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Debunking the “It’s China’s Fault That American Worker Real Wages are Falling” Myth

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For some time, we’ve argued that outsourcing and offshoring were overdone. For manufactured goods, direct factory labor is typically only 10% to 15% of final product costs. Even if you get significant savings there, the offsets are increased shipping, inventory, and managerial/coordination costs (which serves as an excuse to transfer savings on factory workers to the top brass). In addition, extended supply chains also entail higher risks. I’ve had executives and senior managers in various industries tell me that there internal estimates of the savings from outsourcing weren’t compelling, but senior management went ahead on the (typically correct) assumption that investors would approve.

But even in the cases where the outsourcing cost savings were significant, the idea that American wages were way out of line with Chinese wages and the only future for American workers was grinding wages lower and lower to compete with China has been oversold. Various writers, including yours truly, pointed out that China’s wage advantage would not hold indefinitely even if it managed to keep its currency peg (which, separately, it hasn’t; the change to a currency basket has over time resulted in appreciation against the dollar).

The reason? China’s much higher inflation rate would over time reprice labor in nominal terms at home, which with a currency peg (or the current dirty float) would translate into real increases to foreign buyers. To put it more simply, double digit inflation over time would be tantamount to a currency revaluation.

Despite popular (and worse, pundit and media) perceptions otherwise, China no longer enjoys a labor cost advantage in many areas. In recent years, China has seen some manufacturers move to lower-cost countries like Vietnam and Bangladesh, but the smaller size of their workforces has limited the impact on Chinese wages. Ambrose Evans-Pritchard takes note of this peculiarly underreported trend in his latest article, “The End of China’s Easy Growth“:

A new report by PricewaterhouseCoopers entitled “A Homecoming for US Manufacturing” claims it is now cheaper for whole clusters of US industry to produce at home, close to their markets. Firms are “re-shoring” — to use the vogue term — to cut transport and inventory costs and take advantage of cheap shale gas. The weaker dollar has iced the cake.

PwC said the US has clawed back a cost advantage of 2pc in steel output against China, at least for the North American market. Its “heat map” gives the US the edge in chemicals, primary metals, electrical products, machinery, paper, transport equipment, and wood, in that order…

Google is building its Nexus Q Music and video player in the US. General Electric and Ford are switching to plants at home. So is Caterpillar, which is interesting since its chief Chinese rival Sany Heavy Industry is in trouble. It has just asked creditors to waive a $510m financial covenant.

Boston Consulting Group has been banging on this homecoming drum for some time, arguing that wage inflation of 16pc annually for a decade has eroded China’s lead. The gap in “productivity-adjusted wages” was 22pc of US levels in 2005. It will be 43pc (61pc for the US South) by 2015.

Despite the fact that this trend is well under way, we’re certain to hear a steady diet of haranguing from neoliberal economists about how American workers have to suck it up and accept even lower wages. What’s driving falling real wages is poor domestic economic policies, namely, the mismanagement of the post crisis period. Japan warned the US early on that the biggest mistake it had made was not forcing its banks to recognize losses. But we ignored their lesson and are in the process of suffering what may turn out to be a lost decade. Time to blame the real perps, our bank enablers, rather than the poster bad guy, the Chinese wage slave.

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95 comments

  1. JGordon

    The real “perp” is the gradual increase of complexity our society is constantly undergoing, combined with less available net energy to fund that growing complexity.

    While admittedly there are schemers and ideological fanatics in the mix making the situation worse, you should really ask yourself: what failing society hasn’t had its share of sycophants and crooks looting all they could right before the end? These criminals at the top are just a symptom of a sick and dying society, not the cause, and we ought to in fact have some sympathy for them. Since after all, parasites usually can’t survive without a host to feed on.

    1. Calgacus

      Utter nonsense. Irrespective of whether there is a global environmental catastrophe in the offing, it hasn’t hit yet. Complexity is a benefit. Except in the case of parasitical/financial “complexity” – which generally boils down to “I have a guy with a rock who is going to smash you in the head if you don’t allow me, Mr Wall Street, to rob you.”

      The problem is solely & entirely with increased parasitism and economic ignorance in the last 40 years. Bring back the WWII vets in their prime & have ‘em see how their (grand)children allow themselves to be treated & they’d smack ‘em in the head & reach for their guns. Criminality, parasitism, fraud & ignorance, above all, are the ENTIRE cause. If the rest of the world were run even as rationally as China, or the postwar era, we would be having an era of tremendous prosperity.

      1. JGordon

        Complexity has maintenance requirements, and each additional layers of complexity adds an additional layer of maintenance requirements. These maintenance requirements are ultimately defined in units of energy, all of where were derived from sunlight at some point or another.

        As Jared Diamond, an actual scientist unlike the pseudo-scientists who practice the ideology of economics, demonstrated in his book “Collapse, How Societies Choose to Fail or Succeed” that historically the reason for societal collapses can always be boiled down to that society exceeding actual physical and/or energy resource limits. Of course you can always go back and find historical accounts of people of those societies blaming Gods or Angry Spirits or Output Gaps or the like for their misfortunes, but really all such things have little or no relation to the real reason for collapse.

        And since it’s economists who work in the realm of such superstition and ideology today to explain our own misfortunes (but never, ever consistently predict, oddly enough for a “science”), your “utter nonsense” comment and general incomprehension of the actual physical processes that societies rely upon to function leads me to believe that you must have some training in the economics ideology yourself.

        1. ForReal?

          I think what you’re saying has some validity, but I also think you’re overstating it. As for sympathy for the parasites? You can’t possibly be serious! Do you know any cancer sufferers who have sympathy for their tumors?

        2. Calgacus

          I repeat. Utter nonsense. Not saying that your scenario could not be true. Of course it could. But it has absolutely nothing to do with current economic crises.

          It’s like saying that if someone is coming at you to rob & kill you he MUST BE starving to death in a dog eat dog world. No. That is just one possible explanation.

          A more correct one for the world at present is that this guy has been brainwashed into thinking that he is starving in an apocalyptic world. Whereas actually the world he lives in is just creating poverty amidst (current) plenty, systematically destroying trillions upon trillions of dollars of real wealth yearly – the destruction, poverty and misery maintained only by this brainwashing.

          1. skippy

            John,

            If you tally up the loss or severe diminishing of species (plant and animal) in the last 10,000 years, due directly or indirectly (exacerbated) by humans, your argument comes apart.

            Potable water, fish stocks, increasing degradation of soil, ratio of world pop living modern life style vs. actual poverty and never ending conflict, spreading of natural and man made disease, yati da da.

            “THE EXTINCTION CRISIS
            It’s frightening but true: Our planet is now in the midst of its sixth mass extinction of plants and animals — the sixth wave of extinctions in the past half-billion years. We’re currently experiencing the worst spate of species die-offs since the loss of the dinosaurs 65 million years ago. Although extinction is a natural phenomenon, it occurs at a natural “background” rate of about one to five species per year. Scientists estimate we’re now losing species at 1,000 to 10,000 times the background rate, with literally dozens going extinct every day [1]. It could be a scary future indeed, with as many as 30 to 50 percent of all species possibly heading toward extinction by mid-century [2].

