The U.S. Middle Class Is Being Wiped Out

[StinkyPinky]

My wife is Chinese and I live in their community and have an interesting insight to both their country and their way of thinking.

Let me tell you....we simply cannot compete with them in manufacturing. It is a lost battle. No western country can.

They do not care about worker rights. They will happily pay someone next to nothing and force them to work 70 hour weeks. If they are sick for more than a couple of days, they'll just replace them.

They do not care about industry standards and safety. They do not need to spend millions making their factories safe or limit pollution.

They have hundreds or millions of cheap workers that will work for next to nothing and a government that doesn't care about safety nor pollution. My brother-in-law who lives in China earns about 60 USD per MONTH.

It is a lost battle. We brought this on ourselves anyway.

 

[SammyJr]

My wife is Chinese and I live in their community and have an interesting insight to both their country and their way of thinking.

Let me tell you....we simply cannot compete with them in manufacturing. It is a lost battle. No western country can.

They do not care about worker rights. They will happily pay someone next to nothing and force them to work 70 hour weeks. If they are sick for more than a couple of days, they'll just replace them.

They do not care about industry standards and safety. They do not need to spend millions making their factories safe or limit pollution.

They have hundreds or millions of cheap workers that will work for next to nothing and a government that doesn't care about safety nor pollution. My brother-in-law who lives in China earns about 60 USD per MONTH.

It is a lost battle. We brought this on ourselves anyway.

Its only impossible if you have a religious attachment to free trade. Its time to abandon the free trade religion. Enact tariffs on Chinese made goods that are produced using sub-American standards for labor and the environment until they clean up their act. That's how you compete with a Communist slave labor state who owns most of the businesses.

 

[Gonad the Barbarian]

More blah blah blah.

Actually, I make my statements based on anecdotes and assumptions and an economics degree, but whatever.

 

[drebo]

Its only impossible if you have a religious attachment to free trade. Its time to abandon the free trade religion. Enact tariffs on Chinese made goods that are produced using sub-American standards for labor and the environment until they clean up their act. That's how you compete with a Communist slave labor state who owns most of the businesses.

No, that's how you drive up inflation and lower the standard of living amonth the lower-middle and lower classes.

Recognizing that American wages and expectations are too high, and then fixing them, is how you restore America's competitiveness in the global manufacturing market.

Protectionism doesn't work. Just because the liberals think something should be economically viable does not make it magically so. Taxing imports like that only drives up costs to the point where the government now has to subsidise the purchase of those products. It's not going to move manufacturing stateside because it still won't be economically viable.

 

[SammyJr]

. Just because we are growing more primarily service economy and now are in a recession does not mean the recession was caused by our economy being more service related.

This has a lot to do with it. Manufacturing enables someone with average to below average intelligence to make a large contribution to the creation of wealth. In a service economy, a person like this is going to be forced into a fast-food or stock job, where his contribution is minimal and he is paid in kind.

 

[crownjules]

My wife is Chinese and I live in their community and have an interesting insight to both their country and their way of thinking.

Let me tell you....we simply cannot compete with them in manufacturing. It is a lost battle. No western country can.

They do not care about worker rights. They will happily pay someone next to nothing and force them to work 70 hour weeks. If they are sick for more than a couple of days, they'll just replace them.

They do not care about industry standards and safety. They do not need to spend millions making their factories safe or limit pollution.

They have hundreds or millions of cheap workers that will work for next to nothing and a government that doesn't care about safety nor pollution. My brother-in-law who lives in China earns about 60 USD per MONTH.

It is a lost battle. We brought this on ourselves anyway.

This will change, slowly but surely. A few weeks ago it was big headlines when a Chinese factory doubled its wages in response to a slew of worker suicides. They obviously felt poor working conditions was a contributing factor or at least wanted to stave of that sort of publicity. It's also been reported that the younger generations are less inclined to follow in the footsteps of their older generations. They want a better life then slaving away for pennies.

Change happens, but it is slow and steady. Worker's rights reform didn't happen overnight in the USA either.

