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This is where it gets complicated. If the worker in those factories gets more disposable income, takes his gf to see an American movie and buys an American electronic game then those dollars will have come back.
And now we get to the big question.
The question that no one, including Krugman, ever addresses.
Going back to the period of 1890-1930 the US went through a seismic economic change. At the begining of this time approximately 80% of the population was involved in agriculture and 20% urban. Tremendous increases in agricultural production started changing these ratios. The number one factor in increasing agricultural production is, oddly enough, transportation. The railroad allowed the terra firma to be more rationally used in the market. The reason that Teddy Roosevelt went to the badlands was to see cattle production. The railroad made it possible to raise cattle in the interrior of the country for free on unused grazing land and then take the cattle cheaply to cities for slaughter and distribution. Refigeration assisted. The average caloric intake of the urban worker increased and greater urban populations made possible (in the same way that irrigation created Angkor Wat a thousand years earlier).
The collapse of the 30's occurred during a time when millions were entering the cities, some from immigration and some from rural areas.
The industrial demands of WWII transformed the manufacturing base, both in size and efficiency of the country. The actions of the war eliminated the industrial base of Europe and Japan. After the war the US emerged as the primary manufacturing source for the world. In order to facilitate distribution of our products and establish political stability we assisted in rebuilding these other countries.
By the end of the 1960s the economic transformation was complete and 80% of the country was urban/manufacturing based and 20% (if that) was directly or indirectly involved in agricultural production. Direct agricultural production now claims about 2% of the population.
Of the 6 billion people that now inhabit the planet about 1 billion live in developed economies that mirror the US.
The other 5 billion are in economies that mirror the US from 1890-1930 with approximately 80% agricultural and 20% non agricultural.
For the last 20 years those ratios have been shifting. Eventually they will all flip and it will be 20% agricultural and 80% non agricultural.
That means that there will be approximately 3 billion people moving from subsistence agricultural to urban/manufacturing jobs.
The reason that Americans (and others) are having to work twice as hard to make half as much is that there is this surplus of unskilled labor. Increased supply overwhelms demand meaning that inevitably wages are under pressure.
Added to this the ironic fact that corporate interests are able to benefit from things like repatriated profits outside the US means that there is a growing division of wealth in developed countries, in the US where there is limited social services these effects are being felt more forcefully by the average family that now faces the haunting specter of not having access to medical services.
No one is talking about this surplus of 3 billion workers that is flowing into urban areas around the world. Of course China is the largest example. You could close every factory in China and not a single low skilled low capital job would return to the US. They would go to other markets llike SE Asia which are marginally more expensive than China but still have large excess workers. Also when Burma, N Korea become regularized politically tens of millions of workers willing to work for pennies will be added to the market in the same way that E Germany swamped the labor markets of West Germany.
When other areas like Bengladesh, Africa and middle Eastern countries become more integrated more unskilled workers will enter the market. China will then find that it is facing competition and its low income wages will stagnate as well.
It seems clear to me that second only to global warming this transition of rural to urban jobs of approximately 3 billion workers is the most important global problem we face. We need to have a working wage job not only for Frank Jenkins in Detroit but also for Xuan Ng in remote China.
Marx envisioned a completely fungible employment market. Worker one day, manager the next.
While obviously wide of the mark the fact is that increased computerization is putting more and more people into a 'fungible worker category', the same skills in Long Beach and Shanghai can accomplish the same job and must compete with each other.
We need a national policy that aggressively developes 'non fungible jobs'. Not every manufacturing job is worth fighting for. Low skill, low capital jobs are not in our competitive wheel house. We should be pursuing a mixed strategy that focuses on high skill/low capital jobs, high skill/high capital jobs. We should also, obviously, be aggresively pioneering new green industries. There are other non fungible jobs that the US should be pursuing aggresively, the best example is tourism. It is a market sector that cannot be taken elsewhere. The US remains one of the cheapest tourist destinations in the world. You can reasonably stay in a motel in the US for $ 50 per night while the rest of the world (including Asia) is going to cost you two or three times that. We also obviously have a tremendous tourist infrastructure.
The big big issue that will have a telling impact on all of our lives for the next 40 years is the transformation of other economies from primarily rural/agricultural to primarily urban economies. It means that the world is growing together into a single economic system rather than having wars in competing systems.
Somehow we need to arrive at a point where everyone who wishes to work can be guaranteed employment. Like 'warp' speed on Star Trek we know they were able to get it by having a system where everyone works and is productive, we just can see how they got there.
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