            Unlike past mass extinctions, caused by events like asteroid strikes, volcanic eruptions, and natural climate shifts, the current crisis is almost entirely caused by us — humans. In fact, 99 percent of currently threatened species are at risk from human activities, primarily those driving habitat loss, introduction of exotic species, and global warming [3]. Because the rate of change in our biosphere is increasing, and because every species’ extinction potentially leads to the extinction of others bound to that species in a complex ecological web, numbers of extinctions are likely to snowball in the coming decades as ecosystems unravel. – snip

            http://www.biologicaldiversity.org/programs/biodiversity/elements_of_biodiversity/extinction_crisis/index.html

            skippy… Trillions of electrons of price are at risk[!!!!] man the ideological economic bulge pumps or were doooooomed!

          2. Calgacus

            Do you understand what I am saying? Sure, extinction could be around the corner. Hope not. But what did that have to do with the Great Depression? What does it have to do with what is happening now?

            Could even argue that the Great Depression, the wars & genocides of the last century were Good Things, because they put off the extinction. Still doesn’t make them more than coincidentally, accidentally related as opposed to what JGordon is saying. Neither the Great Depression nor the Great Recession were intrinsically related to any environmental, non-social catastrophes.

          3. skippy

            “Neither the Great Depression nor the Great Recession were intrinsically related to any environmental, non-social catastrophes.” – Calgacus

            Wrong. Social catastrophes walk hand in hand with environmental conditions. As bob in a previous thread pointed out, off shoring of labor is more about environmental aspects than employment costs. See: the down fall of industrialism, mining – resource extraction, now land based chemical production – refining (new offshore refinery ships coming on line), etc, etc.

            You should read up.

            Environmental Contamination and Human Health
            Mines are notorious polluters; the mining industry is continually one of the top
            producers of toxic substances in the United States. Every year since 2004, Alaska’s
            Red Dog mine has released more toxic substances than any other site in the United
            States. In 2007, it released 533,421,606 pounds of toxic substances. In Alaska, Red
            Dog, Greens Creek, Fort Knox and Pogo mines hold the top four places in the Toxics
            Release Inventory.
            10
            Together they release more toxic substances than the next 30
            Alaskan sites combined.
            11
            These toxic substances include dioxin, cyanide, mercury,
            arsenic, lead, cadmium, polycyclic aromatic hydrocarbons, and numerous others.
            The toxic nature of mining operations puts human health at risk.

            http://www.akaction.org/Publications/Mining/Mining_and_Community_Health.pdf

            Seriously, it was about environmental costs, EBonds, added capital costs, outdated facility’s needing constant up grades, reclamation costs, mounting physical evidence of not only employee health but, surrounding – down wind / stream living areas, litigation costs – insurance. Larry Summers was not bullshitting about sharing the toxic burden…. eh.

            Try and supply Americas present consumption level from internal resources. Its would be like salting the earth beneath every sq inch of it.

            skippy… Just so you know this was covered in the book JGordon ref, lots of good papers ref in the index. Although, there is a tailing like pile of evidence historically, readily available to those that seek. I know from a professional prospective and to many hours of reading.

          4. Calgacus

            Skippy: What I am saying is very simple:

            Humans can do Bad Things. Stupid things. Evil things. Set up Bad Systems, that don’t make sense (except for the Bad-System-makers.) Yes of course, Other Bad Things can make a Bad System work worse. But that doesn’t make all the problems of a Bad System come from Other Bad Things.

            That doesn’t make a Good System impossible. That doesn’t refute that the USA has been replacing a relatively Good, Robust Economic System, one more able to deal with Other Bad Things, with a Bad, Fragile one, that will deal with Other Bad Things, like the environment – since 1943. But really going hog-wild in Systemic destruction in the late 70s- early 80s.

            What was the environmental catastrophe that caused, unavoidably caused the Great Depression? What, the Dustbowl? Is that a serious answer?

            And now – all that evidence? Sure, may be frightening. But So What? So What? Nothing to do with the actual economic crises being experienced in the USA, Europe, etc. Globalization, whatever – may be to shift (environmental) costs elsewhere. But low wages & unemployment & financial & economic crises have nothing to do with this – it was an elite decision to make globalization cause US low wages & unemployment & financial & economic crises.

            It is simply a fact that the human race has decided, for purely human, social reasons, the worst scientific & technological degeneration in a millennium, hopefully for only a few decades, by the degeneration of economic organization & science. Leading to the destruction of trillions of dollars of real wealth, real resources, that were not being destroyed 5 years ago, say. Places like China, that have not degenerated their economic technology have not experienced any novel environmental constraints.

            Thinking that way, e.g. it’s all the environment, it’s all energy, one way or another, boils down to the commodity theory of money, full employment is inevitable, neoclassical, Say’s law, blah-blah-blah. Money & credit & finance & monetary economics are in essence like human stupidity. Purely in the mind. They are not out there in the environment. Think about them independently & then integrate them. Don’t make a facile, misleading, utterly false equating of the two ab initio. The fault is not in our stars, but our selves.

          5. skippy

            With respect Calgacus I disagree.

            Your complaint was “Complexity is a benefit” and not a negative. Oops derivatives. Oops FIRE sector becoming the driving force in GDP. Oops tightly coupled networks of unobservable or measurable nature.

            The simplistic nature of your assertion is void ab initio right out of the box! JGordon was talking about human systems, not the system developed before we walked up right.

            Diamond is just a popular face wrt a larger pool that share this prospective. A perspective grounded in forensic anthropology et al and not some classical armchair thunkit which enviably puts all of humanity’s woe’s on metaphysical axioms. Good vs Bad systems, massive observer problem.

            And yes the GD had links to environmental conditions, too much friction for the money gang, crime has less friction. BTW you need to link all the country’s around the world. The beginnings of the post colonial period, the resources needed to run a industrial nation and hold your own against rivals. Its all interlinked.

            BTW I have zero clue on how you conflate myself with any neolassical rubbish, I pound them with relish. If you have not observed that state, what can I say of your deductive powers?

            But that’s ok once this is observed.

            “That’s us. That’s what a monetary system is. The Great Chimp is the government. Banks are his assistant chimps. The basic money is the favors owed to ordinary chimps by the Great Chimp.” – Calgacus.

            And by it, you are known.

            Skippy… the Trillions of price you speak of…. is an illusion, wealth is transitory, well being is another matter all together, as it promotes social cohesion. I value the latter.

          6. Calgacus

            You can starve to death because you have no food.

            You can also starve because you listen to the voices in your head & destroy your food. The banksters/voices will get momentary satisfaction, but they will die with you too.

            JGordon, Diamond etc say that collapse always comes environmentally. Good. Perhaps this says that the voices are never strong enough to completely destroy a civilization. But that doesn’t say the voices don’t exist. That doesn’t say they don’t wreak havoc. And clearly, now, the voices are in control.

            “Complexity” was a side issue, and I qualified it wrt finance.

            Yes, I’m sure there are plenty of people etc I’ve skimmed Diamond’s books. I’m not criticizing or disagreeing with their or your work. But for the umpteenth time, there is zero non-risible evidence that this had anything substantial to do with the current economic problems, which are much simpler and stupider.

            What was the environmental / energy / real world catastrophe that made the Great Depression inevitable? How could there have been one? As soon as each nation improved their economic system, they started prospering again. A major task of recent “economics” is to Orwellianly rewrite history of that era, unrecognizable to any one who had lived through it, or wrote about it then.

