The real cause of the decline in real wages

[tropicalmonsoon122]

Hey everyone,

 

When I claim that America's decline in real wages during the last few decades is attributed to the massive growth in government during that time, people often say that it's because "corporations are moving jobs offshore to China and India, where they're cheaper to hire people.  This drives down wages in America".  What would you guys say to that? 

[Daniel Unplugged]

The government has made becoming a capitalist so difficult through their collectivist indoctrination centres, regulations and taxes, that few are willing and able to tread there. The resulting change in the relative quantities of capitalists and workers has caused the increase in inequality we have seen in the last 50 years. Capitalists are in demand, workers are not.

 

Ask them this. How can is possibly come about that we buy heaps of stuff from China, and they don't buy the equivalent amount of stuff from us. Isn't that how trade works? Then tell them about the federal reserve.

[tropicalmonsoon122]

The government has made becoming a capitalist so difficult through their collectivist indoctrination centres, regulations and taxes, that few are willing and able to tread there. The resulting change in the relative quantities of capitalists and workers has caused the increase in inequality we have seen in the last 50 years. Capitalists are in demand, workers are not.Ask them this. How can is possibly come about that we buy heaps of stuff from China, and they don't buy the equivalent amount of stuff from us. Isn't that how trade works? Then tell them about the federal reserve.

 

Ah yes, that makes perfect sense: The capitalists like to take jobs to China and India because the U.S has made it too expensive to hire low-skill workers.

 

Thanks!

[dsayers]

When I claim that America's decline in real wages

 

Pause. Define "real wages" please. It's been my experience that when people put qualifiers in front of words, it's because they're not actually talking about that word. So are we talking about wages or not? If so, the reason why average spending power is constantly declining is a combination of debt of/theft by the previous generation as well as coercive control of the currency, including inflation which is also displaced theft.

 

As with most problems in the world, it all comes back to the initiation of the use of force.

[andkon]

Hey everyone, When I claim that America's decline in real wages during the last few decades is attributed to the massive growth in government during that time, people often say that it's because "corporations are moving jobs offshore to China and India, where they're cheaper to hire people.  This drives down wages in America".  What would you guys say to that?

Cheap goods increase wealth because people have more left over, with which displaced workers may be rehired so it cannot be that. It's monetary policy: http://mises.org/daily/2847/Credit-Expansion-Economic-Inequality-and-Stagnant-Wages 

Since it's so important, the main point just made needs to be repeated: credit expansion creates an artificial economic inequality by showing up in the stock market and driving up stock prices. Since the stocks are owned mainly by wealthy people, they are the main beneficiaries of the process. The more substantial and the more prolonged the credit expansion is, the larger are the gains enjoyed by wealthy people more than anyone else.

[tropicalmonsoon122]

Pause. Define "real wages" please. It's been my experience that when people put qualifiers in front of words, it's because they're not actually talking about that word. So are we talking about wages or not? If so, the reason why average spending power is constantly declining is a combination of debt of/theft by the previous generation as well as coercive control of the currency, including inflation which is also displaced theft.

 

As with most problems in the world, it all comes back to the initiation of the use of force.

 

I didn't say just "wages" because wages have increased in nominal terms -- it's the buying power that has decreased, which is the important bit.

[dsayers]

Well there's a lot of people out there that use phrases like "wage slavery" as if it's not a contradiction in terms. So if you're talking about buying power, it's probably best to say that instead of "real wage" as if there's wages that aren't real.

 

Anyways, my post spoke as if you meant buying power. Was it all useful to you?

[GRosado]

Hey everyone,When I claim that America's decline in real wages during the last few decades is attributed to the massive growth in government during that time, people often say that it's because "corporations are moving jobs offshore to China and India, where they're cheaper to hire people. This drives down wages in America". What would you guys say to that?

Real Wages are on the decline because prices are rising, the US dollar is depreciating. In other words the purchasing power of the dollar is declining. It isn't the growth in government that has affected it, it is the existing government control over the money supply that had caused it. International labor competition drives down nominal wages which is a measure of wages in monetary terms but purchasing power is the main determinant of changes in real wages. So offshoring doesn't affect real wages.

I didn't say just "wages" because wages have increased in nominal terms -- it's the buying power that has decreased, which is the important bit.

Also Real wages is the proper way to say it so disregard anything said otherwise. That's why nominal is different from real but some people don't know the difference until they look it up on the internet.

