiracy reason, they want to weaken the middle class and somehow get more power that way and some NWO.. thing.
  9. The problem is also that other countries don't play by the same rules that we do.

    Yes, in a perfect world we'd complete against other countries and this competition where everyone would have a sector they're good in would bring wealth to everyone through the magic of trade.

    However that doesn't actually happen, because other countries are protectionists and have a clear industrial policy, except America doesn't have one! So as it stands, one country can break the rules, dump everything in the US, and the US doesn't fight back. Why stop cheating right? Only if the US was fighting hard to demand fair trade would the other country stop cheating or conducting trade in an unethical manner.

    So why does the US support this free market ideology so much instead of being like every other country? One it might be the people (Ron Paul, barf) and two(and I'm not exactly too sure on this) look at Africa. The fact was that "free trade" worked for a while, because America imposed free trade on poor nations, exploited them and thus gained jobs and money that way. In fact it's not indonesian or african goods that you're buying at Wal Mart, it's chinese goods you're buying. So some countries escaped the free market trap setup by the US, built up their economy and the US might still be clinging to that type of imperialism.

    But they must practice what they preach, so the US has completely open markets.
  10. Any and all economic research clearly shows that international trade (outsourcing, importing, exporting) constitutes a win-win situation. Both for developing (US, Europe) and for emerging (Asia, Africa etc.) nations.

    Yes, there are individual losers (It's not well-paying jobs that are lost as you claim, it's jobs that demand a low level of human capital; people in uncompetitive jobs in developed nations are losing their jobs, not brain surgeons and genetic engineers), but overall - when the pie is getting bigger, the slices for (almost) everybody are getting bigger.

    Anybody remember Ross Perot's 'giant sucking sound' that was supposed to transfer millions of jobs to Mexico with the start of NAFTA? Never happened. Research shows that net-net, NAFTA created (a small number of) jobs in the US.

    On average, globalization and international trade are increasing global wealth and the standard of living for the middle class. Hampering trade, protecting uncompetitive industries, providing incentives for jobs to 'stay at home' lowers wealth.

    The main problem for the US going forward is not protecting their industrial jobs enough but having hundreds of thousand of young kids that don't speak proper English, don't know basic math and can't find neither Europe nor China on a map. How is the next generation in the US - with nil investment in human capital - going to compete with Finnish, Korea, Japanese or Chinese kids that win all the Physics, Math and Engineering competitions?
    #10     Aug 29, 2008