Zodiac Times

So, the new stimulus package is passed, hopes are up, markets are down,  and recession deepens. Everyone is blaming the housing market, unscrupulous bankers and inept previous administration.
But very few seem to understand the true roots of our woes, and how deep our economic problems go.
Believe me, the trillion dollar stimulus is but a bandaid on a very deep wound!
Everyone is stuck with the 20th century economic model:
an entrepreneur discovers a need->manufactures solution->gets rich->creates demands->someone else fulfills those demands->gets rich->creates more demands->those who supply solutions get rich too->created jobs create more jobs->society gets richer and richer

This is the 21st century global economics model:
manufacturers/suppliers find cheaper workforce in a poor country->enrich that country->the workforce gets more expensive->the suppliers go to another cheaper country->previous producing countries get poorer, their workforce immigrates to a new labor market->wages stagnate or get lower->more labor markets get poorer->no one can afford the supplies anymore->manufacturers go bust->everyone gets even poorer.

If you don’t believe me, here’s a news bit on Ireland. Ireland was in great demand as a labor market, because people spoke English, were educated, yet asked for much lower wages than UK or American workers. The labor market there was so hot, that Polish and other poorer EU brethren immigrated to Ireland.
But the workers grew too expensive in Ireland as economy there heated up, so the companies left for cheaper labor markets like Poland. Now Irish workers immigrate to Poland. But they no longer get the same wages. Living expenses are cheaper in Poland for now, so it makes some sense. Once Polish economy booms, however, and living expense there goes, accordingly, up, Poland would face the same economic bust, as now does Ireland.
India was also a popular labor market. But they started asking for too much money, so China became a place to be for manufacturers.
Lately, however, the “smart” manufacturers have been migrating to Africa.

Where does it leave the U.S. – the original place of labor migration?
I found an article in one of the New York’s free newspapers (Metro is it?) that the U.S. stills manufactures 65% of its products domestically (down from the 20th century’s 80%).
But it does not say, that the domestic wages went up. Because for the past 7 – 8 years they have not. Domestic salaries have not increased either. In fact, many went down. Because our labor force now competes for wages with Irish, Polish, Indian, Chinese, Mexican and other labor forces of the world.
The only market that saw increase in the U.S. in the past 8 years was the housing market, as speculators (flippers, real estate and mortgage brokers) kept pushing the prices up to the point of unaffordability by the impoverished middle class (the domestic labor force).
The feeling of prosperity that bubble has created had no base in reality. That feeling was based on the ease of credit (future income of financial sector ->future prosperity), which was given on a funny assumption that housing prices would continue to rise as wages have historically done so, affording better prices.
But our wages could no longer support our consumption on easy credit, hence prices and credit crunch.
No matter where our income was coming from, its sources were disappearing or getting smaller at best.
Not only manufacturing was leaving America, services were too.
Web design, translations, document processing, customer service – all were becoming outsourced. When was the last time you have heard a customer service representative on the other end of the phone that did not speak with an Indian accent?
People in this country that specialized in the services that were now easily outsourced could no longer ask for wage increase, if they were to be kept employed.

In the 21st century, the labor market is global. That means, the wages for the same services performed would eventually average out. If a Russian translator in the U.S. asks now for $.14/word, and a Russian translator in Siberia asks now for $.05/wd for the same job, eventually they will all go down to $.05/wd. If a worker at a Chrysler plant in Detroit asks for $35/hr, and a worker at a Chrysler plant in Mexico asks for $5/hr, eventually they will all ask for $5/hr – because it is natural for any company to seek out a cheaper labor.
Since the impoverished global workforce is not going to be able to afford $30,000 cars and $300,000 homes, those prices will go down too -unless they are artificially held high by governments’ bailouts. But bailouts cannot continue indefinitely. So the prices will continue to deflate in accordance with deflated average incomes. Middle class is going to disappear (it may take a few decades), unless the governments would wake up and set up some protection.

No, not trade protection – that is passe. It is the labor markets that must be protected, if we don’t want to go back to the economy we used to have throughout 10th – 19th centuries – the economy of a few very rich, and the rest being very poor indeed.

But I am not stupid enough to expect our government (or any other for that matter) to step in with labor force protection. Besides, the ease and cheapness of global communication and travel would create serious obstacles to any attempt to create such protection.
The only thing that may protect our domestic labor force is the consumer movement. Just as our demand for green products has eventually created green industries, our demand for products made in America may protect domestic work force..to some extent.
Incidently, when was the last time you saw something made in America in a store?