Tuesday, June 07, 2005
Unlawflcombatnt: Wage Decline & Corporate Self - Destruction
WAGE DECLINE & CORPORATE SELF-DESTRUCTIONby unlawflcombatnt
[Subscribe]Tue Jun 7th, 2005 at 13:11:35 CSTWAGE 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. Diaries :: unlawflcombatnt's diary :: :: Trackback ::
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.
EconomicPopulistCommentaryhttp://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.