 

[WhipperSnapper]

Why is everyone going off the assumption that services are not the way to grow and distribute wealth? Why is so many people I've seen so focused on manufacturing primarily?

Ultimately, the vast majority of real wealth is manufactured or constructed wealth. Step back from your computer and rotate 360 degrees. All of that stuff you see in the room is manufactured wealth. When you drove to work today did you drive a manufactured vehicle or did you drive in legal services or financial advising? When you eat dinner tonight will you place your food on consulting services, or a manufactured ceramic plate?

Certainly there are services that add real value to our lives such as health care, but the vast majority of real wealth is manufactured wealth and constructed houses. Financial and legal services, etc., are important, but they don't create real wealth; they just affect the ownership of wealth.

That's why people are concerned about manufacturing. The ability to manufacture products means that you can be self-sufficient and that you are directly producing real wealth.

If Americans want to stay competitive with Chinese in a goods based economy, they will have to find a way to drive up demand for what they offer.

What can we produce that the Chinese cannot produce less expensively for themselves?

This isn't about competition. Americans would probably thump the Chinese on an even playing field. The problem is that the playing field is not even. Also, what is essentially happening is that we are merging our labor marker and our laborer's standard of living with that of the Chinese, Mexicans, and Indians. (You do the math.)

Arbitrary regulation forcing American only goods or services does no one any good in the long run. Sure other countries are getting some money sent their way from goods and services we are buying from them. But if the problem is too much is going out and not enough is coming back from them, then we just need to find something they want to buy. Again, the economy in action. Oh by the way, many foreign countries pay America tons of cash for various things from authentic "American" clothing, to our music, to our movies, to using our military to help protect them.

Saying that we will purchase the same amount of goods and services from other nations as they purchase from us (a zero dollar trade deficit) does not seem arbitrary. What exactly makes a certain type of regulation "arbitrary" anyway?

Regarding the purchase of entertainment (like they really need that), in China intellectual property laws, such as copyright protection, is not very strictly enforced, so it's questionable how much money we're actually taking in from them in those regards.

 

[drebo]

What you are failing to realize is the invisible back-end costs of the cheap manufacturing goods. It's true that overseas manufacturing results in lower prices, but at what invisible back-end cost? If your wages decrease by 40% and the price of a manufactured good decreases by 30%, are you really better off? In addition to a 40% decrease in people's wages, what if taxes need to increase as a result of increased unemployment and underemployment? Was that 30% decrease in the price really worth it?

Your assumptions are incorrect.

Labor is always the single largest cost associated with manufacturing. Whether that comes in the form of R&D or other related costs, it's always the biggest cost factor. Payroll taxes and benefits, and more, all contribute to the labor cost of manufacturing and are always dependent upon wage. If wages go down 40%, actual labor costs associated with manufacturing are going to go down MORE than 40%.

So, decreasing wages will, at worst, have a net zero affect on domestic buying power. What it will do, however, is restore our competitiveness to the global arena and provide us with the capability to export goods (this is how the wealth of a nation is increased).

 

[HumblePie]

This has a lot to do with it. Manufacturing enables someone with average to below average intelligence to make a large contribution to the creation of wealth. In a service economy, a person like this is going to be forced into a fast-food or stock job, where his contribution is minimal and he is paid in kind.

Only if said person isn't willing to find a way to provide something that meets or creates a demand, be it a tangible good or service.

So you are stating in a LAZY society, a service based economy starts producing these effects. Again, it's not the fault of the type of economy, but the people behind it. Causation vs correlation.

Anyhow, there is actually more to your statement than you realize but I'm not going to get into it. Suffice it to say, low value goods and services will always be around as long as there is some demand for them. Usually it is not because there is a lack of demand, but because there is an overabundance of surplus. Unskilled labor positions is an example of this.

 

[WhipperSnapper]

Uhh no. First off, there is no such thing as limited resource(s). A resource may be limited, but the sum of all resources is not.

Are you implying that we live in a world with infinite amounts of land, infinite amounts of freshwater, and infinite amounts of oil, minerals, and lumber?

