Wages have to fall even more, and this will lead to the demise of the middle class and probably major problems (or changes) for an economy that has been heavily dependent on consumer spending.

Apr 27, 2012 -- 11:09AM, SecondSonOfDavid wrote:

Apr 26, 2012 -- 11:23PM, paeng wrote:

Wages have to fall even more, and this will lead to the demise of the middle class and probably major problems (or changes) for an economy that has been heavily dependent on consumer spending.

Ummmmmmmmmmmmm ... no.  It doesn't work that way, except in paranoid fantasies.

As an example, my company has a factory in China.  They put it there for logistical reasons (end users in Asia and the Middle East, for example), as well as easier access to raw materials used to forge the valves.  And yes, labor was cheaper there.

Was.

As time went by and the factory succeeded, we expanded and then found out there was a limit to the labor pool.  And the workers required more pay, not only collectively but in each case; the success of the factory raised everyone's wages.

This happens because there is always demand for skilled labor.  So company A has to maintain labor costs at the least, and usually those costs will grow even if - especially if - the business is successful.  If the company won't raise wages, they lose their best workers to competition, so they pay more to stay competitive.

People whose wages go down consistently are those with no skills and/or bad work history.  In those cases, the responsibility is not on companies who won't hire someone they can't use.  It's on the worker to make themselves desirable to employers.

 

What you just described proves my point. That is, what happened to the U.S. is now taking place in China, and what is happening to the U.S. will soon take place in China.

Put simply, as wages go up, more move to service as manufacturing is outsourced. Consumer spending goes up, and the same process takes place in the countries where manufacturing was outsourced.

Ultimately, increasing debt and spending coupled with financial speculation leads to one credit crunch after another, and ultimately, a resource crunch.