Sunday, July 6, 2014
Demagoguing the US Dollar to Increase US Labor Wages
Demagoguing the US Dollar to Increase US Labor Wages Is Chinese "Slave Labor" Wages Really the Problem? Lex Loeb Contributor Network . China is two countries in one. The average laborer in rural China is lucky to be earning around 50 cents per hour converting their Chinese currency into US dollars. That wage is not only a sustainable but it affords people the ability to earn a very basic living. The Chinese rural living conditions are generally improving because electric power and cell phones are becoming available. Machines that plow , seed and harvest are also creating conditions of unemployment in rural areas driving more people in China into cities the same way it happened in the US and Europe earlier. In the US before 1890 more than 50 percent of the population of the US was in agrarian existence of farming and ranching. After the big industrial revolution to the present we have less than 2 percent of the population living out in the farms and field because so few people are actually necessary to do the old jobs with the mechanical means now available of doing it more efficiently and cheaper than ever before. China has the exact same type of trend today only it has been delayed because of the disaster of communist Marxist agrarian theory that created inefficient collective farms that ate more people's lives than it lead to production or advancement. China is now fast catching up. China attempted to stop the migration of the rural people into the free wheeling cities growing up in all corners of the state by limiting the number of people who could arrive to work in cities with permits. Younger Chinese people will continue to migrate to cities where basic pay can start at more than 2 times the rural pay for the same amount of work. This means that China has an almost inexhaustible supply of cheap ready labor and because there is such a thing as supply and demand it is not a very good means of raising wages short of having inflation raise all boats at once with price level rises. There is thus no way that Americans can ever hope to compete with the Chinese in the short term by causing Chinese wages to exceed US wages short of devastating the US economy to level the playing field which is the popular demagoguery way to say it. Lets say we were to let the dollar be devalued by about 50% verses china's currency and then all other world currencies. We then the wages for rural unemployed workers in China would rise from 50 cent to One Dollar! Would that make the US more competitive or less? It would not really do a damn thing about US competitiveness and probably would have more devastating effects to the US economy than any gains from inspiring foreigners to import us goods. The reasons why? Well first of all prices would immediately rise in the US starting with imports from places like China but they would not rise as fast as inflation would . Remember the Chinese rural laborer can temporarily buy some US goods say a gallon of gasoline from a US exporting company like Exxon for $4 an hour and then only have to work 4 hours to pay for it and not 8 hours. That is while the price of gasoline actually remains at $4 which it would probably not for long. A massive us devaluation would likely lead to gasoline prices in the US rising from $4 a gallon to $8 a gallon and more because of market over compensation of fears of more inflation due to the unpredictable behavior of government having a devaluation policy in the first place. Ultimately the rural Chinese wage earner will end up paying 8 hours of work to get a gallon of gasoline as minimum wages in the US will have to rise from around $8 on average to $16 so that US wage earners get 2 gallons of gasoline per hour of work once again. That is what ultimately happens with inflation. Wages rise to compensate for the devaluation of the currency either that or the economy comes to a halt and deflation could set in instead because of fear and panic. Why is it so unfair that Chinese laborers should only get around 50 cents to $1 for basic rural labor and in the US people on average earn at least $8 an hour for the same kind of work? It has to do with supply and demand and also with productivity and the advancement of capital resources over a long time as they compounded annually in the US . Higher average basic wages are a similar phenomenon in a lot of "developed countries including Japan, Europe , Taiwan, South Korea etc. Supply and demand has always favored higher wages in the US just because there is more work to be done than people to take the jobs to do it on a comparative basis with say a banana republic in Central America where there can be as much as 80 percent chronic unemployment. Part of the reason for that is over population but only compared to capital investment available. There is usually no mass starvation going on in banana republics with ultra high unemployment levels. Everyone seems to find food for subsistence at least and the prices of food tend to be lower than they are in developed countries or at least it should be. That limits the type of food available to less expensive alternatives including beans as a staple. The reason for such high unemployment in banana republics is not that people are lazy or that work is just seasonal with harvests but that there is no outside capital investment in those countries and no capital retention because of corrupt governments who tend to have a constant sequence of massive currency devaluations in attempts to seize property for redistribution. The act of attempting distribution as often as happens in these banana republics leaves them capital deserts