"Harold and Susan Vordos" wrote in message
...


Just like cheap oil, over-priced wages will soon be nothing more than
a
fond
memory. As it should be.

snip


How do we address this problem?

Harold

Harold, it's really late here, but you know I have to weigh in on this
issue. g

Just like the "right" price is whatever people will pay, the "right" wage is
whatever employers will pay. The US was in a beautiful position for many
decades, with little real competition for sophisticated manufactured goods,
and with a balance struck between wages and corporate incomes that was
working so well our growth rates, and real incomes, soared like never before
in history. At the same time, our *rate* of accumulating debt was actually
quite low, now that we understand debt and monetary behavior a lot better
than we did, say, in the '50s and '60s, and realize those debt figures that
scared us then were trivial.

You could say we would have produced more cars and they would have been
cheaper if wages had been lower. That's true enough. But the distribution of
income would have been more widely dispersed (more sharply divided between
rich and poor), which means that the market for cars would have been a lot
smaller. This is what Henry Ford figured out back in the early part of the
last century, when he doubled everyone's wages so they could buy more cars.

There is no "right" price or wage except that which allows economic growth
and a high level of employment. In a free market, those "right" prices and
wages work themselves out on the basis of where the forces that determine
them balance out. We had a lot of pressure to increase wages, but it worked
out, balancing at a high equilibrium point from the standpoint of labor. The
economy soared. What happens when you increase wages is that markets
increase tremendously -- that's why Americans bought so much crap, and still
do. g Higher wages may mean (usually do mean) lower *percentage* returns
on investment. But with a captive market for investment (the US), what are
investors going to do to make more money on their investments? Only those
things that are available to do within the economy, at the established
equilibrium of return on investment. This is it, folks, and the money has to
find investment opportunities at any interest rate available. They can't
stuff billions under the mattress.

Once you have a foreign outlet for capital and foreign producers that can
make acceptable goods for the US market, we're in real international
competition. Hello, globalization. Now the markets, prices, and wages revert
to an older state of equilibrium because there are lots of low-wage outlets
for capital, as there were in the early days of the Industrial Revolution.
Now we see again where the greater "natural" power lies, all else being
equal: with the investors. One way to look at the high-wage years in the US
is that the natural power of the investors was constrained by the power of
unions, which produced higher wages across the economy. We had succeeded in
forcing the capitalist system to perform an unnatural act: high growth with
high wages and high levels of employment. And it was sustainable, as long as
we were in our own, hermetically sealed part of the world.

Now we're racing toward a new equilibrium. People like Alan Tonelson say
we're in a race to the bottom. There is some truth in that, but don't get
excited. g The equilibrium we have now, or are racing towards, is more
like the classic one that produced huge disparities in incomes between the
haves and the have-nots. But I'm not saying Tonelson is right or that we're
headed for a Marxian denouement. What is true, however, is that we have a
situation in which GDP is growing and most of the benefit is accruing to the
top income-earners. I do suspect that we'll be able to keep all but the very
bottom income-earners from falling in absolute terms. (But we're doing it
the hard way. That's a story for another day, however.)

Of course, this is a ridiculously simplified account of what's happened, but
it's enough to illustrate the point: we've PROVEN that the equilibrium can
be moved, without destroying capitalism itself. The working people of this
country are in a *qualitatively* higher place than they were 60 years ago.
Most of us now own houses, multiple cars, and nice clothes, and can send our
kids to college one way or another (I'll report more on the reality of this
in another year or two. g). Some might argue that it was *because* wages
rose so high. It may be true. But the more important truth is that we didn't
stall capitalist growth by squeezing the equilibrium upward for labor,
putting additional pressure on capital, and at the same time we grew a
middle class the likes of which the world has never seen.

Your personal sense of value tells you that unskilled workers have been
making too much, but I don't believe it's true. Not in any economic sense.
We've proven it, by the growth we've enjoyed.

The reason we're in trouble now is that our skewed equilibrium has left us
in a very difficult place from which to compete with Chinese workers. for
example, making 80 cents an hour. That's certainly true, too. But the cost
of being "prepared" for such competition would have been years of much lower
wages for workers, smaller markets for goods, and a smaller economy overall
than the one we have now. That's a lousy tradeoff. And all of that sacrifice
would have been no guarantee that we wouldn't face the displacements we're
facing now. At best, it probably would have delayed it.

The most interesting thing to me is our demonstration of how flexible
capitalism can be, to accommodate the severe wage pressures we put upon it
for so long. We've proven that there is no fundamental reason that we can't
have an economy that works well and still produces an enriched middle class,
with a pretty fair set of supports for the lowest wage earners at the same
time.

All it takes is a hermetically sealed corner of the world in which to do it.
Those days are gone, but the experiment is fairly complete. From now on, we
proceed knowing that there is no "natural" and irrevocable equilibrium
imposed by our economic system. We've revoked it successfully. If we fall
now, it won't be because we made too much for too long. It will be because
you can't seal off a corner of the world forever.

--
Ed Huntress