On The Decline

America is on the decline.  Manufacturing has moved to countries with cheaper labor.  But these workers are not only cheaper to turn a wrench.  Countries like India, in particular, are moving rapidly up the food chain – from computers and call centers, to health and legal services.  The labor market is increasingly a global market, especially for services that can be transmitted over the Internet at no cost.  No job is safe.  Every American worker needs to ask, “What am I doing that a foreign worker can’t do for half the price?”

The recession, the falling dollar, the budget deficit and the trade imbalance all have the same root cause.  The American worker is no longer competitive with foreign workers.  How can an American auto worker expect to make $70 an hour, and live in a fine house, when his Japanese counterpart makes $28 and lives in a tiny apartment?  And if Yoshi goes on strike, his job moves to Korea.

The chart below shows that manufacturing employment in America has fallen by more than 25% since 1990.  That’s headcount, too, not per capita.  Five million jobs lost, from a trend line that had been reliable for thirty years.  In per-capita terms, the decline is even worse because our population has grown.

Manufacturing

Compare that chart with the trade deficit, shown below.  The decline in manufacturing goes hand-in-hand with the trade imbalance, something that has been described as the “hollowing out” of the American economy.  We produce less for export, and we buy our consumer goods from abroad – with borrowed money.

Trade Deficit

Each year, America falls behind in international trade, to the tune of almost $1 trillion.  Our trade deficit feeds into the current-account deficit, which – along with government spending – feeds into the national debt.

We are living on borrowed time, literally.  We continue to enjoy a high standard of living only because other countries, notably China, lend the money to finance our deficits.   This is like losing your job and living off your home equity until the bank evicts you.  Sadly, many Americans have already had this very experience.  The rest of us will, sooner or later – if not directly, then indirectly, as the federal government burns through our collective “equity.”

China, in fact, has already asked the IMF to develop a new kind of debt for them to invest in – and reduce their exposure to American Treasury notes.  Right now we barely manage to pay the interest on our national debt, which is kind of like – well, you know, you have credit cards.

We can expect the American standard of living to decline gradually until it meets the “market clearing price for labor,” somewhere between Seoul and Bombay.  We can expect to work more hours – if we can even get work – for lower wages, and we can expect the tradeoff between high taxes and social spending to become increasingly poor.

This isn’t a rapid decline, and it hasn’t been without rallies, but it is inexorable.  It has been steady for the past thirty years.  Picture how a bear market looks on the stock charts.  Civil unrest in America might be avoided if the trend line is long enough to allow the next generation to lower their expectations.  Look at what England is going through, with hooliganism and police cameras on every street.

We can see the beginnings of social programming already, with the younger generation discovering the “joy” of things other than material success.  Jeremiah congratulates them on their newfound asceticism – they are going to need it.

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