If so, the reason why average spending power is constantly declining is a combination of debt of/theft by the previous generation as well as coercive control of the currency, including inflation which is also displaced theft.As with most problems in the world, it all comes back to the initiation of the use of force.

Please elaborate on how debt & taxes reduce real wages?

The government has made becoming a capitalist so difficult through their collectivist indoctrination centres, regulations and taxes, that few are willing and able to tread there. The resulting change in the relative quantities of capitalists and workers has caused the increase in inequality we have seen in the last 50 years. Capitalists are in demand, workers are not.Ask them this. How can is possibly come about that we buy heaps of stuff from China, and they don't buy the equivalent amount of stuff from us. Isn't that how trade works? Then tell them about the federal reserve.

Not only that but China is manipulating their currency on the foreign exchange market & purposefully depreciating the yuan in order to make their exports more appealing. So it's cheaper for companies to hire labor in China.

[tropicalmonsoon122]

Well there's a lot of people out there that use phrases like "wage slavery" as if it's not a contradiction in terms. So if you're talking about buying power, it's probably best to say that instead of "real wage" as if there's wages that aren't real.

 

Anyways, my post spoke as if you meant buying power. Was it all useful to you?

 

Yep, thank you very much!

[Daniel Unplugged]

Real wage: A wage adjusted for the change in purchasing power of the dollar.

 

I want to counter the argument that inflation hurts employees by reducing their purchasing power.

 

Since all money is the same, inflation affects all prices equally. This includes the price of labor. If an employee does not get an inflation matching pay rise, it only appears that the reduction in his real wage is caused by inflation, but in reality, other market forces caused it. His employer took advantage (I'm not saying there is anything wrong with it) of the opportunity to reduce his real wage cost. Since it is for all intents any purposes illegal to reduce someones nominal wage, this is the only mechanism that allows real wages to fall in line with market forces. If the market didn't demand the real wage reduction, his wage would have increased in line with inflation.

[tropicalmonsoon122]

Real wage: A wage adjusted for the change in purchasing power of the dollar.I want to counter the argument that inflation hurts employees by reducing their purchasing power.Since all money is the same, inflation affects all prices equally. This includes the price of labor. If an employee does not get an inflation matching pay rise, it only appears that the reduction in his real wage is caused by inflation, but in reality, other market forces caused it. His employer took advantage (I'm not saying there is anything wrong with it) of the opportunity to reduce his real wage cost. Since it is for all intents any purposes illegal to reduce someones nominal wage, this is the only mechanism that allows real wages to fall in line with market forces. If the market didn't demand the real wage reduction, his wage would have increased in line with inflation.

 

That's an interesting point... Inflation really is the "invisible" tax that many people are not very aware of.  I wonder how much the wages of Walmart employees, for example, would fall if they didn't artificially get increased by the minimum wage?

[dsayers]

I want to counter the argument that inflation hurts employees by reducing their purchasing power.

 

Let us suppose that there are 100 units of currency in existence and you have one. Now let us suppose that whomever controls the currency (this should never be allowed to happen!) creates another 10 units out of thin air. They've effectively stolen 9% of your wealth without having to even touch your wallet/bank account! It wouldn't matter if the theft occurred evenly (it actually doesn't) across all people; it's still theft!

[Daniel Unplugged]

That's an interesting point... Inflation really is the "invisible" tax that many people are not very aware of.  I wonder how much the wages of Walmart employees, for example, would fall if they didn't artificially get increased by the minimum wage?

Yes, inflation is a tax, but it is a tax on anyone who holds dollars, not on income. We cannot know how much Walmart wages would be without the minimum wage, only that they would probably be lower.

Let us suppose there are 100 units of currency in existence and you have one. Now let us suppose that whomever controls the currency (this should never be allowed to happen!) creates another 10 units out of thin air. They've effectively stolen 9% of your wealth without having to even touch your wallet/bank account! It wouldn't matter if the theft occurred evenly (it actually doesn't) across all people; it's still theft!

I agree 100% with everything you just said. The theft is proportional to the number of dollars held.Most people have no need to worry about the inflation tax, since most people hold bugger all dollars. If someone only keeps $1000 in their bank account/wallet, and inflation is 3%, then they only pay $30 in inflation taxes each year.It is also the easiest tax to avoid, just don't hold anymore dollars than you really need to. Keep your money in gold/shares/anything of real value.Actually, shares don't work because you pay capital gains tax when you sell at the inflated price.