Economic Populist Commentary

Economic commentary by a pro-capitalist, economic populist. Demand-Side Economic theory. Consists of author's economic views. Questions & comments appreciated. Dissenting views are VERY welcome and encouraged. Main "agenda" is crafting and advocacy of a "populist" economic agenda. A secondary goal is prevention of an economic Armageddon. Encouraging open discussion of US economy.

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Location: Southern California, California, United States

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

Tuesday, May 17, 2005







OUTSOURCING, SLAVE LABOR, & CAFTA

CAFTA is the latest anti-worker, pro-slavery, "free" trade bill being considered in Congress. l urge everyone to write Congress and tell them to vote against CAFTA. This is another bill designed exclusively to facilitate outsourcing of American jobs. The bill is much worse than any of the previous "free" trade bills. The flaws are even more obvious. It is a dishonest attempt by the Bush administration to portray an outsourcing bill as an attempt at "opening up markets." Central American workers are so poor they will NEVER create a market for American goods. Impoverished Central American workers, however, will provide an excellent source of cheap semi-slave labor. This new source of slave-labor will be in direct competition with American labor. The only way American workers will be able to compete is to accept the same slave-labor conditions as their Central American counterparts.

CAFTA is nothing but an extension of the disastrous NAFTA scam. American workers will lose jobs, wages will decline, and 0 new jobs will be created. CAFTA's advocates are 100% aware of this. They are simply lying when they talk about "opening up markets to American goods." In reality, what they really want is to "open up" the American labor market to competition with foreign slave-labor. Don't let Benedict Arnold corporations extend their economic treason any further. Americans must continue to stress Economic Patriotism, and oppose this new outsourcing extension.

George Bush, and his fellow "economic terrorists," continue to espouse outsourcing as being "good for America." It is not. And they know it. It helps a selected few at the expense of the many. This bill is a typical product of today's inhuman corporate greed, and its influence on the legislative process. And outsourcing is the epitome of this corporate greed.
Again, outsourcing is done exclusively so American corporations can use cheap foreign labor. The underlying motivation behind ALL free trade agreements is to enable American corporations to use the unskilled, impoverished, semi-slave labor of other countries. There has never been any real concern about "opening up markets." That is more than just a mistaken concept. It is an outright lie from Bush and the economists that espouse "opening up markets." The minuscule income of these 3rd world countries makes it impossible for them to buy American products. Bush knows this. Mankiw knows this. Snow knows this. The man on the moon knows this. Markets are created by aggregate consumer income, not people. Countries with little aggregate consumer income have minuscule-sized markets. Exporting countries that pay their 11-year old slave laborers $2/day will never, ever buy US products. Those wages don't provide enough consumer income to do so.

Chinese and Indian industries would collapse if they had to depend on their own populations to purchase the bulk of goods and services they produce. Wages and consumer income are too low for them to survive on domestic sales. They depend on the American consumer market, which is created by American wages (and borrowing).

When American industry outsources jobs, it outsources consumer income as well. This is the same income that purchases their products. Loss of jobs also places downward pressure on employed workers' wages. If labor demand decreases, so do wages. If this trend continues, America will be unable to purchase 80% of its own goods, as it currently does. Demand for goods, and the labor to produce them, will decrease further. This will further reduce consumer income and buying power. This is a self-perpetuating cycle, which will result in a continued decrease in DEMAND for American production.

