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Corporate profits are at an all-time high while wages are at an all-time low. Countless pundits continue touting this fact, but none of them are explaining why.
Classic economic theory explains markets seek equilibrium between supply and demand. During that search, when supply rises, prices for said supply drop. In the case of the disappearing American middle class, corporations have simply expanded their definition of labor supply to include human beings everywhere on Earth (Cf. only US workers). During the 70′s and 80′s, US corporations primarily hired labor in the US. As skills in the US improved amidst a constant supply, the price of labor (i.e., wages) rose.
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Then, in the 90′s globalization became a primary business strategy. Corporations soon ignored borders like never before. They searched the world for the same skills at a cheaper price. As soon as the new matches were found, US factories shuttered faster than Charlie Sheen went crazy. The result:
US wages are at an all-time low, but take a look at historical wages in China, India, Vietnam and every other primary labor center for US/Global corporations. Wages in these countries are increasing in proportion to falling wages in the US!!
Is this un-American, as Henry Blodget asks? As an American, I hate seeing the middle class disappear. However, protectionism and wages are not rights protected in the Constitution. As a culture, what we possess is an entrepreneurial ethos stronger than the world has ever seen. And we need to use that unique energy to create companies that require higher value skills which will in turn increase wages for American workers.
However, if we want to regress back to the past and onshore jobs that can be purchased abroad for cheaper, HERE’S THE SOLUTION:
Assign tariffs to foreign labor.
By assigning tariffs to foreign labor, the government can effectively drive the cost higher to make American labor an equally logical choice. Plenty of industries are protected by tariffs. Personally, I think it’s the lazy route (and I’d prefer to see the US create higher wage skill sets around new and fast-growing industries); but, if we want to go back to the way things were, this is the only way.
As the presidential election season intensifies, you’re going to hear a lot of rhetoric about corporate profits and wages. Instead of blaming either political party, realize they BOTH created the policy guidelines resulting in today’s state of affairs. Then, let’s look in the mirror and be honest that every time we bought something simply because it was cheaper than a US produced alternative — e.g., Wal-Mart (NYSE:WMT), Toyota (NYSE:TM), Target (NYSE:TGT), Dollar General (NYSE:DG), Costco (NASDAQ:COST) — WE THE PEOPLE HELPED MAKE THE BED WE SLEEP IN.
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