As such, economy is about supply and demand. Take anything you think is a limited resource. Oil for example. Sure it has a limit, but once reached what happens? Does the human race just stop. We all give up and die because we ran out of oil? No money changes hands, the world stops turning, time itself just stops? No.

We find another resource, then another, and then another. We change and adapt our "demands" for the environment we find ourselves in.

What if we can't find another resource that provides a similar energy-return-on-investment? Our entire economy is pretty-much oil-based right now. We might be able to find alternatives, but if they don't provide the same EROI then our standard of living will have to decrease.

Human ingenuity may be able to solve our problems over time, but it's naive to think that all of our problems will be solved in a timely fashion. Technological advance, innovation, and solutions to our problems to not happen merely because we need them.

 

[SammyJr]

No, that's how you drive up inflation and lower the standard of living amonth the lower-middle and lower classes.

Joe Blow is working at Wal-mart for $8/hr part time and can buy a set of cooking pots, Made in China, for $10. He doesn't, because his $1 cooking pan from Goodwill is still working. Joe's income is so low that he doesn't pay taxes and he qualifies for Medicaid.

Joe Blow is working at an American factory that makes cooking pots and makes $12/hr full time. He goes to Wal-mart and buys his company's cooking pots for $15. Joe makes enough money to pay his own way and has employer benefits.

Things cost a little more but Joe has a decent job with benefits and the country benefits by not having him on the dole. Further, Joe has disposable income to spend on other goods.

Recognizing that American wages and expectations are too high, and then fixing them, is how you restore America's competitiveness in the global manufacturing market.

In other words, by recognizing that the wealthy are entitled to riches and compensation above and beyond what is damaging to the American economy and Middle Class.

Protectionism doesn't work. Just because the liberals think something should be economically viable does not make it magically so. Taxing imports like that only drives up costs to the point where the government now has to subsidise the purchase of those products. It's not going to move manufacturing stateside because it still won't be economically viable.

This is straight from the Free Trade Bible. China is protectionist as all hell and who's leading the world in growth? Blanket protectionism is bad, but intelligently applied, it can promote American business and job growth. The U.S. Government should work for the citizens, not the Free Trade Gods.

In any case, we've had more or less free trade for the last 30 some years. How has that treated the Middle Class?

 

[Darwin333]

Its only impossible if you have a religious attachment to free trade. Its time to abandon the free trade religion. Enact tariffs on Chinese made goods that are produced using sub-American standards for labor and the environment until they clean up their act. That's how you compete with a Communist slave labor state who owns most of the businesses.

Slight problem there buddy, we kinda need them to keep loaning us a LOT of money. They don't mind so much because we send it right back to them but the moment we do what you suggest is the moment they cut off our credit line.

 

[SammyJr]

Only if said person isn't willing to find a way to provide something that meets or creates a demand, be it a tangible good or service.

So you are stating in a LAZY society, a service based economy starts producing these effects. Again, it's not the fault of the type of economy, but the people behind it. Causation vs correlation.

Not everyone can own a small business. Not everyone has a tradeable skill. Plenty of people are hardworking but they're not capable of simply working hard on their own. This isn't lazy, this is nature.

Anyhow, there is actually more to your statement than you realize but I'm not going to get into it. Suffice it to say, low value goods and services will always be around as long as there is some demand for them. Usually it is not because there is a lack of demand, but because there is an overabundance of surplus. Unskilled labor positions is an example of this.

Listen to yourself. You talk of a surplus of low skilled labor. Did it ever occur to you that these are people you are describing in such impersonal terms? Americans? Your neighbors? Did it ever occur to you that their plight might affect you in some way? Did it ever occur to you that their lack of spending power negatively affects your business or employer? Deny it all you want, but some day, this will all catch up to you.

 

[drebo]

Joe Blow is working at Wal-mart for $8/hr part time and can buy a set of cooking pots, Made in China, for $10. He doesn't, because his $1 cooking pan from Goodwill is still working. Joe's income is so low that he doesn't pay taxes and he qualifies for Medicaid.