            Of course “Its all interlinked.” Everything is interlinked. Holism is easy; it’s where we start from. Reductionism is hard. But the environmental linkages are not essential right now, though they could be soon. USA Housing bubbles, decreasing wages, financialization, slowing technological progress, unemployment, job loss to China, union-busting are not inevitable, but human choices made in the USA and nowhere else, to have these things. They aren’t good choices & I do not feel the need to expand on the concept of “good” used here.

            The simplistic nature of your assertion is void ab initio right out of the box! JGordon was talking about human systems, not the system developed before we walked up right.

            I’m glad you think I’m making simplistic assertions. That is what I strive towards. IMHO complexity, complication, hard things are easy to understand. Showing off how brilliant & edumucated you are is easy. What is hard to understand is simple things, what is hard to see and say are simple, obvious things.

            The major flaws in our current systems, that led to the GFC, the Eurozone etc are at the level of “before we walked up right”. Chimps are not smart enough to behave as stupidly as we do. They don’t smash their own food as we do & create massive food-smashing systems & theologies about how food must be smashed. They just do what they have to do to get their food & eat it.

            BTW I have zero clue on how you conflate myself with any neolassical rubbish, I pound them with relish. If you have not observed that state, what can I say of your deductive powers?

            I say it because you’re letting neoclassical/commodity blah blah assumptions slip in. One of the best writers on the nature of money is Geoffrey Ingham. One thing that he & others valuably observe is how easy it is to slip into the omnipresent commodity money delusion. I used to myself! And I had some benefit of study of real economics before the subject went completely to shit. Thinking to base economics on energy/environment/thermodynamics even forensic anthropology etc – which I think you are doing – pardon me if I am wrong – is doing this. It gets things backwards.

            (Monetary) economics, which is by far the most important sort, is a very different thing. Its historical basis, from which it is logically inseparable is moral philosophy. Physics/reality constrains economics, how monetary economics guides real world economic activity; (Monetary) Economics is not “based on” physics/reality. Monetary economics is at a deeper level, closer to human cognition, of categories of understanding of the human social animal. It is so hard to get right because it is so easy – because everyone untutored understands money and debt, so nonsensical beliefs are unconsciously accomodated by ones native intelligence.

            But that’s ok once this is observed.

            “That’s us. That’s what a monetary system is. The Great Chimp is the government. Banks are his assistant chimps. The basic money is the favors owed to ordinary chimps by the Great Chimp.” – Calgacus.

            And by it, you are known.

            Skippy… the Trillions of price you speak of…. is an illusion, wealth is transitory, well being is another matter all together, as it promotes social cohesion. I value the latter.

            Not sure what your point is here. I value well-being & social cohesion too. But the well-being needs physical, “real” wealth, from the environment, which indeed is transitory & illusory (once one consumes it). Misunderstanding money/debt, the biggest tool/factor/institution of social cohesion, which is realer to the human mind than physical reality, leads to fantastic real wealth destruction, fantastic environmental destruction.

            If one doesn’t see massive storehouses of grain being actively, physically destroyed Right Now in Reality, then it’s not because it isn’t happening Right Now, it’s because of a point of view that looks away.

          7. skippy

            If you don’t think China doesn’t have a environmental catastrophe on its hands, well, your not very well informed.

            Skippy… This blog alone has highlighted it endlessly, get out more, is all I can offer. Good luck…

  2. psychohistorian

    I agree that the real perps of our social demise are not being prosecuted.

    I see the bankers as the front for the global inherited rich and don’t have the sympathy for them that JGordon has. I think it is way past time to flush the parasitic global inherited rich into the light of day.

    Has centuries of accumulating inheritance been good for society? If history weren’t written by the winners I suspect the answer would be a resounding NO!

  3. Daniel de Paris

    “Various writers, including yours truly, pointed out that China’s wage advantage would not hold indefinitely even if it managed to keep its currency peg”

    Sure. How does pegging works? Via unconditionnal purchase of FOREIGN governments (and affiliates )bonds.

    It is about time the US gov. and any OECDE countries that dos have some kind of reserve currency :
    1- makes sure not live on FOREIGNERS purchase of its own debts,

    That of course is ultimately a Volcker kind of policy, since such restrictions on the bond market would guarantee a significant hike on market rates (mind you, that would even push people into savings. Krugman would cry).

    2- purchases, via its docile central banks, the WHOLE lot of its own deficits.

    The solution 2 – already started – implies you lose your “reserve currency” status in a relatively short timeframe.

    Of course, we will have a mix of the 2. Since one is so massively, and unduly, deflationist. And the second is a currency destruction path.

    100% chances that this happens. Especially, item ONE.

    Why? Because Asia, the main driver in the “great moderation” (dixit Bernanke) is changing seat due some obvious factors. Including both a “conjunctural” one, the current business cycle in Asia and a structural one. China, and Asia overall, are starting to age in a significantl manner.

    Asia is clearly on on the track to buy foreign government bonds any more…

    Exit the so-called “great moderation” of BB. Exit the life on credit for our rich countries.

    Whatever people say, the chances that is this will end up with a full monetary crash are high. The US people takes it monetary status for granted. This is a serious mistake based on wrong perceptions of the international environment and a story (an history) of success.

    IMHO That will prove impossible to correct once started…

    1. Hugh

      The US is the world’s hegemon, its largest economy, runs large trade deficits, and has a fiat currency. Yes, it is a kleptocracy, but so is everywhere else. So even in a world of highly unstable political and economic entities, it is the least unstable.

      As the world hegemon, it is not so much the world’s policeman as it is its enforcer. The size of its economy and its fiat currency are important to the flow of funds of the reserve currency.

      And trade deficits are critical to get a mass of dollars out into the world where they can serve as the reserve currency.

      So what would replace the dollar? Europe which I am sure you will remind me is technically the world’s largest economy is a rapidly disintegrating fiction. You can’t believe that a euro whose days are numbered is a serious candidate for a reserve currency. And there are simply too few yuan out in the world for it to be one either. China is afterall a big exporter not importer. There are also serious questions about China’s economy and for anyone with a passing knowledge of Chinese history, its political stability.

      A new international reserve currency whether it had fixed or floating rates would need a degree of political agreement and economic coordination that has not been seen anywhere at anytime. And in particular such a currency with fixed rates would be nothing more than a return to a new gold standard. We are seeing in Europe now just how well that is playing out.

      1. Bert_S

        I hear that the US dollar is and needs to be the world currency over and over again, but whenever I think about it a little I keep concluding that there doesn’t need to be a world currency. The only thing I can tell it does is eliminate some forex transaction fee. And central banks can do currency swaps, tho they would take on currency risk, tho these risks could be hedged in the market, or perhaps contractually. Or better yet, countries would need stable currencies.

        So I keep thinking that the meme of the Dollar must be a reserve currency and we must run deficits so the world has enough of them is another Big Lie probably invented by Trilateralists back in the 70s.

        1. NotTimothyGeithner

          Have you ever heard the term “sound as a pound?” The issue isn’t that there needs to be an official world currency such as the petrodollar we have now, but there will inevitably be one because its useful everywhere or useful in enough places. Its like how they don’t take American Express or Discover (I can’t remember the ad) at Churchill Downs.

          The real issue is the American dollar is useful from the North American West Coast to the East Coast, California and Alaska because you need it to pay your taxes. The U.S. is so big, it doesn’t need trade to be prosperous. Canada is relatively too small its more or less a sub-unit and will align with the U.S. Anyone who wants to deal with the U.S. has to have dollars, and the U.S. has genuine, unfettered access to the Atlantic and Pacific oceans which is shared by Mexico. No one else has this kind of advantage which means the currency will not be useful short of an unseen neo-mercantile empire developing.

