Are Subsistence Wages Killing U.S.?
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NYBiker
Jun 3, 2008, 11:18:47 AM6/3/08
to American Axle Workers
http://www.minyanville.com/articles/dollar-gm-Federal-Reserve-Globalization-general/index/a/17384
I received an interesting email last week from Minyan "MC," who is
concerned about globalization's effect on jobs and wages. Let's tune
in to his thoughts:
There is a mania in this country to slash wages to a subsistence level
(or worse). This is a symptom of the greed and corporate cronyism that
is killing the country.
The powers-that-be that run the US are determined to crush wages, even
when they realize that people are doing without food, health
insurance, etc. We keep hearing news stories that about 10% of our
population doesn't have sufficient food? The root cause is the mania
to cut wages and lay off workers.
I was born into a country that emphasized hard work, loyalty,
stability, and "if you get educated and skilled, work hard, work
smart, and behave yourself, you will do all right." I no longer
believe that lie.
The article MC was referring to when he emailed was GM buys out 1/4 of
wage earners.
General Motors Corp. (GM) said Thursday that a quarter of its U.S.
hourly workers will take the company's latest buyout and early
retirement offers, opening the door for new hires who will make less
money.
Under a new labor agreement reached last fall with the United Auto
Workers union, GM may hire up to 16,000 non-assembly workers at half
the old wage of $28 per hour. Detroit-based GM conducted its last
round of buyouts in 2006, when 34,410 workers left the company.
GM's largest supplier, American Axle and Manufacturing Holdings Inc.,
said Wednesday it will cut more than half of its U.S. hourly work
force, or 2,000 jobs, through early retirement and buyout offers,
plant closures and layoffs.
Problems At GM Deep And Many
MC, the problems at GM are deep and many. I'm no fan of GM. However,
had it not taken these measures GM would not be in business today.
Frankly, I'm surprised it's still in business, given that they've been
behind the curve in production costs, it has a mess on its hands with
GMAC financing, Ditech Mortgages, and is still hooked on a business
model that is producing trucks and SUVs, which are waning in
popularity.
GM has been losing money on every car it makes, more often than not,
quarter after quarter. I believe the only reason GM is still in
existence is that it has been able to go to the bond markets
repeatedly to get financing.
GM Monthly Chart
Click to enlarge
Source Of Frustration
Looking beyond GM, the frustration MC expresses stems from four
sources.
1) Globalization
2) A sinking U.S. dollar
3) Misguided policies
4) Waning U.S. influence in a world economy
Globalization
The Internet has literally been a productivity miracle. Information is
available in seconds that might have taken weeks or longer to find
before. This has made the outsourcing of tech jobs, call center jobs,
and other service jobs much easier. The trend to outsource service
jobs is just beginning. It's going to spread to various accounting
jobs, and even medical jobs. For example, an X-ray can be taken in the
U.S., sent over the Internet to India, diagnosed in India, and only
the treatment needs to happen in the U.S. Also, large corporations
like banks can outsource accounting functions en masse. It's going to
happen.
On the manufacturing side, the U.S. has been losing jobs to Mexico and
China for quite some time. Outsourcing of manufacturing is more
mature, but it's still causing the wage pressures you speak of. But
what's the alternative? As mentioned above, if GM continues to pay
workers what it's been paying them, GM will go bankrupt sooner rather
than later. The union had no real choice other than to go along.
Want top traders to sit at your desk and share their insight and
ideas?
Minyanville's Buzz and Banter- 14 day FREE trial
Sinking U.S. Dollar
The sinking U.S. dollar is something we can and should address. After
all, it's not how much one makes that is important, it's how far what
one makes goes. Sadly, the U.S. has been seriously debasing the dollar
ever since Nixon closed the gold window. Credit has been running
rampant, and at times (but not now) there has been runaway monetary
printing.
Bernanke supports targeted inflation. My belief is that positive
inflation is positively theft. Rising prices increases property taxes,
sales taxes, etc, conveniently without legislation. Inflation also
benefits those with first access to money (banks, brokers, and the
already wealthy). By the time credit is extended to those lower on the
economic ladder, the party is about over. The subprime and "liar loan"
mortgage fiasco is a clear example of this principle in action.
Treasury Secretary Paulson talks about a "strong dollar" policy but
that is nothing more than lip service. Instead, there has been what
appears to be purposeful debasement of the U.S. dollar on the
misguided idea that it will increase exports. The unwanted side effect
is that few jobs are created while everyone pays through the nose in
higher import prices and gasoline.
Misguided Policies
Part of the rise in oil prices is due to the falling dollar, but that
is not the only factor. Another part of the equation is geopolitics,
and a third factor is misguided policies on ethanol. At the top of the
list in poor policy decisions is our attempt to be the world's
policeman. We can no longer afford that luxury.
Congress spends money it does not have on all kinds of silly programs.
Both parties go along with it.
And instead of addressing real problems, Congress is looking into
commodities speculation and threatening the oil producers. See
Commodities Speculation Symptom Of Larger Problem and Congressional
Insanity: Sue OPEC over Oil Prices.
Inquiring minds may also wish to consider Bankruptcy Reform Act
Finally Blows Sky High.
Finally, the city of Vallejo, California went bankrupt and that
symptomatic of the fact that cities and municipalities have been
promising government workers more in salaries and pension benefits
than cannot possibly be met. The few (primarily union workers in
Vallejo's case) have benefited at the expense of the many (the
taxpayers). During the calendar year 2007, there were 292 City of
Vallejo employees who had total gross wages of $100,000 or more.
