Tuesday, May 31, 2005

Wage Decline & Corporate Self - Destruction

We've received another article from unlawflcombatnt@aol.com. We thank him for his insightful material. With cucuckoobananas in charge, SOMEONE has to explain how things ARE SUPPOSED TO WORK!!! We look forward to more articles.
Wage Decline & Corporate Self Destruction

Until recently, American corporations had been unable to destroy their own consumer market, because they were forced to maintain wages at a certain level. This was due to the limited supply of workers in their native country.

The labor force supply-and-demand effect created upward pressure on wages. This prevented American industry from reducing wages below a certain level. In turn, this maintained aggregate labor/consumer income at a high enough level to purchase American products. With global labor competition, wages can be reduced drastically. With this reduction, however, comes reduction in the consumer income that purchases American products. This drastic reduction in aggregate consumer income will lead to a drastic reduction in consumer demand. If the average American worker is making $4/day, due to glogal labor competition, who will buy American products? CEOs? Congress? Bill Gates? Martians? Can the super rich really buy enough computers and SUVs to maintain American consumer spending and demand?

If not, then where will the profits come from with drastically reduced sales? Can profits be made without selling any goods? Can labor costs be reduced enough to make profits without any sales? Corporate America fails to understand that maintaining worker wages is to their advantage. It's not only to their advantage, it's a necessity. American labor "costs" actually provide the income to buy American products. (Labor costs = consumer income. Labor cost reduction = consumer income reduction. In reality, it's worse than this. Consumer income reduction is > than labor cost reduction.) To restate this, as corporations lower labor costs, they lower consumer income as well. Corporations decrease the size of their own market by reducing aggregate consumer income. If they continue to increase profit margins by reducing labor income, they'll eventually be unable to sell their products.

There won't be enough income to purchase America's production. Remember slavery? Slaves never bought any products. They didn't have any income. If we all become slaves, we won't have any income either. And corporate America won't be able to sell their products to anyone. Corporate America will have destroyed itself, due to its own greed. Henry Ford said that he paid his workers well so they could buy his cars. Corporate America should take heed of this. The most productive economies we've ever had were when worker wages were at their highest inflation-adjusted level. There are 2 economic principles that are being ignored by Corporate America. Consumer spending is 2/3 of economic activity. They also ignore the fact that consumer spending is the biggest part of the GDP equation. (GDP=Consumer_spending+investment+government_spending+trade_balance)

In reality, investment spending will be self-limited if consumer spending isn't maintained. Production facilities will not be built if no one buys products. In addition, government spending is financed by taxes on consumer income. Thus, it is also very dependent on consumer income. Exports depend on foreign labor income, which creates foreign consumer markets. Since average foreign worker income is miniscule, this will never be a very large number. Imports will continue to subtract from GDP, as long as slave-labor wages are encouraged by "free" trade/slave labor agreements. Since consumer spending is strongly related to labor/consumer income, a reduction in consumer income will also reduce GDP. We're not "growing" our economy by reducing labor costs. We're shrinking it.

unlawflcombatntEconomicPopulistCommentary
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.

Comments:
With CAFTA being currently discussed in Congress, and being shown on CSPAN, I think it's a good time to post my CAFTA letter. Here it is:

OUTSOURCING, SLAVE-LABOR, & CAFTA

CAFTA is the latest anti-worker, pro-slavery, "free" trade bill being considered in Congress.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

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.
 
Misleading GDP overstates ECONOMIC GROWTH

Again, it appears that the calculated GDP has overstated actual economic growth. Today's published GDP figure of 3.8%, is the same as the last quarter of 2004. However, growth of the 2/3's of economic activity due to consumer spending is slowing. The "final sales" growth, which many consider a better indicator of "growth," has declined for the 2nd straight quarter. In addition, growth of most "investment" parameters are also slowing.

The link to these numbers can be found at Briefing.com's GDP section at:
http://www.briefing.com/Silver/Calendars/EconomicReleases/gdp.htm

The 1st quarter GDP has now been revised upward to 3.8%. Again, this is the same as the 4th quarter of 2004. However, of the multiple factors used to compute this number, only 2 have increased significantly. The 1st of these is INVENTORIES, which increased from $47.2 billion in the 4th quarter of 2004 to $66.8 billion in the 1st quarter in 2005. This is a 42% increase over the previous quarter. The 2nd major increase was in "residential investment." (Housing & Real Estate) Here there was a 338% growth in the 1st quarter of 2005, from 3.4% in Q4, 2004 to 11.5% for Q1 of 2005.

Final sales growth declined for the 2nd straight quarter. Final sales growth decreased to 3.0% from the 4th quarter's 3.4%. This marks a 13% DECREASE. The 4th quarter's final sales also decreased from the 3rd quarter's 5.0%. Thus, GDP sales are not keeping up with the measured GDP. Ultimately, the GDP must be sold to create profits. The declining "final sales" growth, in relation to the the total GDP, suggests the GDP is overestimating economic growth.