Joe Blow is working at an American factory that makes cooking pots and makes $12/hr full time. He goes to Wal-mart and buys his company's cooking pots for $15. Joe makes enough money to pay his own way and has employer benefits.

Made up numbers are made up and can say anything you want them to.

I could have come up with the same scenario and said that the American-made cooking pots cost $30. That doesn't make it any more or less realistic than your scenario.

Fact of the matter is this: American wage laws and worker expectations are too high. They cause inflation. Inflation is a tax on the poor and decreases the buying power of the poor. Period. No amount of made up scenarios will change those truths.

 

[HumblePie]

Ultimately, the vast majority of real wealth is manufactured or constructed wealth. Step back from your computer and rotate 360 degrees. All of that stuff you see in the room is manufactured wealth. When you drove to work today did you drive a manufactured vehicle or did you drive in legal services or financial advising? When you eat dinner tonight will you place your food on consulting services, or a manufactured ceramic plate?

Certainly there are services that add real value to our lives such as health care, but the vast majority of real wealth is manufactured wealth and constructed houses. Financial and legal services, etc., are important, but they don't create real wealth; they just affect the ownership of wealth.

That's why people are concerned about manufacturing. The ability to manufacture products means that you can be self-sufficient and that you are directly producing real wealth.

Ahh, I see where your confusion comes from. You see something tangible and assume it is MORE than something intangible. I look behind me and see a cubicle wall. Sure it is a manufactured tangible wealth, but how much of it's value actually comes from intangible sources? Think about it.

Intangible associated with my cubicle wall.

The idea for a cubicle wall.
The design
Polls to make sure there is demand for it
The redesign based on research for demand
Polls to see what exact type of cubicle wall will create the most demand
The redesign again
The material research
The physics research
The logistical support to find a way to make it and bring it together
The people involved to supervise the making of it
The Q&A to make sure it was made properly
Advertising to drum up
The distribution and delivery


I could go on and on. Those are all INTANGIBLE service related "goods" whose value gets added to the tangible cubicle wall. The direct manufacture of the item is only 1 step in the process. That single "job" is a drop in the bucket.

Again. I have NOT stated that America doesn't need manufacturing. I am stating that making cubicle walls is not how we are going to compete. We are going to have to compete by making something that requires labor more skilled than your average chinese person is capable of. That is IF we decide to go back to a manufacturing centric economy.

 

[WhipperSnapper]

No, that's how you drive up inflation and lower the standard of living amonth the lower-middle and lower classes.

Wait a second. What if wages increase 30% while prices increase only 25%? Then what? What if invisible and conveniently ignored back-end costs decrease as a result of having less unemployment and underemployment?

Why do you think that an American free market is necessarily doomed to fail? What if we had a predominantly capitalist internal free market? What if every other nation suddenly vanished and we were left alone? My understanding of capitalist theory is that as long as people have the freedom to produce and benefit from their acts of production that the society will have prosperity regardless of whether or not other nation's exist.

Recognizing that American wages and expectations are too high, and then fixing them, is how you restore America's competitiveness in the global manufacturing market.

You mean recognizing that wages above fifty-cents-an-hour without labor and environmental regulations are too high?

Protectionism doesn't work. Just because the liberals think something should be economically viable does not make it magically so. Taxing imports like that only drives up costs to the point where the government now has to subsidise the purchase of those products. It's not going to move manufacturing stateside because it still won't be economically viable.

And free trade and global labor arbitrage don't work either because they destroy people's incomes while the prices of goods don't decrease as much as people's incomes nor nearly as much as the huge social costs that result from job loss. It ends up resulting in the owners of capital becoming wealthier since they can keep a larger fraction of a worker's contribution to the production of wealth as profit. (If you can understand how supply and demand works, try to think of what would happen to wages, the price point, if the supply of labor increased almost infinitely overnight relative to the demand for labor. Even a lowly factory worker can understand it.)

Just because "no-think" free market dogmatists say that protectionism doesn't work and free trade and global labor arbitrage work does not magically make it so.

 

[SammyJr]

Slight problem there buddy, we kinda need them to keep loaning us a LOT of money. They don't mind so much because we send it right back to them but the moment we do what you suggest is the moment they cut off our credit line.

