Greenspan's "Protectionist" Babble

[unlawflcombatnt]

Alan Greenspan continues to advance the cause of our Corporate Plutocracy by warning of "protectionism." He certainly DOES want to protect corporate profits, however, by encouraging Corporate America to shop globally for the cheapest labor on the planet. Unfortunately, he's completely un-interested in protecting American workers. He offers the same old tired, illogic solution of improving worker job skills and training. The only "training" American workers lack is the "training" to live on $2/day, like their foreign slave-labor counterparts


Until recently, American corporations had been unable to destroy their own consumer market, because they were forced to maintain wages at a certain level. This was due to the limited supply of workers in their native country. The labor force supply-and-demand effect created upward pressure on wages. This prevented American industry from reducing wages below a certain level. In turn, this maintained aggregate labor/consumer income at a high enough level to purchase American products. With global labor competition, wages can be reduced drastically. With this reduction, however, comes reduction in the consumer income that purchases American products. This drastic reduction in aggregate consumer income will lead to a drastic reduction in consumer demand. If the average American worker is making $4/day, due to glogal labor competition, who will buy American products? CEOs? Congress? Bill Gates? Martians? Can the super rich really buy enough computers and SUVs to maintain American consumer spending and demand? If not, then where will the profits come from with drastically reduced sales? Can profits be made without selling any goods? Can labor costs be reduced enough to make profits without any sales?

Corporate America fails to understand that maintaining worker wages is to their advantage. It's not only to their advantage, it's a necessity. American labor "costs" actually provide the income to buy American products. (Labor costs = consumer income. Labor cost reduction = consumer income reduction. In reality, it's worse than this. Consumer income reduction is > than labor cost reduction.) To restate this, as corporations lower labor costs, they lower consumer income as well. Corporations decrease the size of their own market by reducing aggregate consumer income. If they continue to increase profit margins by reducing labor income, they'll eventually be unable to sell their products. There won't be enough income to purchase America's production. Remember slavery? Slaves never bought any products. They didn't have any income. If we all become slaves, we won't have any income either. And corporate America won't be able to sell their products to anyone. Corporate America will have destroyed itself, due to its own greed.

Henry Ford said that he paid his workers well so they could buy his cars. Corporate America should take heed of this. The most productive economies we've ever had were when worker wages were at their highest inflation-adjusted level. Some basic economic principles are being ignored by Corporate America. Consumer spending is 2/3 of economic activity. That makes consumer spending the biggest part of the GDP equation.

(GDP=Consumer_spending+investment+government_spending+trade_balance)

In reality, investment spending will be self-limited if consumer spending isn't maintained. The benefits of investment are limited by investment "opportunities." Those opportunities are created by consumer demand for production. In turn, that demand is created by consumer spending. Such spending is limited by consumer income. Since outsourcing reduces consume income, it reduces the investment opportunites created. Any further capital investment simply overvalues the assets and equities in which it has been invested. It provides excessive capital which can then be siphoned off into corporate profits, stockholder dividends, lobbyist payments, payment to think-tank propagandists, and Republican campaign contributions. Thus, outsourcing facilitates reduction in consumer demand, excessive capital, and the inappropriate "expenditures" that excessive capital goes into.

Exports depend on foreign labor income.That foreign income supplies the spending power that creates foreign consumer markets. With the exception of Japan, South Korea, and Europe, average foreign worker income is miniscule. The total dollar-value of the demand they can provide is minuscule. CAFTA countries, for example, have a GDP of $32 billion. This is less than 1/2 of 1% of our $12 trillion GDP. How much can they really add to our GDP? Almost nothing. As such, they cannot provide large export markets for American products. In contrast, CAFTA workers can potentially add another 20-35 million to America's 149 million labor force. This will put many Americans out of work, and create severe downward pressure on the wages of those Americans who are still working. This will shrink consumer income, and reduce the that 2/3rd's contribution to our GDP. It will shrink demand for production. It will shrink our economy.

Imports will continue to subtract from GDP, as long as slave-labor wages are encouraged by free trade/slave labor agreements. Imports further reduce demand for American production, and the labor required to provide that production. Again, the reduce labor demand reduces the number of Americans working, and the wages of those still working. The reduction in aggregate consumer income further reduces the "consumer spending" component of the GDP equation. It further reduces GDP, and further "shrinks" our economy.

unlawflcombatnt

[wli]

1. IIRC this is called "currency circulation" n/t

[unlawflcombatnt]

2. Could you elaborate on this? n/t

[wli]

3. basically consumers have to be paid enough to consume

Otherwise you get into a negative feedback loop of demand, oversupply, etc. like the Great Depression.

[unlawflcombatnt]

4. I agree completely

That's exactly what caused the Great Depression. Overinvestment, oversupply, and insufficient consumer demand.