Writing
a column in the Washington Post edition of December 15, 2019, Robert J.
Samuelson points to a problem in the American economy, and laments that the way
to explain it no longer works. This means we don't even understand why the
problem exists therefore we cannot begin to work on a remedy.
Samuelson
says that the Phillips Curve corresponded nicely with the standard explanation
of Economics 101 as to why wages rose when unemployment declined. He put it
this way: “With low unemployment, workers can quit their jobs and find
something better … Companies have to boost wages to attract new workers or keep
the ones they got.” But this no longer works, he went on to say.
So
the question to ask is this: Why is it that in this era of low unemployment,
the wages are stagnant? Samuelson points out that nominally, the wages actually
went up a little, but just enough to offset the losses that were caused by
inflation. In real terms, however, it can be said that the Phillips Curve has
flattened out. Samuelson dismisses the various theories that came out to
explain the phenomenon. He even came up with an explanation of his own, but
then quickly refuted it. And he ended the discussion by saying that, “the most
truthful answer to nearly all these questions is: We don't know”.
In
fact, before we can answer the question as to why the Phillips Curve has
flattened, we need to answer another question. It is this: Why is it that all
these people could not figure out what's going on. And the answer is simple:
They behaved like someone that's inside a box and trying to figure out what's
on the outside without looking outside. These people have been thinking in
terms of theorems that used to work in situations that no longer exist. Now,
they happen to be in a new situation, and they don't even realize it.
The
current situation is characterized by a global economy with investors that
boast as much loyalty for their homeland as a snake has for the mouse that has
been feeding him. They don't think in terms of a labor market that's defined by
the borders of the jurisdiction in which they find themselves; they have their
eyes and hearts on the jurisdictions that offer them cheap labor and a high
return for their investments.
But
this does not mean they'll burn the bridges they established over the decades
with the jurisdictions that gave them so many opportunities in the past, and
can still be useful to them in the future. And so, while these investors will
not pay the workers of the old jurisdictions much higher wages than they would
overseas workers, they will make them believe they are being pampered. They'll
do so by promoting say, a mail-room clerk to a teller, and giving him or her
the title of customer account specialist or some such grandiose name to inflate
their ego. They'll pay them more than they did for working in the mail-room,
but less than the teller they are replacing.
This
is how the entrepreneurial-investors operate these days. In fact, their tricks
have caused the deep transformation of the advanced economies, especially the
American. For example, they relocated much of what is manufacturing to the low
wage-countries, and relied on the misnaming of some service industries to make
it sound like they did not hollow out America of its industries. The most
egregious example of this, has been to call “technology” what is nothing more
than writing software for a computer. Technology being used to describe the
hardware that goes into a computer, confusing it with software is like
confusing the writing of a novel with the typewriter on which it was written.
And so, when you take this phony technology out of the manufacturing that
America produces, you'll find very little that is American hardware.
In
addition, misnaming products, services and professions, makes the bubble that
is created in America appear like it is anything but a bubble. For example,
paying more for a pair of shoes today than you paid yesterday means that you
paid for inflation. But you're not supposed to know it because you're told that
what you bought yesterday was ordinary shoes, whereas today, you bought an
ergonomic pair. But in reality, what you just bought is no more ergonomic than
yesterday's pair. This signifies that the bubble is here, you're a part of it,
and you don't even know it.
Whereas
America used to lag behind the world in most of the manufacturing industries,
but used to lead in the aerospace industry, it has lost that edge with the
demise of Douglas Aircraft that was bought by Boeing, and now the demise of
Boeing itself.
On
the positive side, America leads the world in food production and agribusiness.
It can also rely on construction and housing that cannot be exported. Those two
industries make up about 40 percent of the country's manufacturing industries.
It means that America can count on this industrial base to fully recover. But
it needs to adopt the right policies and work with the rest of the world rather
than confront it. Meanwhile what can be done in concrete terms to rectify the
situation?
Well,
here is an out-of-the-box idea. If the US government suspects, for example,
that country X manipulates its currency, then everyone that owes money to the
US government, such as buyers of weapons and large multinational corporations
that owe taxes, will be required to pay all or a portion of what they owe Uncle
Sam in the currency of country X. This will raise the value of that currency,
thus offset the effect of its manipulation.