The other part of the equation is to place a tax on the wealthy. Either they pay it or they leave the money in their companies to hire Americans, thus reducing the social services roles and Government expenses. If they decide to "leave", we just tax their imports.

 

[William Gaatjes]

Your post is true, but it is missing the point. The middle class is better off now than compared to generations ago. I had to argue that point in a thread about globalization a while back.

However, the argument is that the middle class is shrinking, which is also true. The middle class is gauged by the current standards of living and not from how things were a generation or two ago. In comparison to the wealth owned by our country and its inhabitants, the middle class has a much smaller share than in the past. Society is pushing forward and bringing great wealth to us all, but it is concentrating at the top. The numbers in the link bear this out.

The point isn't whether or not the middle class is better off now than in 1970 (or whenever). It is that the middle class is shrinking.

In many countries that is considered above middle class to upper class.

Maybe it is time to work harder and be more efficient.

3 Car's and a big house, usually 3 plasma screens as well...
3 computers. Too fat to walk or take a bicycle. What poor folks...

I can understand that the larger distances and erratic bus times can be annoying. But there is one thing obvious, you are rich.

 

[SammyJr]

Made up numbers are made up and can say anything you want them to.

I could have come up with the same scenario and said that the American-made cooking pots cost $30. That doesn't make it any more or less realistic than your scenario.

So what? The point is, Americans employed with living wages can and will spend more money and won't burden social services. If you and I have to spend a little more on shit at Wal-mart, so be it. We'll get it back in the form of increased spending at our respective employers, more potential buyers for our homes, and a lower national debt.

Fact of the matter is this: American wage laws and worker expectations are too high. They cause inflation. Inflation is a tax on the poor and decreases the buying power of the poor. Period. No amount of made up scenarios will change those truths.

The poor don't have any buying power because their jobs barely provide anything to spend. Why can't the wealthy take a cut for a change?

 

[William Gaatjes]

My wife is Chinese and I live in their community and have an interesting insight to both their country and their way of thinking.

Let me tell you....we simply cannot compete with them in manufacturing. It is a lost battle. No western country can.

They do not care about worker rights. They will happily pay someone next to nothing and force them to work 70 hour weeks. If they are sick for more than a couple of days, they'll just replace them.

They do not care about industry standards and safety. They do not need to spend millions making their factories safe or limit pollution.

They have hundreds or millions of cheap workers that will work for next to nothing and a government that doesn't care about safety nor pollution. My brother-in-law who lives in China earns about 60 USD per MONTH.

It is a lost battle. We brought this on ourselves anyway.

If that is the case, there will be a lot less chinese people in the near future.
I understand now why electronics had to be lead free.
And why electronics have to be of "less polluting" material.

 

[drebo]

Wait a second. What if wages increase 30% while prices increase only 25%? Then what? What if invisible and conveniently ignored back-end costs decrease as a result of having less unemployment and underemployment?

Why do you think that an American free market is necessarily doomed to fail? What if we had a predominantly capitalist internal free market? What if every other nation suddenly vanished and we were left alone? My understanding of capitalist theory is that as long as people have the freedom to produce and benefit from their acts of production that the society will have prosperity regardless of whether or not other nation's exist.

I don't. I think that an American free market would be exactly what we need to fix a lot of the issues we're having.

However, that market needs to actually be FREE and not encumbered by artificial wage floors and overreaching regulation.

What we're arguing here is whether or not American manufacturing can be viable in the global market. The answer, currently, is "no." We're also discussing whether or not protectionist tarriffs would be a viable method to make American manufacturing viable in the domestic market. The answer to that, currently, is also "no."

It would be impossible to tax foreign-produced goods enough to make most American goods economically viable, and it isn't because of "back-end" costs. It's because of labor costs.

 

[HumblePie]

Not everyone can own a small business. Not everyone has a tradeable skill. Plenty of people are hardworking but they're not capable of simply working hard on their own. This isn't lazy, this is nature.