with excessive joblessness because the money of any remaining rich people in the countries is deposited in foreign bank accounts or is tied up in real estate type holdings that can completely resist the devaluation and float at values that are unaffected by their government's zeal to steal that is until those governments have a next wave of property confiscations for nationalization or zapata's redistribution. With that kind of government behavior then no one not even the political elite will sink much of any money from their foreign bank accounts or from loans from foreigners into building up the properties to make them productive. There is no sense at putting money at additional risk. This is the whole reason why China is a rural basket case economy outside of the free wheeling capitalist cities today. Communism had the effect of reducing China into the world's biggest basket case economy before capitalism was re-introduced and the effects will take yet another 50 to 100 years of compounding capital to actually catch up to the most developed countries by means of compounding productivity and capital resources. China still has a basket case economy mentality when you see their government hoarding US dollars and other foreign currencies in so called sovereign wealth funds instead of spending that cash and borrowing more money overseas to move the economy faster ahead sooner. It shows the government does not trust itself and it puts those sovereign wealth funds at the mercy of American Political demagogues who insist that devaluing the US currency by one means or another is the way to get more US Jobs. Nothing can be further from the truth as explained with catch up inflation that occurs in any devaluation as witnessed in basically all banana republics that ever tried it. Donald Trump can bad mouth the Chinese as cheat to get political head winds behind him as a populist but reality says that Chinese goods that are imported by companies like Nike and Apple Computers return 4 to 10 times the value those companies pay for the outsourced labor imports and shipping costs back to the US. The demagogues can go on and on about how China manipulates it's currency when the US is the biggest currency manipulator on earth especially with the ongoing presence of inflation in our own system. So if Chinese currency rises against the dollar as it eventually will all by it self but faster because of a US dollar devaluation and US companies importing goods for $2 an hour instead of 50 cents an hour is the result the Chinese will still retain the labour advantage with the constant relocation of workers from rural china where there is no need for their employment to the rich cities that can pay them more. The Chinese workers will work harder doing things by hand than American workers will. They are willing and able getting $1 or $2 an hour instead of 50 cents an hour back on the rice farm can allow them to sleep in a make shift bunk house in the city and even send money back to their families on the farm. What they work for gives them value for their time in an economy with generally lower commodity prices for consumers that they can afford. If the Chinese were really slave laborers they probably would quit working if what they worked for bought nothing. It definitely buys a better life for them and a much better life for the city professional classes and industrialists with the communist party government being the same kind of parasitic denominator of society our government is always being certain the right people are getting their cut. There are academic economists who have allied themselves with the banana republic demagogues of America who are constantly calling for US dollar devaluation or replacement with a world currency called the UN Esperanto or the Soros in an absurd effort to use feelings of guilt to somehow gut the US economy in favor of universal wages . American wage earners beware if they were successful you would be earning 50 cent an hour equivalent and have the choice of two kinds of beans you can subsist on at your local super market that you can afford. The capitalist class in America is smart enough to immediately transfer their capital overseas the way rich people do in all Banana republics and that is what really could lead to a massive unexpected deflation and not just an inflation where US wages would fall or could fall. That would be a world phenomenon felt everywhere including in China because commodity prices would fall precipitously which would have all kinds of industries crashing and burning until the bottom was reached and the survivors find they can rehire us workers at 50 cents per hour. More likely real wages would decline and inflation would consume everything with unbearably higher prices meanings wages would just barely rise to keep up. Imports would be more expensive causing a glut of unused labor in place like China which means that supply and demand is artificially messed up in the US and the Chinese and many banana republics still have much cheaper than US labor rates because they just have a larger unemployed population to start with. That could change for them if the US capital resource fleeing the country go into positive investment in those other countries. Then they eventually could end up with the higher wages than the US, The demogoging of China and its "manipulated currency" is thus a total crock, When our banana republic politicians offer us a free ride by devaluing US currency we end up with inflation and higher prices and at the same time causes benefits to accrue to the competing labor pool that has a deeper supply of wage potential in it's undeveloped rural areas. Then we also have the