        2. Calgacus

          So I keep thinking that the meme of the Dollar must be a reserve currency and we must run deficits so the world has enough of them is another Big Lie probably invented by Trilateralists back in the 70s.

          True, that “the Dollar must be a reserve currency” is not a given. It’s a nice benefit to the USA though. (If it acts non-insanely & maintains full employment at a good wage.) But reserve currency = trade deficit is a truth of logic. It is just two ways of saying the same thing.

          1. Bert_S

            That’s Triffin’s Dilemma, but I think it’s not such a Dilemma, as it is a plan.

            And if you are a big oil importer, a strong currency is good, but you don’t want to hollow out mfg so you can add that to the deficit as well. So that would argue for import duties on anything that could be made domestically, but that is verboten by the [false] rules given to us by the Globalists.

  4. tech98

    which serves as an excuse to transfer savings on factory workers to the top brass

    You hit upon the real cause of the perpetuation of outsourcing-as-ideology and the China labor price myth right there.

    Any theory whose net result is to increase the power and wealth of management, and decrease that of labor, is going to be assiduously promoted and propagated by the corporate press.

    1. Bob

      The largest advantage in off-shoring production is clearly not the labor, but other costs, including those related to meeting environmental regulations and–most especially–taxes. As part of off-shoring, corps set up off-shore divisions to which profits from their ventures are booked. These profits are NOT taxed at domestic rates if they are not passed through to the US-based parent company. Consider Apple’s $100B off-shored “retained earnings” as a particularly aggregious example.
      Of course, this is no accidental oversight in our tax code . . . the neoliberal corporate lobbyists worked with their political apparatchiks to ensure that it worked that way. Basically, the government both incentivized and subsidized the off-shoring of jobs in the name of “free trade.”
      I suspect wages will never fully adjust into reasonable balance between countries as long as the playing field remains so skewed in favor of “developing” nations. Of course, this sets the table for a “race to the bottom” between all nations seeking to give ever more to corporate powers in order to remain “competitive” . . .
      See where this will take us with Obama’s secret negotiations of the Trans-Pacific Partnership (so secret Congress cannot access the material, which is being written by over 600 lobbyists.) This appears to be the true form of a formally recognized corporate-dominated NWO:
      http://truth-out.org/news/item/11563-obama-says-one-thing-in-spotlight-another-behind-closed-doors
      http://www.nationofchange.org/thief-lurks-shadows-1346936485

      1. dirtbagger

        Bob is very correct on this. The whole infrastructure which a Chinese manufacturer uses is on a lower cost basis. This includes workers at electric utility plants, highway construction crews, steel mill workers, etc. Low to non-existant environmental standards also reduce the cost basis.

        On an anecdotal note, after 12 years, we are leaving China and returning to Mexico for production. Increasing Chinese costs in labor, currency exchange rates, transportation costs, and long delivery lead times (eg higher inventory levels) have eliminated or reduced most of the China mainland cost advantages for our particular product line. There is also the added factor that working with Chinese manufacturers is an extremely aggravating, perpetual whack-a-mole experience.

        Over the next 10 years, expect to see more and more companies returning to US based manufacturing, particulary the smaller, boutique manufacturers.

  5. kevinearick

    The fed, through all the misdirection, is monetizing the pension payments, in a positive feedback loop to income inequality, because the terms and conditions between capital and labor, implemented globally through the middle class, in the old economy are wholey inadequate and unrecoverable;

    Misdirection of war will fool no one that is required to implement the next iteration, and no matter how much of the middle class is eliminated by death, starvation and disease, capital will lose a relative proportion;

    The president is irrelevant, as is congress and court;

    Under no condition woll labor tolerate family law during the modernizatiom process.

    those are facts, that the fed must prove wrong.

    Enjoy the show.

  6. Narayan

    I have been watching the Global economic trends for the past 3 decades. My country is a developing country. We had high import tariffs. We had a self reliance program, and used to make things at scales where economy of scale did not help. We obtained technology through collaboration where we could not afford to develop technology. We stretched the technology know how through incremental improvements without destroying our investment, over a few generations of marginal improvement in technology.

    The the whole world arm twisted us to open up. Forced to reduce duty import barriers through international declarations. Many companies manufacturing in small scale for the domestic market died. The turnover went to MNCs. Now we have malls, imported goods, consumption culture, debt, inability to pay, unprecedented corruption. We started to earn our living by being outsourcing source. We have been riled in this too. Popular resentment in US is against outsourcing. Why the hell did your country force us to globalize and get our lives destroyed! When we try to find a alternate means to earn our livelihood, why does it start hurting your economy?

    I think we can all live harmoniously only when we base our livelihood on our local markets. You make in your country and consume in your country. Let us produce in our country and consume in our country. Don’t aspire for selling in our market for your prosperity. Increase your tariffs for import and make your imports costly. Let us do the same. You can not have the cake and eat it too.

    1. Hugh

      “Why the hell did your country force us to globalize and get our lives destroyed!”

      Why did your elites so eagerly sign on board the globalization express? Kleptocracy is not an American phenomenon but a world phenomenon.

    2. patricia

      “I think we can all live harmoniously only when we base our livelihood on our local markets. You make in your country and consume in your country. Let us produce in our country and consume in our country.” I agree that the center of a nation’s economy should be in that nation.

      We have a common enemy in those who hoard the power in each of our countries. They want everyone’s cakes and to eat them too. While US citizens benefited for a long time from the greed of our particular power mongers, we are being stripped of it all as their bottomless greed continues to trans-nationalize.

      Whatever we were before, we are now in this together. I wish you well.

    3. Susan the other

      Why did we push for global trade? Destroy our own economy? And yours Narayan? Because we have been conducting a cold war for decades. And trade is integral. World War II never ended. And the secrecy of the new Pacific trade pact is a case in point. Done by the elites of each nation, serving only special interests – whose interests are also served by military invasion and enforcement of rules which benefit only the rich… etc. Your suggestions for going back to trade agreements with protective tariffs which once worked is good. Global trade needs the haircut, not our economies. And I’m not talking trade isolation – just trade sanity.

    4. different clue

      “My country” did not do any of that. The Class Enemy Occupation Corporate FAscist Pig BizNazi FedGov did all that on behalf of its rich owners. Economic Patriots within America did not like it or support it any more than Economic Patriots within India did.

      Pro upper-class Filth like Carter and Clinton led the New Yuppie Scumocrats to collaborate with the Republicans against the Fair Trade Democrats. The VichyDem-Republican coalition was what finally got anti-American Free Trade Agreements like the ReaganBush-Mulroney NAFTA passed, for example. Till the rise of the DLC-Third Way Democrats, “Free Trade” was understood to be a Republican upper class conspiracy against the working/middle class and against the American economy.

      So economic patriots in India and America share the same social class enemies and suffer the same problems which those enemies have inflicted on our two respective countries.

  7. Henry

    You shall have read some reports from China. I remembered one story in the article: a young woman can not wait to get back to her factory in a distance city during her Spring festival break at her farm family home. One simple reason: No hot shower and can not do it everyday.
    The living standard for most chinese are so much behind US. And there are so many chinese (also indian too). Obama said it clearly, they can have the same style of the life as US. The earth can not afford it.
    If you believe we will eventually reach a fair level. Then we have to share the limit resources, the higher living standard will be lower, the lower will be higher. Isn’t that simple?