Listen to yourself. You talk of a surplus of low skilled labor. Did it ever occur to you that these are people you are describing in such impersonal terms? Americans? Your neighbors? Did it ever occur to you that their plight might affect you in some way? Did it ever occur to you that their lack of spending power negatively affects your business or employer? Deny it all you want, but some day, this will all catch up to you.

To the first part. Umm, You are correct. Not everyone is going to come out on top. I know he's was just a comedian, but it is still one of my favorite quotes for Carlin. But statistically speaking half of any given population is below average. As such, not everyone can or should make it to the top. Why should every American household be a "middle class?" Not to say I wouldn't love to live in a utopian world, and I do what I can to help out others. However, I don't think every American should own a house, a car, a big screen TV, a cell phone PDA, or some other frivolous piece of junk that is not needed for life. If they can work for it and afford it then great. If not you won't find me shedding a tear.

As for your second point... wow, just wow. I am all for trying to better the "plight" of my fellow man. But I'm not doing so with a romantic notion about it. I realize some people are unskilled. If they want more from life, they need to figure out how to get it and not have it handed to them.

 

[WhipperSnapper]

Labor is always the single largest cost associated with manufacturing. Whether that comes in the form of R&D or other related costs, it's always the biggest cost factor. Payroll taxes and benefits, and more, all contribute to the labor cost of manufacturing and are always dependent upon wage. If wages go down 40%, actual labor costs associated with manufacturing are going to go down MORE than 40%.

So, decreasing wages will, at worst, have a net zero affect on domestic buying power. What it will do, however, is restore our competitiveness to the global arena and provide us with the capability to export goods (this is how the wealth of a nation is increased).

But labor costs aren't all of the costs. You're assuming that the price of goods can decrease faster than the wages. You're also assuming that we can maintain a zero-dollar trade deficit.

I don't see how we can gain something for nothing simply by reducing the scale of wages and prices. Why not just keep wages and prices where they are and decrease the value of the dollar to make American goods and services more affordable for buyers overseas?

I don't think manipulating the value of the dollar will help us for long. Any way you slice it the equation is simple--hordes of impoverished people in other countries are willing to work for far less compensation and in far worse conditions than Americans. By merging the American labor market and economy with the third world, standards of living will average out, resulting in a huge decrease in the standard of living and quality of life for Americans.

There's no way around the huge worldwide supply of impoverished labor in the supply/demand equation without some manner of trade protectionism.

 

[WhipperSnapper]

Fact of the matter is this: American wage laws and worker expectations are too high.

Is it possible that the upper classes are receiving more wealth than they deserve? Is it possible that the expectations of the rich are too high?

 

[WhipperSnapper]

I could go on and on. Those are all INTANGIBLE service related "goods" whose value gets added to the tangible cubicle wall. The direct manufacture of the item is only 1 step in the process. That single "job" is a drop in the bucket.

Again. I have NOT stated that America doesn't need manufacturing. I am stating that making cubicle walls is not how we are going to compete. We are going to have to compete by making something that requires labor more skilled than your average chinese person is capable of. That is IF we decide to go back to a manufacturing centric economy.

Oh, I fully understand the value of intellectual property. However, if 90% of the human effort is expended on "thinking" about how to produce the wealth (or, as actually happens, how to distribute it and move it around) and only 10% is actually spent on producing the wealth then we're going to be impoverished--you can't eat ideas. At some point the tangible wealth has to be produced.

Why do you think that Americans are magical creatures capable of having skills, both manufacturing and intellectual, that exceed what the Chinese and other people are capable of having? (The average Chinese IQ is 105 while the average American IQ is 98, I think.) What do you think we can do better than people in other countries (other than making movies and rap music)?

Even if Americans are more highly skilled, they have to be more highly skilled such that they can compete against fifty-cents-an-hour without labor and environmental regulations.

There's just no easy way around this. Our problem is global labor arbitrage and not one of productive ability. If Americans don't throw off their free market dogmatism and face reality, global labor arbitrage will transform them into a third world country. This "recession" that we are experiencing is not merely a cyclical recession. It's a semi-permanent long-term structural change brought about by global labor arbitrage.