Donald Trumps demagoguing tariffs which are just taxes paid to the US government making goods more expensive to US consumers raising unemployment in china and maybe effectively lowering wages at the margin there as a result. The whole world system ends up with less production and consumption as a result which is the net reason for the main cause of the great depression which was country after country creating trade barriers and making inefficient industry temporarily possible in countries where it can't really compete in the long term. It is one thing to bash the Chinese for their absurd commercial restrictions that hit us firms favoring their own industrial policy and another to do what they do with is actually more to their own detriment than benefit. Crony capitalism only will benefit the demagogues in the short run and the cronies and never the people, wage earners or consumers. The most laissez faire government have actually allowed the most wealth to accrue in their countries with the longer capital accumulation and productivity can compound over a great many years the more developed and wealthy a country becomes. Just look at the difference between wages in China and wages in Australia. The Australians are doing very well mining natural resources that the Chinese will pay record prices for. Those record prices for raw materials are only due to world consumption of Chinese goods and not just Chinese demand for product. Because so much US industry has moved certain kinds of labor intensive work to China with the US importing much of the finished product the gasoline that China is forced to import at ever higher prices compared to basic over supplied 50 cents an hour labour rates is actually gasoline being imported effectively by the US not by China. China cannot exactly afford the gasoline they are having to buy to run all of their machines that require it. The US is also finding it can export raw materials to China at very lucrative high prices keeping people employed here at much higher wages. Why would the Australians want to devalue their currency if the Chinese will pay a premium for goods priced in the Australian dollar enriching their economy?: Why would we listen to all of our demagogues and shoot ourselves in our head either because we listen to them? China is manipulation nothing about their currency that has any detrimental effect on the US economy . Even George Soros Knows commodity prices adjust to inflation and all currencies are capable of being exchanged at floating or pegged rates. China is doing harm to it's economy pegging their currency to the dollar and then paying more than necessary for raw materials sometimes. That does not mean it is a better policy to peg their currency higher to attempt to get more for less because foreigners who are trading are keen to the value they are getting in the exchange. Even speculators are not in business to lose money trading with China regardless of how they manipulate their currency. If China does not have control of oil the way Saudi Arabia does they cannot manipulate prices in a cartel that way They can manipulate the price on say Chinese tea or rare earth minerals at least to the point that foreign competition does not take advantage of the higher price levels they create. The solution to dealing with China is to give them maximum freedom to invest here so their capital migrated here when they do dumb things instead of having our capital migrate there generating real productivity growth there instead of here....not exactly because if us interests can own productivity growth in china then we Share in their success and they also share in ours. Next time you hear the demagogues blasting the Chinese manipulation of this or that and the need to devalue the dollar or replace it just think about the consequences as not really being intelligent. It is not as if we don't already know most of the unexpected consequences of the demagoguery! We do we have the results of many banana republics including communist china, communist Russia and failed states in Africa , Asia and Latin America to illustrate the know nothing ideas of the demagogues. We even have the illustrious story of Japan's rise after world war II only to fall into a kind of 20 year stagnation of deflation with all sorts of artificial government policy dictates protection local Jobs and local capital only to see the US come back as its most powerful competition. The national economic policy favoring exports in Japan has done more harm to their economy than they ever expected. Even their failure nuclear plant disaster after the great earthquake of March 2011 has to do with Japanese aversion to importing fuel to run their electric industrial economy and Tokyo. The national economy policy only seems to have done more long term harm than good. China and the US demagogues should beware and should be understanding that letting free markets work generally don't result in having nearly as many unintended consequences. The main reason why? Because an industrial economic policy implies that the state can plan ahead and get a desired result. An unregulated free market makes no such plans and then cannot be judged on the basis of causality. That does not mean that the free market will not net better average results. The data is in from communist countries that all failed and from banana republics that all also failed with the most free economies becoming the most productive with the deepest capital resources and wealth. There is still confusion with the advent of the sovereign wealth monarchies like Saudi Arabia but there we are also beginning to see the unexpected consequences of repressive monarch regimes unfold. .