I received an interesting email last week from Minyan "MC," who is
concerned about globalization's effect on jobs and wages. Let's tune
in to his thoughts:
There is a mania in this country to slash wages to a subsistence level
(or worse). This is a symptom of the greed and corporate cronyism that
is killing the country.
The powers-that-be that run the US are determined to crush wages, even
when they realize that people are doing without food, health
insurance, etc. We keep hearing news stories that about 10% of our
population doesn't have sufficient food? The root cause is the mania
to cut wages and lay off workers.
I was born into a country that emphasized hard work, loyalty,
stability, and "if you get educated and skilled, work hard, work
smart, and behave yourself, you will do all right." I no longer
believe that lie.
The article MC was referring to when he emailed was GM buys out 1/4 of
wage earners.
General Motors Corp. (GM) said Thursday that a quarter of its U.S.
hourly workers will take the company's latest buyout and early
retirement offers, opening the door for new hires who will make less
money.
Under a new labor agreement reached last fall with the United Auto
Workers union, GM may hire up to 16,000 non-assembly workers at half
the old wage of $28 per hour. Detroit-based GM conducted its last
round of buyouts in 2006, when 34,410 workers left the company.
GM's largest supplier, American Axle and Manufacturing Holdings Inc.,
said Wednesday it will cut more than half of its U.S. hourly work
force, or 2,000 jobs, through early retirement and buyout offers,
plant closures and layoffs.
Problems At GM Deep And Many
MC, the problems at GM are deep and many. I'm no fan of GM. However,
had it not taken these measures GM would not be in business today.
Frankly, I'm surprised it's still in business, given that they've been
behind the curve in production costs, it has a mess on its hands with
GMAC financing, Ditech Mortgages, and is still hooked on a business
model that is producing trucks and SUVs, which are waning in
popularity.
GM has been losing money on every car it makes, more often than not,
quarter after quarter. I believe the only reason GM is still in
existence is that it has been able to go to the bond markets
repeatedly to get financing.
GM Monthly Chart
Click to enlarge
Source Of Frustration
Looking beyond GM, the frustration MC expresses stems from four
sources.
1) Globalization
2) A sinking U.S. dollar
3) Misguided policies
4) Waning U.S. influence in a world economy
Globalization
The Internet has literally been a productivity miracle. Information is
available in seconds that might have taken weeks or longer to find
before. This has made the outsourcing of tech jobs, call center jobs,
and other service jobs much easier. The trend to outsource service
jobs is just beginning. It's going to spread to various accounting
jobs, and even medical jobs. For example, an X-ray can be taken in the
U.S., sent over the Internet to India, diagnosed in India, and only
the treatment needs to happen in the U.S. Also, large corporations
like banks can outsource accounting functions en masse. It's going to
happen.
On the manufacturing side, the U.S. has been losing jobs to Mexico and
China for quite some time. Outsourcing of manufacturing is more
mature, but it's still causing the wage pressures you speak of. But
what's the alternative? As mentioned above, if GM continues to pay
workers what it's been paying them, GM will go bankrupt sooner rather
than later. The union had no real choice other than to go along.
Want top traders to sit at your desk and share their insight and
ideas?
Minyanville's Buzz and Banter- 14 day FREE trial
Sinking U.S. Dollar
The sinking U.S. dollar is something we can and should address. After
all, it's not how much one makes that is important, it's how far what
one makes goes. Sadly, the U.S. has been seriously debasing the dollar
ever since Nixon closed the gold window. Credit has been running
rampant, and at times (but not now) there has been runaway monetary
printing.
Bernanke supports targeted inflation. My belief is that positive
inflation is positively theft. Rising prices increases property taxes,
sales taxes, etc, conveniently without legislation. Inflation also
benefits those with first access to money (banks, brokers, and the
already wealthy). By the time credit is extended to those lower on the
economic ladder, the party is about over. The subprime and "liar loan"
mortgage fiasco is a clear example of this principle in action.
Treasury Secretary Paulson talks about a "strong dollar" policy but
that is nothing more than lip service. Instead, there has been what
appears to be purposeful debasement of the U.S. dollar on the
misguided idea that it will increase exports. The unwanted side effect
is that few jobs are created while everyone pays through the nose in
higher import prices and gasoline.
Misguided Policies
Part of the rise in oil prices is due to the falling dollar, but that
is not the only factor. Another part of the equation is geopolitics,
and a third factor is misguided policies on ethanol. At the top of the
list in poor policy decisions is our attempt to be the world's
policeman. We can no longer afford that luxury.
Congress spends money it does not have on all kinds of silly programs.
Both parties go along with it.
And instead of addressing real problems, Congress is looking into
commodities speculation and threatening the oil producers. See
Commodities Speculation Symptom Of Larger Problem and Congressional
Insanity: Sue OPEC over Oil Prices.
Inquiring minds may also wish to consider Bankruptcy Reform Act
Finally Blows Sky High.
Finally, the city of Vallejo, California went bankrupt and that
symptomatic of the fact that cities and municipalities have been
promising government workers more in salaries and pension benefits
than cannot possibly be met. The few (primarily union workers in
Vallejo's case) have benefited at the expense of the many (the
taxpayers). During the calendar year 2007, there were 292 City of
Vallejo employees who had total gross wages of $100,000 or more.
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