The price reduction on foreign-produced goods does not make up for the income lost. It is simply illogical to think so. If it did compensate, there would be no benefit to outsourcing. Wal-Mart statistics, provided by Wal-Mart, provide some insight. A Wal-Mart spokesperson recently stated that consumers save $600/year purchasing goods from Wal-Mart. He also admitted, however, that Wal-Mart wages were $2/hour lower than those of the average retail sales worker. Here's the math: $2/hr x 40hr/week x 52weeks = $4160 per year less income for a Wal-Mart employee. However, the $4160 is only a small part of the labor income actually lost, because it is confined to retail sales employees only. Nearly 100% of the labor income from production workers is lost, since Wal-Mart buys most of its products from production facilities ouside the U.S. The loss of income by American production workers is even greater. Does $600/year in consumer savings make up for income lost by retail employees and production workers? Of course not. Aggregate consumer income decreases FAR more than prices decrease. The price savings are MUCH less than the amount of labor income lost. The only income increase is in CEO salaries and corporate profits. And that increase is entirely at the expense of the American worker. Increased corporate profits are EXCLUSIVELY from reduction in labor costs. In other words, this profit comes directly out of the pockets of American workers.

American workers are the most highly educated, highly skilled, productive workers on the planet. They produce more goods per hour than any of the workers they are losing their jobs to. But they are not as productive measured in goods per dollar. American workers lack the "skills" to survive on $2/day. We need to begin retraining them to acquire this skill. Our educational system has completely failed us here. And the ability to survive on $2/day is THE most essential job skill in today's market. We definiely need to increase federal funding to teach this "skill."

In reality, the "re-training" mantra is just a cop-out. The solution to outsourcing is not increased worker training. Nor is it increased funding to job-displacement programs. It is not extension of unemployment benefits. The solution to the outsourcing problem is to stop outsourcing. Period. Repeal ALL "free" trade agreements. We have absolutely no need for any "free" trade agreements. We already had free trade before any of these agreements were ever created. NAFTA, FTAA, CAFTA and the others have only one real goal -- to reduce the labor costs by using the slave labor of impoverished countries. This makes American workers compete with the exploited labor of poor countries. American workers then become no more than slaves themselves. Is this the job retraining Bush has in mind?

Economists speak of "comparative advantage" with outsourcing. This outdated concept is nothing but economic fantasy. It's what Right-Wing, "alternate reality" economists hide behind when defending outsourcing. They should lose their economic degrees for even mentioning this in public. It's a long, twisted, completely non-applicable concoction, which is designed to disguise the real reasons for outsourcing. Mankiw and Snow know better than to hide behind the "comparative advantage" fairy tale. Bush may be too stupid to be held completely accountable for his policies. But Mankiw and Snow are nothing but taxpayer-paid liars. The Bush/Mankiw/Snow/Greenspan "economic axis-of-evil" may destroy our economy.

unlawflcombatnt
_________________________

Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

Home: http://www.unlawflcombatnt.blogspot.com/

14 Comments:

Blogger unlawflcombatnt said...

OUTSOURCING REDUCES GLOBAL WAGES

Those who advocate pro-free trade often justify their position by stating a desire to uplift the poor in foreign countries. Not only do I oppose that position on nationalistic grounds, I question the benefits to 3rd world countries. Lack of benefit to 3rd-world countries is a point I'd like to make mainly with "liberals."

Outsourcing does NOT raise aggregate global wages. In fact, outsourcing labor costs to a low-wage country REDUCES global labor wages and income. If a $90/day American laborer is substituted for by $2/day foreign laborer, it reduces aggregate global labor income. Global labor income is what buys production and creates demand. Outsourcing reduces aggregate global labor income, thus reducing total consumer spending world wide. American workers lose income and buying power with outsourcing. That loss is NOT made up for by increase in foreign wages. This is just plain common sense. It's impossible for cost reductions to make up for wage losses.

If American workers can't buy America's production, then foreign workers need to pick up the slack. Does anyone really think that's possible? Can $2/day foreign workers make up for the buying power lost by $90/day American workers? That's $88/day/worker in lost labor income per worker. It would take the labor income of 45 $2/day workers to make up that labor income loss. Does anyone really think that'll happen? Of course not. The only benefit to anyone is the short-term cost reduction to American outsourcers, and a slight price decrease for American consumers. The numbers just don't add up. Global labor competition causes aggregate global labor income to drop. It increases the labor supply available to American corporations, and decreases worker bargaining power. This is simple supply and demand. If the supply of labor increases 100-fold, it will drive the "price" of labor down. Labor "price" reduction means labor wage reduction. Thus, the end result will be a dramatic reduction in American labor income, as well as a lesser reduction in global wages.

