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David Schwartz wrote:
> The reduction in salaries will be partially balanced out by the
> reduction in the cost of goods. If outsourcing reduces the labor
> costs of goods, it will reduce the cost of those goods.
A reduction in the cost of goods is otherwise known as deflation. If there
is ever a recipe for a self-destructing economy, it is deflation, more so
than inflation. Deflation is like that proverbial airplane that has stalled
and is now spiralling down to earth, supremely difficult for a pilot to
control. The most staunchly anti-inflation central bankers tend to try to
keep at least a moderate amount of inflation going because deflation is
worse -- deflation could cause street riots as salaries get chopped, or
layoffs mount.
>> I doubt US salaries are ever going to take a tumble just to compete
>> against
>> these other countries.
>
> They could. I don't think it's likely, but it's certainly not
> impossible. More laborers will be competing on an international market
> rather than a national one.
I see salaries remaining stagnant more likely than salaries getting chopped.
Salaries getting chopped will bring the US in line with the rest of the
world more quickly, but at the risk of social upheaval. Just look at the
Soviets.
>> If workers took a pay cut,
>> would manufacturers also automatically lower prices?
>
> No, you have the cause and effect backwards. Prices will lower
> for goods for the same reason they'll lower for wages -- competition
> in a larger economy.
As you know, in the economy, cause and effect play off of each other.
There's no telling which is cause and which is effect most of the time.
>> Not right away, but as
>> their sales start tumbling then they would, but in the meantime, a
>> lot heartache where people can't afford things they were able to
>> afford before,
>> and sellers losing sales that they used to make easily before.
>
> No, sales won't tumble, they'll grow. Cheaper labor means cheaper
> goods that poorer people can affort. Globalization means larger
> markets to sell goods into.
Again, depends on which is cause and which is effect. If salaries are cut
before prices are cut, sales will decline.
>> I know that there is a lot of grumbling in the US about why they
>> should be losing jobs to overseas. Well, the reason seems to be that
>> the overseas market is the market manufacturers are going for now.
>> So you can't be having
>> a high-priced US worker designing and making these products for
>> sales to people who make a tenth of what they make.
>
> You can, so long as the US worker's productivity corresponds to
> his cost.
Productivity is difficult to measure when it comes to those "brainy" jobs.
How do you measure productivity in an engineer? Or worse yet, how do you
measure the productivity of management, especially executive?
It was easy to measure productivity of manufacting jobs for example, just
measure the number of items they make. However, despite increasing
productivity in manufacturing, their jobs were among the first to go.
>> If you want to sell to China or
>> India, then you better hire Chinese or Indians to design these
>> things for their own people at the costs that their own people can
>> afford. If the products that they design happen to be sold back to
>> the US at cheaper rates,
>> then that's only good for consumers.
>
> Good enough to compensate for wage reductions? It's hard to say.
> There could be a few rocky decades as the economy adjusts.
As I said, deflation is a spinning plane out of control.
Yousuf Khan
Hllc.369504$2oI1.273392@twister01.bloor.is.net.cable.rogers.com...
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