    1. Susan the other

      Henry, I agree with you. All the people I know – all of them – also agree with you. Resources are limited and the environment is fragile. Life style needs a remake which is dedicated to conservation of energy, resources and to a cleaner planet. One of the little problems with this is that much of capitalist profits are made not only at the expense of people and labor, but the environment. The environment is not valued. That must change too. I am most worried about the rush to develop Africa going on now.

  8. Working Class Nero

    This post makes no sense to me. There seems to be an attempt to state that falling worker’s wages are not “China’s” fault because, although Chinese wages are quite a bit lower than US wages now, someday they will increase due to inflation (true enough). But two paragraphs down it is stated that as Chinese wages rise, capitalists seek even cheaper labour elsewhere in the third world! And of course unmentioned is that China is only offshoring its lowest status factories and as it moves up the development ladder it will increasingly compete with the first world in more advanced technology, eventually driving down wages in these areas as well.

    So instead of focusing in on China; let’s just say the process of Globalization — both the offshoring of first world jobs to third world countries, along with the importation of third world labour into first world countries — is the main reason American worker real wages are falling.

    1. Yves Smith Post author

      Reading comprehension fail.

      The post stated clearly that the markets with lower wages than China didn’t have enough workers to apply pressure to China’s wages. That means they don’t pose a meaningful threat to US workers either.

      1. Working Class Nero

        Reality comprehension fail.

        As Chinese wages slowly rise, capitalists have a choice; repatriate the jobs to the US or go to even cheaper third world countries. The fact that this cheaper labour option exists does indeed put pressure on both US wages and the total number of jobs in the US. It makes no difference whether these other third world countries affect Chinese wages or not. You seem to be locked into a framework where the only workers that can impact US wages are Chinese.

        1. Yves Smith Post author

          Did you read the post, or just the headline?

          First, it was Chinese manufacturers, mainly low end textiles, that were moving to Vietnam and Bangladesh. I believe there has been a bit of higher valued added manufacture, such as car parts, in Vietnam, but my impression this has been done more by Japanese and Chinese manufacturers than Americans. This was happening at least 4 years ago. And if you read the post, the reaction of US manufacturers as Chinese wages continue to rise is NOT to go to these lower wage countries, but to repatriate to the US. This suggests that (as indicated in the first paragraph of the post) that the tradeoffs of offshoring are often not compelling, and the repricing of Chinese labor, plus the fact that “reshoring” is now fashionable, is allowing US manufacturers to undo moves that likely weren’t great winners from the outset.

          You appear to have ignored completely the point about how small a % direct factory labor is of total product cost. So again, “reading comprehension fail”.

          1. jonboinAR

            Look at Bob’s comment, above. He says it never was about labor but was a tax dodge enabled by, I guess, corporate flunkies in Congress. Could someone address that angle further?

          2. KnotRP

            Yves, I respect your posts, but you literally don’t know what you are talking about, here. Apparently, Garbage In, Garbage Out. I’d advise you to seriously question the total crap you are being fed by whomever is feeding it to you….it doesn’t match reality in the slightest.

            It’s comically uninformed.
            It sounds like something an economist would assert, though.

  9. Bert_S

    From my view off shoring has been going on for 30 years, so I think I’ll wait for a little more evidence that the Renaissance is upon us.

    And that 10%-15% labor content figure is very low and must only apply in the case of either very capital intensive industry, or industry that doesn’t have much value added (high material cost) like electronics assembly. Then there is a lot of non-direct labor in factories too. Somebody has to make the brass look good.

    But I would add health care costs to one of our competitive disadvantages as well. GM always cited that reason for putting plants in Canada.

    I would still like to see import duties to insure it does happen. The obvious thing I see coming is corps will try to leverage this for tax cuts. They are already below 20% of total USG revenues, but that’s 20% to get in their view. If you have import duties you can turn the tables on them because if they offshore, then they have to buy their way into the US market, as it should be. And we should be raising corp taxes, not lowering them. Unless you think the middle class needs to pay more.

    1. Yves Smith Post author

      No,I’ve seen that in industries I’ve looked at and various manufacturing experts have agreed with that estimate. For cars, the number is under 15%, IIRC about 13-14%.

      Raw materials is a bigger cost than direct factory labor. You also have factory overheads (basically power, heating, and the biggie, capital costs, also some allocated overhead), marketing and selling (another BIGGIE), distribution, corporate overheads.

      1. Bert_S

        I guess that could be. I’m an electric motor guy. It’s like sewing designer clothing, except we use copper wire.

      2. ebear

        Labor content is a misleading metric in that it doesn’t capture the skills, only the effort. Anyone can shove parts down an assembly line and turn them into toasters, but can they build the machines that make that possible, or build the machines that build those machines?

        This article points out the problem:
        http://www.manufacturingnews.com/news/09/0331/machinetools.html

        Within any industrial economy there are critical skills that once lost are extremely hard to regain. The USA has lost nearly all of these, most notably steel production, metallurgy and machine tool manufacture. Take a look at the state of the Rare Earth metals industry for one example. It would take a 10 year crash program to catch up to the Chinese in this area. Don’t be misled by articles that deal with mining and extraction. The skill is in the separation and purification. They have the technology. We don’t.

        Fact. America’s early industrial expansion was almost entirely based on imports of British steel, railway equipment and machine tools. Does anyone buy that stuff from them today? Do they even have any for sale?

        Another fact. Post WWII America had a huge advantage in industrial exports due to the fact that the rest of the world’s industrial capacity lay in ruins. Did they use that advantage to stay ahead, or did they get lazy and rest on their laurels, soaking up myths about American know-how and technical superiority? Where did the capital go that should have been reinvested in these industries? That’s a big topic around here, no? Well, this is one of the consequences.

        Good luck catching up with the rest of the world in things that really matter. I don’t even see it being discussed, much less proposed.

  10. Hugh

    Some 40 years ago, kleptocracy went from being a trait to being the disease. A major part of this shift was a class war waged against labor. It began under Carter with deregulation of industries and weakening of unions. But the most fundamental blow against labor came from Volcker followed by Greenspan and Bernanke who treated any wage gains by labor as inherently inflationary and to be suppressed. The natural result of this was that wages for the bottom 80% of workers went flat and virtually all the benefits/profits from gains in productivity for the last 4 decades went to the upper 20%. Propagandistically labeled “Right to Work” laws and offshoring of jobs were just icing on the anti-labor cake.

    1. different clue

      That’s certainly for for consumption OUTside America to be produced OUTside America. By the same token, consumption INside America could certainly be more supplied by manufacturing INside America, as it used to be before the era of Free Trade Sabotage and mass jobicide through forcible outsourcing so that the outsourcers could work the differential costs arbitrage rackets against their American consumption targets.