Outsourcing and globalization don't "raise" anybody up. It drags all workers down. Jobs will go to the most impoverished workers, and employers won't pay them a penny more than they have to. We cannot enforce minimum wage laws, or other worker protections in foreign countries. Even more important, however, is that Corporate America doesn't want to. Why would they? It would increase the price of their exploited foreign labor. The poorer the worker, the more willingly they accept poverty-level wages. Their impoverishment is Corporate America's gain.

Let's not forget that someone needs to buy the goods produced. Who will buy them if American wages drop to the level of their enslaved foreign counterparts? People can't purchase goods without income. And very low income means very few goods purchased. Demand cannnot be created out of thin air. Consumers must have sufficient income to create that demand. Without demand, there is no need for production, and no need to hire workers.

The entire world economy would collapse without the Demand created by American consumers. That demand is created by American income and borrowing. We're almost maxed out on borrowing at present. In addition, inflation-adjusted American wages are declining. They've declined 1% over the last year, and 0.5% over the last 3 months. The last thing the US and the world need is a further decline in American wages. American wage decline hurts the US, as well as the major exporting countries. If aggregate American labor & consumer income declines, so does our ability to buy foreign imports. Increasing American labor competition with enslaved foreign workers is worsening this wage decline. It's not only in our best interests to keep jobs in the US, it's to the advantage of all countries that export to us. We need income to buy their goods.

"Opening up markets" sounds like a good idea. But it's a smokescreen. It's not the real motivation behind "free" trade agreements. The real motivation is "opening up" the American labor market to competion with slave-labor. Bush and his neocon supporters know this. They hope we won't see it. Many of us do, however. Hopefully we can make others see this as well.

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com

__________________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

4:43 PM  
Blogger James B. said...

I question the benefits to 3rd world countries. Lack of benefit to 3rd-world countries is a point I'd like to make mainly with "liberals."


Except just about every study, theoretical or empirical, says that trade is a benefit to poor countries. Take some examples, South Korea, Taiwan, Egypt, and Jordan. Fifty years ago they all had pretty much the same levels of economies. Now the first two are way ahead of the second two. Was it because of an abundance of natural resources? Hardly. It is because the embraced the western economic values of competition and free trade. The second two remain protective and insular, and immersed in poverty. Compare any two countries over the last 50 or 100 years, the one that has most engaged itself in international trade will almost always be the one that has prospered the most economically.

10:47 PM  
Blogger unlawflcombatnt said...

Jim,

You say "practically every study," but you haven't provided any. Furthermore, there is no study that can contest that replacement of $100/day workers with $2/day workers reduces global labor income. It just isn't a contestable point. Some might argue that the slight increase in wages of impoverished workers justifies the large income loss by American workers. However, as I have stated, that benefit will be short-lived. The loss in world consumer income by loss of higher-wage American jobs will NOT be compensated for by the minuscule increase in wages in 3rd world countries. There will simply be less worker income to buy the world's production. If a $100/day worker is replaced with a $2/day worker, global labor income decreases by $98/day. If this is multiplied by 100 workers, it affects global labor income very little. However, if this loss is multiplied by millions of workers it results in billions of dollars in lost labor income. The cost of losing $98/day in labor income is approximately $26,000/year for one worker. However, the cost of losing $98/day income from 20 million workers is $520 billion/year, or $0.52 TRILLION dollars. That's roughly 10% of yearly American wages. And that's $520 billion less American consumers will have to spend, on both domestic and foreign goods. That will hurt American industry, and it will hurt countries that export to us. It will hurt the very workers in foreign countries whose labor was substituted for American labor. There still needs to be someone to buy the product. The loss of 10% of American labor income will cost American business about 10% in sales. Is this good for America?

