RebelCapitalist: Financial Information for the Rest of Us

The Race to the Bottom

Nov 17, 2009 | By: Mr_Blue | (0) Comments | Permalink | Tags: middle class, race to bottom, reaganomics, neo-liberal

This is the course we are on because of, in very large part, the economic policies that have dominated policy debate since 1980’s. These disastrous policies were sold to us via slogans: “Small government”; “Government is the problem” and “trickle down economics”. But it was all smoke and mirrors and a way for multi-national corporations and their owners and senior executives to gain control of the instruments of government and use it to their advantage and at our expense. Finally, the supporters of these policies came out in the open and proclaimed their goal in this New York Times article.

The first line of the article says it all:

American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close.

Oh, but the article continues:

The big trade deficit is another sign of excessive pay for Americans. One explanation for the attractive prices of imported goods is that American workers are paid too much relative to their foreign peers.

Amazing. Now, workers are to blame for huge trade deficits. That is an interesting notion especially considering that workers have the least amount of influence with policymakers. But check this doozy out:

Global wage convergence is great for the poor but tough on the overpaid. It’s possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.

Amazing. A 20% cut - wow. The authors are focusing on average real wage. So, let’s look at average hourly REAL wage (meaning this wage accounts for inflation) and use the most recent hourly REAL wage (seasonally adjusted) for production and non supervisory workers. Average hourly REAL wage: $8.59 - or $284.48 weekly

So, according to the authors of this article - U.S. workers should lower their hourly REAL wages to $6.87 or about $220 per week. Wow.

I know its difficult to think in terms of real wages. So, let’s take a look at nominal (or actual) wages. The average hourly wage (seasonally adjusted) for production and non supervisory workers is $18.59 or $615.33 weekly or $31,997 annually.

Here’s some perspective:

the poverty line for a family of 4 - $22,050 (annually). But average family size is 3.14 and the poverty line for a family of 3 is $18,310 (annually).

What about living expenses on that $18.59 per hour, $615.33 or $31,997? And the authors say in the interest of ‘global balance’ workers should reduce their wages more. How do these people expect us to live? That’s right - at a much lower standard of living. Something comparable to some developing country.

MEDIAN monthly home owners cost: $1514

MEDIAN gross rent: $824

Maybe a better way to put this $18.59 per hour/$615.33 per week/$31,997 per year in perspective is by showing an example of family budgets across the U.S. The article: Basic family budgets: Working families’ incomes often fail to meet living expenses around the US does a great job but keep in mind this is from 2005:

Amazing. Working class families are struggling now living on $31,997, and people who adhere to this ideology that is destroying working class families, want us to take a pay cut so that ‘global balances’ can be restored. This is no joke.

The theory or ideology that began under Reagan has been to put constant downward pressure on wages whether through the systematic weakening of unions or providing trade and tax policies that encourage multi-national corporations to ship U.S. jobs to developing countries. These ideologues thought that if they could flood the U.S. with cheap imports everything would be fine. They were terribly wrong - rise in cost of living is growing faster than the rise in wages. So, as a result of stagnate wage growth and struggling to maintain a certain standard of living we’ve incurred large amounts of debt. And that is where we are today. Stagnate wages, a huge amount of household debt and very little to show for it - particularly in terms of savings.

And these yahoos what us to take a pay cut. Amazing.