America's Labor and Living Costs

For over 40 years the U.S. has supported an economic environment that facilitated and encouraged corporations to seek out lower costs with the belief that such an environment was good for America; and it was, to an extent. In the 60’s and 70’s the U.S began transforming itself from a manufacturing based economy to a consumer driven economy. Prior to this evolution, America manufactured everything imaginable. America mined its own raw material, grew its own crops and livestock, built the growing electronics industry and exported massive amounts of goods and services. The U.S was the financial powerhouse of the world. Soon after WWII, America appears to have grown tired of hard work for a day’s wages, and deemed their battlefield victory worthy of a new lifestyle; Consumerism.
The 60’s saw Nixon visit China and open the gates for U.S. exports; a vast new market with a billion new consumers! It also saw an influx of cheap foreign oil that fueled Americans thirst for the transformed auto industry, which thrived on massive new roads built for “military” transportation purposes. The ‘70’s saw our exported products being copied and exported back to the U.S. at much cheaper prices. The cheap oil suddenly stopped flowing with the ’72 & ’79 OPEC oil embargos. Times had changed, but we didn’t see it.
By the ‘90’s America had lost its mojo, but didn’t know it. Cheap foreign labor was available throughout the world, and American industries chased it at a fevered pace. American jobs were being exported and supplanted with credit cards, home equity lines and an exploding equity market. Leverage was becoming the American way. Cheap foreign labor fueled corporate earnings, which fueled stock prices, which fueled quick and easy money. Unfortunately, American’s had forgotten the lessons learned by our parents and grandparents in the Great Depression.
2007/2008 will probably become known as the Brick Wall. The time when America realized that paying the piper required real money, not more pre-approved credit lines. With jobs gone to other countries, corporate earnings maxed-out and the debt collector on the phone, America awoke to the new reality; the fun was over.
What made America great must transform it again. But, like the past, America must start from scratch. It must learn once again to compete on a global market place. American has to roll-up its sleeves and get dirty; work hard for a day’s wages. With much of our manufacturing gone, America must re-build itself from within, and to do this America must be willing (or forced) to take less and expect less. There is no other way out.
Soon, if not already underway, American’s must concede that in order to survive they will have to accept lower wages and benefits to compete against the foreign labor force. Gone are the days of lucrative retirement plans and long vacations. Gone are the days of loose money, extravagant houses and new cars for our teenagers.
Some may argue that through this process, the cost of living will also decline as the reduction in labor costs will filter down and cause prices to fall. I disagree. Foreign labor costs are rising while domestic labor costs are falling. This occurrence will, at best, stagnate prices, but prices won’t decline. There still remains a tremendous gap between us and them. We have seen the maximum benefits from cheap foreign labor, and as the wage gap narrows, prices will most likely rise; although slowly. This scenario will stress America’s labor force as they struggle to balance “needs” verses the learned mind set of “wants”. A fundamental economic change is underway. No political party can stop it, but who will embrace it?