  11. Rik

    1. The Norm has changed. Laborcosts everywhere were not too long ago compared with laborcosts in the West. Now in many sectors there is a sort of worldmarket. And laborcosts everywhere will have to be compared to that.
    2. Western workers have used their sort of monopoly position to demand relatively high wages in general. And the system worked. Likely wages however were higher than in a long term worldwide equilibrium.
    Now we see a lot of competition from low wages countries. Huge competition there. So now likely worldwide standard wages are below a long term worldwide equilibrium. And probably for a few decades to come. Most of India has to pick up, the Western half of China, most of SE Asia, Afrika.
    3. To put a factory (or other work) somewhere has many variables. But on the costside not only wages, but also:
    -easy to get licenses;
    -taxes;
    -costs of factory set up;
    -infrastructure to suppliers;
    -cost of supplies;
    -extra costs to operate 24/7.
    It is simply not only wages. The West had all the stuff in house before (and the rest had not) now it is often the other way around. Plus rapidly growing markets.
    Furthermore this is a relatively slow going process. You need to hire and educate staff, build the factory etc. And cannot close it easily as it would mean a huge write off.
    4. The lower part of the labor market in the West is simply not properly working. And in say Europe much worse than in the US.
    Welfare gives people an incentive not to work and a lot do and become structurally unemployed. Others are simply nowhere fit to do a normal job. Anyway with a semi to full welfarestate like the US this has to be financed and increases taxes for businesses and other workers who subsequently become more expensive.
    Immigration often solves this point, but is generally related to illegality and tax-fraud.
    Tax wise lower income immigrants costs considerably more for the state than what the contribute in extra taxes. And often in large parts after a period show the same taxwise completely unprofitable behaviour as the original (local) lowerclasses.
    China doesnot have that problem. In China and Co the poor/lower classes are a source of cheap labor, while in the West they are a drag on the rest(a social Southern Italy). A huge social problem , but a huge economic advantage.
    Education level at the bottom 10-20% of the labormarket is very poor also in the West. Often this percentage looks lower because these people are put in special regimes (basically working most of the time like welfare) so they donot mess up the numbers.
    Social mobility in this group is extremely low. This group effectively has better facilities for moving up via a proper education than say 3/4 of a century ago, however unlike the big masses in early 20th century who (in general)took the possibilities and moved up (or their children did) this group doesnot.
    A solution has to be found to get rid of this as a drag on the rest of society or society must be able to keep paying for this (and with near zero growth see their own spendable income decrease).

    1. Hugh

      You are missing the point that free trade and globalization are just cons to disempower workers, aid in their looting and their subsequent dumping.

      Your contention that welfare disincents its recipients from working followed by the canard of structural unemployment are neoliberal tells. Do you really think that Chinese peasants fresh off the farm have skill sets that American workers lack? Or is it that they are just so much more easily exploited?

      I guess you could say the same thing about paying American workers high wages. It would disincent them from working harder. So following your logic paying them shit wages, loading them up with debt, and stripping their jobs of any stablity should encourage them to work harder.

      And by the way who really have been the major recipients of welfare in this country over the last 40 years? I will tell you: Corporations, the rich, and the elites.

      Finally, the rich and the elites don’t work. They aren’t productive. They extract. Why should we as a society subsidize them? The real drag on society isn’t the poor. It’s the rich.

      1. Susan the other

        My takeaway from Yves’ analysis here is this: The world is saturated with goods and services and it is pointless to push any more production. Whether here or in China. Blind competition is not going to get us anywhere. We need “new domestic economic policies” to match new realities: Ghost research parks; China’s merchant fleet looking to black market their cargo, Home Depot coming home to roost. Homecoming is nice, I’m glad to see it, but what we and the whole world need is policy. She says: “Japan warned us early on that the biggest mistake it had made was not forcing its banks to recognize losses.” Our banks are holding on to the old paradigm with the hope that they can still make a profit. But I still think our biggest glitch was an ill-advised war in the Middle East – because we are now caught between a rock and a hard place.

        1. jonboinAR

          I have to respectably disagree that production-wise, we are necessarily oversaturated at present. The supply/demand problem, as I see it, is that American factory workers have been replaced by factory workers overseas who aren’t paid enough to purchase the products they make. Meanwhile, our former factory workers are now collecting unemployment and also can’t afford to consume. I think we have to force the owners of the overseas factories to either pay their workers a consuming wage, or move their factories back here. I think we can force them to make that choice through some kind of creative tariffing.

          1. different clue

            I believe we are legally prevented from doing that by our membership in NAFTA and the WTO and by our passage of MFN status for China, plus any more recent Free Trade Agreements which I haven’t been diligent enough to even keep up with. Obama’s precious Trans Pacific Partnership, even now being negotiated in secret, is designed to impose more and worse of the same on us.

            The only way to regain the legal ability to impose the creative tariffs you speak of would be to abrogate NAFTA, re-outlaw MFN status for China, withdraw from the WTO, and cancel every other more recent Free Trade Agreement we are currently bound by.

            Of course the Class Enemy Occupation BizNazi FedGov and its visible Republican-VichyDem coalition frontservants will not allow that as long as they exist. So if the American thingmaking economy and society recovers to pre Free Trade Era status anyway over the next couple of decades under the Free Trade Occupation Regime, then my argument will stand entirely disproved, and you can all laugh at me as much as you like. Twenty more years of more of the same trade-policy-wise should definitely prove me right or wrong.

  12. Gregor

    Yves, I have a question:

    “Time to blame the real perps, our bank enablers, rather than the poster bad guy, the Chinese wage slave.”

    If that is true, why is Apple outsourcing to Foxconn instead of producing in its home market?

    Apple is not depended on band loans and could easily pay for new factories (just like Intel does). Without a cost advantage in China and similar commodity prices around the globe, iPhones should be manufactured in the US.

    What is Apple missing, if your analysis is correct?

    1. Bert_S

      Capital investment in facilities…which will be problematic at this point for everyone. Of course Apple could surly afford it, but if you don’t have to spend it, then there is no reason to….

  13. Calgacus

    You are missing the point that free trade and globalization are just cons to disempower workers, aid in their looting and their subsequent dumping.

    Yes, free trade & globalization, as they have been carried out are cons.

    But it need not be that way. A JG, functional finance spending to maintain full employment. Problem automatically solved. The US decided, by forgetting, ignoring real economics, to lower US wages. Nobody else could have.

  14. ebear

    LOL

    Americans can’t handle the kind of low-end repetitive work that the chinese are famous for. They’ll have to import Mexicans and Salvadorans to do all that stuff.

    Meanwhile, India and China have at least 4 times as many people enrolled in trade and technical schools. So, where’s the US skilled labor going to come from to compete with that?

    The sheer number of people world-wide aspiring to a standard of living approaching that which most Americans take for granted dictates against a US economic comeback any time soon.

    You people need to get out more often. It’s a lean, hungry world out there.

    1. Bert_S

      I think you have a point there. I can’t imagine an Ivy League graduate denigrating his/herself that way anymore after getting that degree in poly-sci, econ, or financial engineering.

    2. patricia

      And until all USians are as lean and hungry and happy to put in 12hr-days in demeaning work (just like you do!), you will continue to growl grouchy ebear stuff at them.

      1. ebear

        And until all USians are as lean and hungry and happy to put in 12hr-days in demeaning work (just like you do!), you will continue to growl grouchy ebear stuff at them — patricia

        It’s my job to growl grouchy stuff when I see nonsense disguised as erudition, and yeah, it’s only my opinion – just like everyone else I’ve got one.

        Frankly, you betray yourself. There are no demeaning jobs, just demeaning attitudes. All labor has value, and all workers are deserving of respect. Enjoying the fruits of your own labor is one thing – looking down on others while enjoying the fruits of theirs is just crass.

        1. F. Beard

          There are no demeaning jobs, … ebear

          Wrong!

