Spungo
Diamond Member
- Jul 22, 2012
- 3,217
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That doesn't make any sense. Why would full automation happen in Asia where wages are already low but not happen in America "because of downward pressure on wage".
Sounds like you have no idea what you are talking about.
I can understand why you wouldn't see the natural progression of capitalism. It's something that happens over the span of decades, so it's not immediately obvious how this works.
Step 1) Start with a group of poor people, such as American settlers. After killing Indians, the settlers have land and nothing else. They have no factories, no capital, no automation, not much technology. They don't have infrastructure, established trade routes, or banking systems.
Step 2) These poor Americans work difficult manual labor jobs. Child labor existed. Slavery existed. People were poorly educated.
Step 3) As the economy grows, the country begins to accumulate capital. This capital is deployed in the form of roads, rail, factories, electricity, running water, police, schools, and courts.
Step 4) The increase in capital leads to increases in productivity. Growth of exports relative to imports causes the country's currency to gain value.
Step 5) A strengthening currency makes the middle class wealthier, but it also drives up the cost of labor.
Step 6) If labor is too expensive, capital investment will be made in places with less capital and a lower cost of labor. This is the outsourcing we know today.
China is currently at step 6. China is seeing outsourcing to places like Bangladesh because the poverty in Bangladesh is much worse than the poverty in China. China still has lots of very poor people, but it also has a lot of wealthy people. I think most Americans would be amazed at how modern some of China's cities are. The cost of doing in business in China can be very expensive, depending on location, so they're doing the same outsourcing we did.
On some level, I think people intuitively understanding how currency and capitalism work. Keynesians point to Germany and say Germany is screwing up the rest of Europe because Germany inflates the value of the Euro. That's absolutely true, but think about why it's true. The force of capitalism tends to make things regress to the mean. If a country has a large trade surplus, the currency gains value, this drives up wages, the increased wage cost drives down exports, which makes the currency fall in value. It's a self-correcting cyclical pattern.
Large trade surplus -> strong currency -> rising wages due to strong currency -> smaller trade surplus due to lack of competitiveness -> weaker currency -> falling wages due to weak currency -> larger trade surplus due to competitiveness -> repeat.
The non-Germany parts of Europe have trade deficits, so they should see falling currency values, which leads to falling wages in real terms, which leads to increased competitiveness. The existence of Germany in the EU stops this natural process from happening, so those countries are trapped in the artificially high wages and suppressed demand part of the cycle.
China is doing the opposite. Due to large trade surpluses for the past decade, China's currency should be worth a lot more than it currently is. The Chinese aristocrats might be evil dictators, but they are not idiots, so they try to stay in that capital accumulating part of the cycle. They keep the Chinese currency down by inflating the currency. Instead of wealth going to the people who are getting paid in yuan, the wealth is extracted by bankers in the form of inflation. If capitalism were allowed to work without central bank manipulation, much of China would already be automated and outsourced. They would have a much stronger middle class, and they would likely see the good kind of deflation where the overall cost of living drops relative to wages, and the standard of living soars.
Central banks around the world are trying to copy China by debasing their currencies, but it won't work when everyone is doing the same thing. Countries like Japan have negative interest rates. Are we supposed to have even more negative rates so our currency collapses faster than theirs? What happens when they set it even more negative? Do we just keep doing this until interest rates are -20%, meaning banks give out free money? We're in the monetary twilight zone, so it's difficult to predict where this is headed. Even 5 years ago, the thought of negaitve interest rates was absurd.