The only reason the countries you mentioned have benefited is because the resultant loss of American labor income was small. When the American labor income loss becomes large, it will be far less beneficial. It will reduce American demand for imports by a larger amount, thus reducing the demand for the foreign labor that produces them. Once large enough, the resultant decline in production demand will HURT those foreign workers, not help them.

Furthermore, in many of these cases, these countries reached their current prosperity levels long before NAFTA, or any of the other "free" trade agreements came into effect. In addition, those countries became prosperous prior to the fall of the Soviet-backed Communist block. They became prosperous before the world labor market became flooded with workers from former Communist block countries. The vastly increased supply of world labor has pushed down the global price of labor. That "price" is global labor wages. With the flooding of the world labor market with millions of low-waged workers from Communist block countries, the benefits of free flow of capital are becoming more dubious. The loss of global consumer demand from American wage loss becomes much larger, as the price of labor worldwide is driven down. Thus, what may have been true about "uplifting" workers 20 years ago, is definitely NOT true today.

unlawflcombatnt

10:48 PM  
Blogger unlawflcombatnt said...

In my previous comment, I suggested a 10% loss in American labor wages, from the direct loss of American labor income. In reality, the loss would be MUCH greater, due to the decrease in demand caused by the loss of jobs (without any reduction in labor SUPPLY.) So a simple loss of 20 million $100/day jobs, would result in a greater aggregate income loss than can be directly calculated by multiplying 20 million X $100/day. In fact, the pay of the remaining workers would also be driven down, as a result in labor demand reduction (with no reduction in labor supply.) The resultant loss in income by the remaining American workers should be added to the direct loss from the 20 million jobs completely lost. It's not inconceivable that the remaining 120-140 million workers could also see average wage declines of 5-10%. This means aggregate American wages could be reduced as much as 15-20% from the original 20 million jobs lost, resulting in a $0.75 to $1.0 TRILLION loss in aggregate labor income. To put this in perspective, American GDP is approximately $11 Trillion. Total American wage income is $5-6 Trillion. Remember, it is the aggregate, or total American wage income that provides for most consumer spending. The loss of $0.75 to $1 trillion in income is a very large amount. This would cause a severe decline in our economy. And this degree of aggregate American wage decline is a real possibility.

unlawflcombatnt

11:47 PM  
Blogger James B. said...

I don't need a study to point to, I have the whole world as an example. You are taking one theory out of one chapter in a Keynesian textbook and ignoring everything else in the world. The fact is wages go up as countries industrialize and increase productivity. That is a fact and it occurs in every case. In the 50s and 60s Japanese wages, and the resulting labor costs, were about 1/10th the rate of the US. There were plenty of paranoid people like you running around screaming that they were going to take all our jobs. Guess what, they didn't. Now Japanese wages are nearly equal to ours, and they are even outsourcing some industries to China to take advantage of cheaper wages there. Even in India currently tech workers are seeing their wages increase, as a result of increased demand for their skills!

http://insight.zdnet.co.uk/specials/outsourcing/0,39026381,39150917,00.htm

Both China's and India's economies are skyrocketing, so their wages are going up, and they demand more products from abroad. Just look at how many Boeing and Airbus planes they ordered this week. $100 million dollar planes, from countries where they make $2 a day. Go figure.

8:42 AM  
Blogger unlawflcombatnt said...

Jim,

I didn't take any pages out of a Keynesian textbook. I figured this out myself using common sense.

You won't post a study because you can't find a study. That's because you are categorically wrong, and no studies exist to support your pronouncements. You make fully unsubstantiated claims about EVERYTHING. You can't support anything you've said. There is NO proof or logic behind what you say. You don't even read what I've said. You simply state your opinion as fact.

You really should spend more effort researching, and less effort posting your unsupported statements.