All other measures of consumer spending declined as well. Total personal consumption spending (PCE) growth decreased to 3.6% from the 4th quarter's 4.2%. All 3 components of PCE declined as well. Durable goods sales growth decreased 54%, declining from 3.9% in the 4th quarter to 1.9% for Q1 of 2005. Nondurable goods and services also decreased.

Nonresidential investment growth also decreased 72%, from 14.5% in Q4 of 2004, to 4.1% in the 1st quarter of 2005. Not only did growth in nonresidential investment not increase, it actually decreased in Q1 of 2005. The growth rate was actually -2.4%. Growth in equipment and software investment decreased from 18.4% in Q4, to 6.1% in Q1 of 2005.

Thus, GDP growth was maintained almost exclusively from increased real estate investment and increased unsold inventories. All indexes of consumer spending growth decreased. This comes as no surprise, considering inflation-adjusted wages also decreased during that time. Decreased consumer spending power usually decreases consumer spending.

It appears the calculated GDP has again overstated actual economic growth. Goods are being produced in excess of what consumers are purchasing. Excessive goods production drives down demand for labor to produce goods. This decreases the number of employed workers, as well as wages of those who are still employed. This results in a further decrease in the aggregate consumer income necessary to purchase goods.

Growth of inventories and real estate investment are all that have increased during the 1st quarter of 2005. Does this really represent economic "growth"? Doesn't declining growth in consumer spending imply an economic slowdown? Do isolated increases in unsold goods and real estate investment truly indicate economic growth? Can unsold goods and real estate investment really be substituted for consumer spending? Can profits lost from declining goods sales be replaced by production and investment increases? How does that increase profits? Doesn't someone have to buy products for profits to be made?


unlawflcombatnt

EconomicPopulistCommentary

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

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."
 
The Bush propagandists are still publishing optimistic reports about the economy. There are so many negative statistics that it's getting very hard to spin them. Regardless of any spin they put on it, this pseudo-economic growth has relied on massive borrowing and overinflated real estate values.

Year over year GDP growth ending Q1 of 2005 has decreased drastically to 3.7% from the 5.0% ending Q1 of 2004. The economy is definitely slowing down.

What's worse, the best indicator of economic growth, the "GDP Final Sales" for 2004 was only 2.8%. The non-inflation adjusted numbers for this can be found at http://research.stlouisfed.org/fred2/data/FINSAL.txt

Construction spending has declined 3 months in a row. Residential (home) construction had declined almost 5% in the last 3 months. This can be found at http://www.briefing.com/Silver/Calendars/EconomicReleeases/const.htm

The Chicago PMI fell 0.5% to 53.6% -- the lowest level since September of 2003. The total decline from March 2005's 69.2 to June's 53.6 is -15.6 points. This marks a 22% DECREASE in the last 3 months. Thus Midwest manufacturing has been rapidly declining over the last 3 months. This can be found at http://www.briefing.com/Silver/Calendars/EconomicReleases/chi.htm

The employment component of the Chicago PMI DECLINED a whopping 5.8 points, to 48.9 from May's 54.7. Less than 50% indicates contraction. Thus, the level of manufacturing employment in the Midwest is DECLINING.

The Index of Supply Side Managers, which came out July 1st, increased for the first month in the last year. It had been on a nearly constant decline since January of 2004, when it was 63. Friday's reading was 53.8. This marks a 15% DECREASE since January of 2004.

The employment part of the ISM index was less than 50 for the 2nd month in a row. Again, less than 50% indicates contraction.

The leading indicators index has fallen a cumulative 1% over the last 6 months, including May's -0.5%. April was falsely revised upward from its original -0.2%, to avoid setting off the "recession alarm." This can be found at http://www.briefing.com/Silver/Calendars/EconomicReleases/leader.htm
http://www.briefing.com/Common/Images/Content/PageContent/EcData/leadnt.gif


Real, monthly disposable personal income has actually declined from $8,473 in December to $8,211 for the month of May. This can be found at http://research.stlouisfed.org/fred2/data/DSPIC96.txt (or http://research.stlouisfed.org/fred2/data/DSPIC96.viewdata)

Unemployment, using the same labor force participation rate used during Clinton's presidency, is 7.1% at present.

The projected budget deficit, when not dishonestly subtracting money from payroll taxes, is $780 BILLION for 2005.

The national debt is now $7.7 TRILLION and rising.

We are heading for an [b]Economic Armageddon[/b]. Bush is the worst president in U.S. history. His legacy will be to have done more damage to our economy and country than any other president. He has destroyed our economy, our military, and our country's reputation with the rest of the world.

unlawflcombatnt

EconomicPopulistCommentary

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

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."
 
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