          Dis Nazi guy’s concentration camp where the inmates made rocket fuel from human waste got bombed. He (Nazi guy) say “Move rubble to north end of camp.” Dey (dey inmates) obeyed. Next day Nazi guy say “Move rubble to south end of camp.” Dey (dey inmates) grumbled “Stupid Nazis, dey be dumb” but moved the rubble.

          Day after day, dey move rubble from one end of the camp to the other. Dey go crazy and charge the barbed wire. Dey get shot down.

          Moral? We doan need no stinking JG!

        2. patricia

          ebear: “There are no demeaning jobs, just demeaning attitudes. All labor has value, and all workers are deserving of respect. Enjoying the fruits of your own labor is one thing – looking down on others while enjoying the fruits of theirs is just crass.”

          What is crass is to conflate respect for humans with the demeaning work that many of them endure for the “privilege” of food/clothing/housing. Might as well say that there is no demeaning slavery, just demeaning attitudes towards it.

          It smacks of the very thing you are grousing about—lack of genuine knowledge (or empathy) for how it feels to be in such a compromised position that one is made glad to repeat the same small hand-movements for 12hrs a day in order to have basic needs. You are trying to make slavery pretty in order to, somehow make us feel guilty.

          FWIW, I spent a few childhood summers in the fields with the migrant workers, sun-up to dusk picking berries: straw, rasp, blue. Alongside other children who had huts to go to afterwards, stuffed full of pesticide-laden fruit.

          You are clueless about a great deal, ebear.

          1. different clue

            Maybe ebear is personally-financially invested in working the differential costs arbitrage rackets which were engineered and permitted by Forced Free Trade. Maybe ebear is just talking his book, in which case he/she knows exactly what he/she is talking about but has good reason to conceal.

          2. ebear

            Seems I hit a nerve. Excellent. FWIW, Beard’s the one confusing work with slavery. A job is something you do to provide for yourself and your family. You may not have a lot of choices, you may even have to go north:

            http://www.youtube.com/watch?v=SBYO1ZfxxSM

            But it’s still dignified and should be respected.

            “You are trying to make slavery pretty in order to, somehow make us feel guilty.”

            You’re responsible for your feelings, not me. If I hit a nerve you should be asking yourself why, not lashing out at grouchy bears.

            As for wearing it on your sleeve, don’t your arms ever get tired? That’s directed to the congregation, not just you. “Less talk more thought.” I offer that as a slogan for the Naked Socialist Revolution that may one day actually arrive. Will you know what to do when it does? Are you laying a foundation here, or just waving flags?

            Seriously, if you’re going to pick up a red star, you should at least know how to use it. Those things are dangerous in the wrong hands, and not just to the people wearing them.

            OK, one more plug for the dignity of work and I’m done:

            http://www.youtube.com/watch?v=jywa9oK3ytU

          3. ebear

            “Maybe ebear is personally-financially invested in working the differential costs arbitrage rackets which were engineered and permitted by Forced Free Trade”

            Waaahhh… ebear the rogue trader! I love it! I was gonna wear the socialist hat for a while, but this is even better!

            Thanks…. oh, and I have a great investment for you in Colombia. Interested?

            http://www.youtube.com/watch?v=lQZZ_gp8dos

            Hey! Less singing and more work, damn it!

            heh

          4. patricia

            ebear: “As for wearing it on your sleeve, don’t your arms ever get tired?” For whom is direct honest empathy heavy and wearisome? Not me. You?

            “You’re responsible for your feelings, not me. If I hit a nerve….” You are again conflating–this time by supposing that someone who sees what you are doing would also accept your premise.

            “Less talk more thought.” Go for it.

      1. Thorstein

        Model railroad cars are not that different from cell phone or computer subassembly and assembly. $12.80/day is about a 16-fold decrease from what a Honeywell or GE paid union assemblers in the early 80′s (in 80′s dollars!).

        So accept Yves’ point about manufacturing costs being only 15% of product. Businesses didn’t need a PhD in Gaussian mixtures to figure out that saving 15/16 (or more!) of labor costs could easily put 5% of product price back into the boss’ private equity account.

        Robotics and computers have probably taken more jobs than outsourcing, but the compounded effect of that 5% every year since ca. 1980 has added up to more than a toy effect.

  15. kevinearick

    There is a reason why the old timers made labor 50%, without a second thought. where do you suppose that other35% ran off to? Look at the data.

  16. kevinearick

    What i am saying is that labor is going back to 50%, the easy way, with a middle class that learns to listen, and create distance from the debt black hole, or the hard way, with no middle class and the liquidation of capital.

  17. ep3

    yves, i worked at a trw auto parts plant making abs units for gm trucks and SUVs. labor costs were estimated at 3%.
    i would say, it could be a propaganda campaign to lower wages via “well the chinese make less, so should u. GO GLOBAL!”

    1. ep3

      i would add yves, remember the favored perk of businesses here, the wonderful tax breaks they get by making communities bid against each other for plants.
      besides, plants can just set up across the border in mexico. that isn’t such a far drive.

  18. Eric L. Prentis

    Citizen demonstrations against another country’s actions (e.g., the Diaoyu or Senkaku Islands dispute between China and Japan) and workplace sabotage (e.g., Chinese factory workers installing malware on new computers sold in the US) are the vulnerable downsides to efficient globalization.

    Supply-chain-management disruption of a just-in-time system will be the world economy’s undoing. A systemic global depression is coming.

  19. Curtis

    It is too bad that people don’t pick up on Gordon’s comment. That is the beginning of the discussion that needs to occur. At least Gordon tried. Please read Energybulletin.net or Archdruid.

  20. alang

    Yeah, that is why they and the rest of Asia continue to rig their currency and peg it to the dollar. While it may be true there are no more jobs to gut having gotten most of the USA manufacturing your and AEP entire premise is little more than propaganda. It is balance and fair trade not this ‘rigged or managed’ trade that give Asian companies distinct advantages (hey unlike you I read the WTO agreement). Economists, always the shills for the bankers and deindustrialization of the USA as that is what the Royal Institute of International Affairs in England instructs the Shadow Governors at the CFR to do. Free trade was actually a prescription of Karl Marx to destroy market based economies. Karl thanks you from hell for helping bringing about the destruction of the USA and capital market systems. You should read Ross Perot, he knows a lot more than you ever will admit to about ‘free trade’. PWC, yeah there is a name Americans trust like Arthur Anderson to tell the truth. India is a currency rigger, Hong Kong is, Malaysia is, Vietnam is, and China is. And that is not ‘free trade’ even by the hack definitions you economists use. China has no pollution or labor standards to speak of, and Obama has added a massive new tax to labor with his Obama-care on top of already too high social security taxes on labor. You’re not even in the ball park of rationality or honesty in discussing how ‘free trade’ has deindustrialized the USA and how it is not really free trade, but rigged and managed trade. I have nothing but scorn and derision for this article and it many false premises and conclusion. Most Americans recognize, AEP is MI6, as he’s admitted as much in the DT over the years, and that outfit has much ‘cred’ as the CIA. He is financial propaganda like much of the media and many of the so called indy blogs

  21. avg John

    Technology has greatly changed machining, assembly, fabrication, and other manufacturing operations and there has been a steady trend of reduced direct labor requirements in manufacturing for years.

