Monday, November 16, 2009

Why Right-Wing Economists Are Hated

Remember that globalization thing? Remember how good it was going to be for all of us? Cheaper imports, more jobs for everyone! Ice-cream yesterday and tomorrow! Now read this:

American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close.

Of course, workers in the United States should earn more than their peers in China, Moldova or Vietnam. Americans take advantage of the higher productivity that makes their country rich: better education and infrastructure, abundant capital and a strong work ethic. But how much higher should American wages be?


Global wage convergence is great for the poor but tough on the overpaid. It's possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.

The required cut may be smaller. But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment.

Anything would be better than that. Both moderate inflation to cut real wages and a further drop in the dollar's real trade-weighted value might be acceptable.

Note how the gap is to be closed by American wages falling, as opposed to other wages rising. Note how the discussion appears to be about nominal wages, not real wages which would take into account differences in the cost of living. And note how the only differences discussed are about productivity. There are a few other things differing between countries, too, such as environmental laws, worker protections and so on.

I wonder if these guys realize that their own work is eminently out-sourcable and that they should probably take a sizable cut in their earnings to stay competitive?