Wages are NOT going up in China. You simply don't know what you're talking about. Not only is there NO evidence to support what you're saying, there is no logic either. Chinese wages are not going up ANY, because there is a tremendous surplus of labor in China. There simply is no wage pressure to drive those wages up. There are still a vast number of potential Chinese slave-laborers living out in the country, away from the industrial areas. This pool of slave-labor can easily be tapped into, and keeps wage pressure down. The Chinese are among the most poorly paid, exploited workers in the world. They have very little potential to buy American production as a result. It takes income to purchase products.

You say the Japanese are outsourcing their labor to China, due to the lower wages. That's causing the Japanese to have exactly the same problem we're having. Japan's economy is not doing well at present, and their unemployment is close to 10%. Fortunately for us, the Japanese have never been a major export market for US goods. So their wage decline won't effect our small amount of exports to Japan.

When you say you don't need a study to support your nonsensical propaganda, you simply reduce your own credibility. I can support every single thing I say, and I have done so throughout my blog.

In contrast, you can't support anything you say, so you make the idiotic statement that you don't need to support it. That's the problem with you right-wingers. You don't need to find the facts, you just make 'em up as you go.
______________

I appreciate the link you posted.

Do you think the information from this link is something Americans should be happy about? Such as 3.3 million American jobs being moved to other countries by 2015? How about American software workers competing with $6500/year Romanian software development workers? How about US technology pay showing the lowest increases ever recorded? Is this your idea of proving that outsourcing is good for America? Or are you actually hoping the American economy will collapse? There was nothing "good" in that report. And you can be assured I will re-post it everywhere I can. Companies that outsource are economic traitors. And your link has supported that position quite well. Again, I thank you for that link.

unlawflcombatnt

12:52 AM  
Blogger James B. said...

Where are you coming up with a 10% unemployment rate for Japan? France and Germany yes (that is what a socialist economy gets you), but Japan is around 4.5%.

If you would like some resources on the benefits of free trade and globalization, here are some right wing hacks.

http://www.pkarchive.org/trade/smokey.htm

http://www.pkarchive.org/trade/wto.html

http://hei.unige.ch/~baldwin/ComparativeAdvantageMyths/CompAdvMythsFrame.html

10:34 AM  
Blogger unlawflcombatnt said...

James,

I think I was wrong on Japan's unemployment numbers. The latest information I've seen is that it's between 4.8 - 5.0%. I'm going to revise that part of my post.

I've seen the other links you've posted. I've read Krugman extensively, but he has not convinced me that unrestricted free trade, and the outsourcing it entails, is good for America.

Some of Krugman's underlying motivation appears to be that the U.S. should be willing to sacrifice some, or share some of our wealth, with other countries. I don't agree with this at all, but I understand where he's coming from. I've never heard Krugman say that outsourcing is good for the U.S., like Greg Mankiw has done. I don't believe he will ever take that position.

10:46 PM  
Anonymous Anonymous said...

The South Korea/Taiwan examples are the absolute antithesis of "free" trade. During their period of economic advancement, they heavily subsidized export industries and primary education, and had extremely strict currency controls and regulations for imports. They had almost no foreign capital; their local capital sufficed because you could get put up against a wall and shot for trying to take it out of the country.

It wasn't all that long ago that you couldn't even buy a Japanese comic in S. Korea, let alone a Toyota.

eridani
www.upsizethis.org

12:34 AM  
Anonymous Anonymous said...

I just want to respond to the Wal-Mart comment. Does everyone work at Wal-Mart? No. Again you assume this is true. Also you are assuming that everyone at Wal-Mart can get a higher paying retail job. Than why don't they. I have a hard time believing the Target pays employees $2 more per hour than Wal-Mart.

There is a reason Wal-Mart buys products from overseas, they are cheaper, it's not just Wal-Mart, its everyone. So that 100% productivity lost, fine, but than you must factor in all the lower prices from all goods, not just Wal-Mart.