    It would probably serve a company well, to do a current cost-benefit analysis of off-shoring vs on-shoring. Building new state of the art computerized manufacturing and milling plants on-shore, could serve a company with the ability to leap frog over an off-shoring competitor’s perceived cost advantages, if the competitor is locked into technology employed off-shore, of say only 15 years old.

    Take a state of the art milling, lathe, or drilling machine for instance. Basically all the machine requires, given the latest technology, is feeding in the CAD representation of the part to be machined, set up for the raw or semi-finished part onto the machine, with sensors to ensure safety and accuracy, and push a button. Voila, you have a finished part that meets specs within 10,000th of an inch of tolerance. I am not saying it requires no skills, just a similar yet different set than what old Dad or Grandpa employed.

    Of course, you are going to require people with skills to operate and repair computerized machines, work with CAD software, and such. And you will still have requirements for support jobs such as cost accountants, stores clerks, quality control, security guards and safety personnel, etc. So you reduce direct labor costs even further, but the trade off is (hopefully) less waste, higher quality, reduced lead time, etc. And these support jobs are sources of revenue badly needed by the middle class and local communities.

    I will admit upfront, that I have never been to China, so I cannot say with certainty what the requirements for safety, environmental protection, and so forth of Chinese manufacturers. But I am certain that China aggressively employs monetary, fiscal, regulatory and trade policies to ensure their dominance of a wide variety of products and industries. We live in a competitive world, and that is the reality, like it or not. And we can view China and the rest of the world as competitors, but we don’t have to view them as enemies.

    But the middle class does not stand a chance if they have to compete, not only with countries that adopt policies to ensure they capture entire mnufacturing industries, but crooked 1 % Wall Street and multi-national out-sourcers, inept or captured politicians and beauracrats, and archaic institutions, as well as government fiscal and trade policies that fail to even recognize, let alone address, solutions to this economic melaise we suffer under.

    The problems we face are structural and printing money and running up deficits till we run out of zeroes is not going to fix it. I’m not an economist, but even I can see that.

    1. different clue

      The trade policies were designed to create this malaise we are under. The purpose of Free Trade is to exterminate the Industrial Union Movement by exterminating as much unionised industry in this country as the upper class front Republican VichyDems feel they can get away with destroying short of provoking mass lash-out anarchy on the part of millions of heavily armed jobless hopeless citizens.

  22. Dave

    Yves evidently misses the reason labor costs are only 10 -15%. This is mechanization and automation in progressively increasing amounts. Therefore the percentage is going to get even lower. In other words, productivity is going up. In other words, there is no hope. Any jobs “brought back” are fewer in number due to digitalization. Ranting against the profits of evil capitalists will do no good, as it is technology reducing the demand for labor, sometimes even among the ranks of the capitalists.

    Perhaps Yves would be in favor of giving all the workers hammers with which to destroy the computers?

    1. hermanas

      My main obstacle developing cadd and mapping software in the 70′s was not the tech. but business ethics: hint,”It’s unethical, but not illegal.”

    2. Capo Regime

      Ives does not miss a thing.

      You don;t know the economics of production. The capital labor ratio has since 1890 ranged in different industries from 2.50 to 300 with a historic mean of 31 across sectors. Labor is a small part of the cost of production.

  23. lark

    There is more than one channel for transmission of the chilling effect of China on American wages. One you don’t mention. It is the threat of job loss. It doesn’t have to happen, it merely needs to be a credible threat.

  24. Tim

    Well, until the last LLC (Low Cost Country) has raised it’s standard of living and environmental protection to the point that we are competitive the neo liberals will still be technically right.

    Until then Textiles and plastic sh** will still be made cheaper someplace else.

  25. John Miller

    Not a myth folks — read Dean Baker (U Mich economics PhD, co-founder of CEPR)

    This isn’t complicated: take a look at Detroit/Youngstown/E.St. Louis. NO INDUSTRY = EXTREME POVERTY, EVERYWHERE, ALWAYS & FOREVER

  26. sgt_doom

    OK — then let’s forget all about tha Trans-Pacific Partnership, all the free trade agreements, Obama signed, and many more signed by Clinton, who then left the presidency to make over $100 million in lobbying on behalf of the jobs offshoring industry — and let’s forget the offshoring of all those jobs from each and every “jobless recovery” (we’re officially in the fourth one) as they restructured the jobs base downward and temp.

  27. greg

    Too simple. The trade deficit with China costs the US millions of jobs, and puts downward pressure of both wages and the possible revenue domestic producers can earn in the US.
    See:http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html

    However, the fact is that US elites are at least unable, and more likely unwilling, to stop this deficit, is the main factor. Check out the secret negotiations on the whole Trans Pacific Partnership. Let me reiterate Bob’s link: http://www.nationofchange.org/thief-lurks-shadows-1346936485 That will really gut the economy. Our kleptocratic overlords just can’t settle for enough, and are strangling the goose (us) for even more of those golden eggs.

    1. different clue

      US elites are unable or at least unwilling to stop this trade deficit? US elites deliberately engineered this trade deficit into existence, deliberately and on purpose, with evil malice aforethought.

      Why would they ever “correct” a trade deficit which they have done so much to create in the first place? What was Clinton’s MFN for China even for in the first place to begin with?

    2. Calgacus

      The trade deficit with China costs the US millions of jobs, and puts downward pressure of both wages and the possible revenue domestic producers can earn in the US.

      No. The elite decision to not accomodate the trade deficit enough, e.g. to not lower taxes, for a trade deficit acts exactly like a tax, to force unemployment and low wages is what costs millions of jobs and causes low wages. The elite decision to propagate innumerate, moronic “economics” with fancy symbols & pretend-mathematics, but uh, no logical arguments in sight.

      A trade deficit is a Good Thing basically. It is a merchant allowing you to buy stuff on credit. The smart thing is (a) buy good stuff & (b) don’t buy bad stuff (e.g. crack ) . And (c) when you get the good stuff you get from the merchant – use the time that you now have from not having to make the merchant’s good stuff yourself, by making & doing OTHER GOOD STUFF.

      Do not: tie up the arm that used to make the merchant’s good stuff. Do not say: “BAD ARM!” “UNCOMPETITIVE ARM!” Above all, do not listen to crazy people who say that the arm will be given orders by “the invisible hand” (? – brains give orders to arms, not hands, silly) and will do good stuff all of its own, while you just sit back & smoke the crack that they just sold you.

  28. Abelenkpe

    It’s not just wages. China offers subsidies to businesses that open offices there. Aka they bribe companies to set up shop.

  29. Maofucious

    “Time to blame the real perps, our bank enablers, rather than the poster bad guy, the Chinese wage slave.”

    Except the bank enablers also happen to be Chinese…

    But I don’t really believe the PWC report. The trade deficit persists, so the proof is sort of in the pudding. Wages in manufacturing are rising, but that leaves a lot of other things. First of all, because of financial repression, Chinese manufacturers don’t have to meet any capital hurdles. So they can hire the workers back after the foreign companies fire them for being unprofitable, which isn’t really a factor on the Chinese side.

    Besides that, China has been planning for years for the day when the low wage manufacturing slavery would end. They have now created a new type of low wage slavery for college grads. Salaries for new college grads are now the same as these manufacturing wage slaves – and for a much higher value skill set. So while the costs rise in one area, which PWC documents, value is rising in other areas, in ways that are harder to document.

    Finally, the trade deficit isn’t just about stealing jobs, but ending opportunities for new jobs. If China imported our stuff, then the US might have a viable export economy.

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