Cheaper Still

Low wages are the prime reason the US economy continues to be sluggish for most of us. Suppressed income, of course, is not to be found on Wall Street, Corporate America, and the rentier class, but it has come to define much of the middle class even as the number of working poor continues to rise.

The US economy depends on consumer spending as the core of economic activity: if there is enough spending, it spurs GDP growth, if not, growth stagnates or even declines. We are, for better or worse, a consumption-driven economy. All economies are, to one extent or another, but the US is especially dependent on it.

For most of the post-war period, Japan, to give one comparison, has depended far less on consumer spending to fuel its own GDP growth. The difference was that Japan emphasized capital investment over consumption. Citizens there consumed less and saved more. All that capital investment created massive over production. That's where exports, disproportionately to America, came in. We consume, Japan saves and exports excess capacity. China and Korea have adopted this model.

Accordingly, some economists argue against policies that encourage savings. A dollar saved means a dollar not spent. While the argument is still made that Americans should save more, the counter argument says that doing so will only slow down the economy: Corporate America, small companies, and the employees that work for them all want everyone to buy their products and services. No customers means no sales, so no profits. It also means no employee paychecks and no tax revenues either.

All of which brings us to low wages; not jobs, not investment, not savings, not manufacturing capacity, but the wages Corporate America pays to the millions of jobs that already exist--it is those low wages are the at the heart of our national decay. Low wages are killing the American dream for many. Wages not only have not kept up with productivity for literally decades, but for many of us, wage declines are accelerating.

As compelling as it is, the specifics of America's evolution into a low-wage nation, complete with an overclass and mandated inequality, seem of little concern to many of us, even as we sense we have been victimized by a rigged system. It has taken years, decades actually, but the cumulative effects of neo-liberal, trickle-down policies, and their southern variation, what I call Dixification, have come home to roost.

Cheap Labor Only, Please

Manufacturing and trade news do not get much coverage in our mainstream press. Japanese obsess over trade data, as do the Chinese, Koreans, and most others who take manufacturing seriously. This is obvious from reading any of the mainstream and  business-oriented newspapers overseas.

Ours? The focus is more on Wall Street, corporate profits, and finance. Our corporate media does not want to spend much time on the implications of large, chronic, and structural trade deficits, except for the predictable paeans to free trade, how much we benefit, and how boorishly stupid you are if you are not a committed free trader. Honest analyses of how we arrived at our current condition are rare; most commentary is ideologically driven tripe that contends workers are overpaid and investors need more profits. 

To be sure, we have all read of the decline of American manufacturing. And for those who are determined to know, many websites and blogs, especially those hosted by academics, cover these subjects very well. But while complaints about Chinese currency manipulation and the hazards of doing business in China do get coverage, little is said in the mainstream media about the role of American corporations and how they turned over technology and manufacturing to China and other trade competitors, all in an effort to tap cheap labor, ignore the challenges and capital requirements of advanced manufacturing, boost short-term profits, and please the investor class.

As Chinese wages continue to climb, we are now seeing some evidence of a pick-up in US manufacturing. But a central conundrum remains: Should it be a matter of policy to promote the return of manufacturing to the US? Or is the market going to resolve domestic manufacturing, and perhaps give a boost to exports, without policy intervention?

It is hard to get enthusiastic about an improving manufacturing sector, especially in the face of new data. I once would have welcomed it more openly, but it is becoming increasingly clear that a global economy or neo-mercantilist trading partners are only secondary reasons. In other words, less blame should be attributed to cheap labor in China and more to the desire for cheap labor in the US. The current condition of the US, complete with massive trade and current account deficits, is the direct result of wealthy and well-connected purveyors of neo-liberal free markets. It is they who have hobbled government's essential regulatory role (derivatives anyone?) and facilitated the dominance of finance and the rentier class.

So there is little reason to think that newly created manufacturing jobs are going to pay very well. Neo-liberal policy wonks, along with right-wing politicians, have had a 30+ year run promoting ideas, policies, and legislation that has weakened labor unions, kept minimum wages low, undermined workers' rights and put into place an elaborate tax code that ensures that corporations will largely avoid taxes. All of that in addition to the glories of free and unfettered international trade.

All of which was always the goal. To the extent that corporations locate or relocate manufacturing in the US, it will only be in response to low wages, obscene tax giveaways from states, the absence of unions, and elaborate agreements with government officials that ensure corporations will continue to privatize the benefits and socialize that costs. If manufacturing does meaningfully increase in the US, it will only be because wages have been driven down. If wages go up, even in accordance with productivity gains, corporations will threaten to off-shore production once again.