Your CAFTA arguements about slave labor are dumbfounded. Will lose jobs, those individuals will get assistances from the government, go back to school, and get higher paying jobs. You are right we can't compete with their wages, we don't have to, because we get the benefit of lower prices (see my sugar example in another post). You are missing the point of free trade, we don't need to compete against low paying, low skilled labor.

I just can't believe how pessimistic and nieve you really are. Americans don't have to compete, its that simple. They will lose jobs, but other jobs will be gained. This is the case. 6 small countries cannot impact the U.S. that much, and in the end it will be a good thing. Yes they will be better off, they are taking jobs, they don't have to take. Why, because it is in their best interest, or did you forget about that. These jobs do not look good to you or I, but they are better than what they have. Look at all the success stories of countries that were once poor, but no longer, U.S., Japan, Korea, Tawian, Singapore, Argentina, and many others.

Let them provide the cheaper labor, let Americans get lower prices, and provide incentives for more schooling, and better paying jobs. Do you want your economy to grow or would you rather go back to the manufacturing days of the early 1900's.

2:29 AM  
Blogger unlawflcombatnt said...

Note to posters:

I delete anything that appears to be an advertisement for a product. Information-type site postings are OK, but postings that are advertisements for consumer products will be deleted.

5:00 PM  
Blogger unlawflcombatnt said...

Anonymous,

I'm amazed at your naivete. Adding another 25-45,000 workers to the number of workers Americans must compete with can make a tremendous difference in wages and employment, especially if those workers work for 1/50th of what American workers work for. Corporate America will simply move its factories to Central America and practically eliminate their labor costs. And they'll pass on only a small fraction of the cost savings to American workers, making it a huge net loss to American workers and consumers.

All you need to understand this is read the numbers I posted. The amount of income American workers could lose just from the direct loss of jobs is tremendous. But that's only half the story. The loss of a large number of jobs will also drive American wages down for those who still have jobs.

Your naivete is even more remarkable when you claim that "other jobs will be gained." That simply has not happened, and never will. It's completely illogical. Incentives for "more schooling, and better paying jobs?" You've got to be kidding. Are you still stuck in the mid-90's fantasy world about how NAFTA would help us? We're not replacing those jobs with ones that are "better." We're replacing them with worse jobs that pay less. And we're starting to lose more and more jobs that people have already been "retrained" to do, such as the 300,000+ Internet Technology jobs lost since 2001. Those jobs paid an average of $65-75,000 per year. And they are gone because greedy free-trading Corporate America sent those jobs overseas because their exorbitant profits were not exorbitant enough. Do any of you free-traders ever read the news or update your theories when the facts prove you wrong? You continue to espouse this fantasy about "all the new jobs free trade will create." But the evidence is already in. And it has proven you wrong.

Free traders need to stop espousing the alleged benefits of free trade. It's been 11 years since NAFTA and it's proven to be an outright disaster for the American manufacturing industry and it's workers. What's worse, the pitfalls of NAFTA and free trade have spilled over into higher-paying industries, such as the IT industry.

Free traders are simply wrong. Their theories made no sense in the first place. Now the evidence is in and it has proven them wrong. You can't keep espousing the "benefits" of free trade when absolutely none have materialized. The good jobs we lost are being replaced with worse jobs at best. In many cases, they aren't being replaced at all.

8:15 PM  
Blogger unlawflcombatnt said...

George,

Thanks for your comments. You're absolutely right. When I was in high school we were constantly informed of how the Japanese subsidized their markets in order to sell their products for less than cost in the United States, thus undercutting U.S. manufacturers and putting many out of business. This is certainly not an example of free trade.

What the large Corporate multinationals really want to do is reduce tariffs on imports into the United States from foreign companies that they have partial ownership of. They don't want to lose their ability to profit from the exploitation of cheap labor in foreign countries.

Also, George, I'd like to invite you to join my discussion board, Economic Patriot Forum.

Thanks again for your comments.

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