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.

Thursday, June 16, 2005


The consumer income and demand that provided the "recovery" from the recession came from increased consumer borrowing, not increased income. This was the direct product of the Greenspan-induced housing bubble. By decreasing the prime rate, he increased the dollar-value of a home that could be purchased with the same amount of money. More money could be spent on the actual selling price of the home, if less was spent on financing charges. Again, this increased the price of homes that buyers could purchase, as well as the number of buyers who could purchase homes. In turn, this increased the DEMAND for homes, which further increased the overall price of homes. This demand increase also increased assessed home values, increasing home equity value. Thus, there was an overall increase in aggregate, nationwide home equity value. This increased the amount of money available for home equity loans. This increase in money available for loans also increased money available to spend. Thus, consumers were able to increase spending, while incomes decreased.

This increase in spendable consumer wealth provided the demand necessary to keep American industry from completely collapsing. Consumers were able to spend more, in spite of declining wages. Had more attention been paid to increasing wages, and less to stimulating unnecessary investment, consumer income might have recovered. It might have recovered enough to offset the huge reduction in demand that will occur when the housing bubble bursts. Unfortunately, corporate profits and inflated equity values were the emphasis of the Bush administration, not consumer income. The inflation-adjusted wage decline has continued unabated under Bush.

Bush's labor-cost reduction policies have actually worsened the consumer income loss.The "cheap labor lobby" has succeeded in greatly reducing aggregate consumer income. They have taken advantage of simple supply-and-demand laws regarding labor. By increasing labor supply, they reduce the price of labor. By reducing labor demand, they further reduce the price of labor. Reduced "price" of labor means reduction in wages for American workers.
The "cheap labor lobby" has reduced American wages by increasing the supply of available workers and reducing the creation of jobs. This has been done by 2 general methods. The 1st method is the encouragement of unrestricted inflow of impoverished workers into the U.S. This increases the labor supply, decreasing labor cost. (There are simply more workers competing for the same number of jobs, driving wages downward.) This decreases average individual wages, as well as aggregate labor and consumer income.

The 2nd method has been OUTSOURCING. The effect of outsourcing is to open up the American labor market to competition with impoverished 3rd-world workers. American workers must now compete globally for wages with semi-slave labor in impoverished foreign countries. American labor has already lost many jobs to foreign competition. Thus, the DEMAND for American labor has also been reduced, due to the shipment of jobs out of the country. (Decreased demand for labor decreases the "price" of labor, which means American wages.) The effect of outsourcing is to decrease the number of jobs, as well as the average wage of those who have jobs. This results in decreased aggregate consumer income, causing decreased demand for American goods, and decreased demand for workers to produce goods.

The "cheap labor lobby" has thus decreased aggregate consumer income by increasing immigration and outsourcing. They have reduced labor demand, and increased labor supply. They have opened up the American labor market to competition with foreign workers. There is NO long-term benefit to anyone from such policy. It does not help American industry in the long-run, nor does it help American workers. It does not help foreign workers in the long-run, either. Their minuscule wage gains do not make up for the massive American wage losses. This trade-off results in an aggregate reduction in global consumer income, and global demand for production. This, in turn, results in a global reduction in labor demand. The end result is a REDUCTION in global wages, not an increase.

American labor income is not only essential to American domestic consumer demand, it is essential to global consumer demand. Many foreign economies will be hurt if their ability to export to the US declines. And this ability WILL decline if American income is insufficient to purchase their products.

The American consumer market is THE major consumer market of the world. Declining aggregate American income will reduce this market. It will reduce both the American consumer market, and the global consumer market. Bush's "cheap labor" policies are accelerating this reduction. When the "borrowing" bubble collapses, so will the consumer market. It's only a matter of time.




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