STAFF NEWS & ANALYSIS
A Lack of Freedom Is Destroying the Middle Class, Not Chinese Competition
By Staff News & Analysis - March 26, 2015

Guess What's Destroying the Middle Class? … Perhaps the biggest question in American political economy right now is why middle-class wages have been falling. There are three main hypotheses. Roughly, these are: Robots, unions and China. – Bloomberg

Dominant Social Theme: Something is always destroying jobs. People are helpless to withstand the challenges.

Free-Market Analysis: Once more this weary meme is dredged up. We suspect it will be regularly trotted out within the context of "robots stealing our jobs."

Imagine you were on a farm and robots were taking over all the menial tasks. The average economically illiterate person would suggest that sooner or later you would be out of work and starving on the street.

In reality, you might find the leisure time to experiment with plants and invent a kind of hybrid that grew better and faster. You would only find time to do this because your other tasks had been taken over by robots.

As a result of your plant experiments, your fruit and vegetable crops grew bigger, faster. Soon you were eating more vegetables and fruit and selling more as well. You were perhaps growing healthier because of your diet while gaining wealth from your sales.

So much for the zero-sum idea that inevitably when technology "steals" your menial job, you will immediately crawl off somewhere like a wounded animal to die.

More:

The robots theory gets by far the most play in the news media, since it's by far the scariest — if automation is replacing big chunks of the human workforce, things are only going to get worse as robots become more capable and efficient. This interpretation has tentatively been embraced by many on the political right, since it doesn't imply a need for substantial government intervention in the economy (though it might imply a need for redistribution). The unions theory is favored by the political left, since it implies that giving more institutional power to this traditional liberal power bloc would shift the distribution of national income toward workers.

Neither side really wants to blame China. The right generally represents business interests and capital owners who have made a lot of money off of China, and hope to make a lot more. The left is afraid to go against the free-trade orthodoxy that has dominated postwar American economic thinking, and also fears a potential cold war with China. But there's just one problem: The evidence may point to least favored answer being the right one.

Having ruled out robots and union-busting, the article goes on to summarize the "research" that shows China's low-income productivity is destroying US jobs.

The first paper cited is from the National Bureau of Economic Research, by economists Avraham Ebenstein, Ann Harrison and Margaret McMillan. It finds that when wages are declining in the US it's because of US jobs are flowing overseas. Competition from Chinese imports is also a factor, but less so.

A paper by economists Michael Elsby, Bart Hobijn and Aysegul Sahin examines why "the share of income going to labor has decreased in the U. S." The paper finds that import competition is most responsible – and China provides most of the imports.

The article also cites the "famous 2013 paper by economists David Autor, David Dorn and Gordon Hanson, entitled 'The China Syndrome: Local Labor Market Effects of Import Competition in the United States.' "

This paper concludes as follows:

Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import competing manufacturing industries…[I]mport competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment.

The article utilizes this conclusion to propose its own: "There is a growing body of research showing that globalization – and, in particular, the rise of China – has been the biggest factor hollowing out the American middle class."

Never mind that the three studies cited by the article seem to contradict each other in terms of assigning blame. They all mention China, so presumably that constitutes "a growing body of research."

The article examines how China's pernicious influence can be counteracted, then concludes that "reshoring" initiatives are not going to be effective, as they are difficult to negotiate and implement. Trade barriers have a similar problem: Companies will simply look for other low-cost providers abroad.

Eventually we are advised that the "only solution … is to wait." Eventually, China's wages and benefits will catch up to the West's and then it will not be such a formidable wage competitor.

Of course, there is another solution as well, which is the one we prefer: Get rid of Western (domestic) legislative and judicial manipulations that have placed labor in a difficult position in the first place.

Get rid of intellectual property laws and corporate personhood and the work force would benefit inordinately. Entrepreneurialism would rise again as would labor creativity. Do away with monopoly central banking and the horrible centralizing booms and busts would diminish as well.

This entire article, like so many others, is framed within the context of modern labor laws and a monetary and corporate environment that is endlessly and expansively supported by state force.

Let a market emerge free of authoritarian business and monetary structures and "human action" may do the rest. People will be free to create a variety of wealth-enhancing solutions and these will occur no matter the "competition" of robots, union-busting legislation or Chinese competition.

After Thoughts

When confronted with business and labor challenges, people often seek new frontiers and innovative work methodologies. What holds them back is a lack of freedom, not marketplace competition and hapless workers willing to work for a pittance.

Posted in STAFF NEWS & ANALYSIS
  • PatFields

    ‘Lack of Freedom’? In what ‘status of Person’, exactly?

    “A citizen of the United States is a citizen of the federal government …” (Kitchens v. Steele 112 F.Supp 383)

    “Citizenship of the United States does not entitle citizen to privileges and immunities of citizen of state, since privileges and immunities of one are not the same as the other.” –K. Tashiro v. Jordan, 256 P 545 (1927)

    Sad to say, this ‘lack of freedom’ is self-inflicted.

    “The only reason, I believe, that a free man is bound by human law, is, that he binds himself.” –Chisholm v, Georgia, 2, Dall 440, 455. (1794)

  • Excellent!

  • 2prickit

    What holds them back is a lack of freedom

    Evidence that federal courts cannot enforce, for example the Right to keep and Bear Arms, examine the following up-and-coming proposal in the US Senate. Their very existence indicate Senators have a great fear of removing federal judges simply on the constitutional basis of BAD BEHAVIOR, breaking of their oath of office.

    * An amendment to prohibit ATF from banning bullets — in the way it tried to do with AR-15 ammunition;

    * An amendment to prohibit any more anti-gun amendments in the Senate — be they semi-auto bans, magazine bans, universal gun registries,
    etc. — unless anti-gunners get more Senate votes than they will ever conceivably be able to achieve;

    * An amendment to shut down Operation Choke Point — which has been used by Eric Holder to try to financially strangle the gun industry;

    * And there is an amendment to prohibit the ATF from copying 4473’s and using them to compile a national gun registry; and another one to push national concealed carry reciprocity — in a way that allows residents of “constitutional carry” states to carry without asking “May I?’

    These proposals are simply redundant legislation. What part of any a Constitutional Amendment becomes difficult? Any part– the legalese
    language of the sophisticated justice department has moved apart, clause by clause and away from its original simple and complete comprehensiveness: — divide and conquer.

  • Lyn Morris

    …..always blaming something(s) or someone(s) but never ever looking at the truth, the facts. Super review DB.

  • Praetor

    Try to start a business in the U.S. today. The only why, have tons of money. The gov; is making it almost, if not, impossible. The average guy, doesn’t and can’t get the funds just to pay the gov; its bribe, to get started. If you are starting a business in the U.S., you had better have an idea or product, so astonishingly unique, it can’t be ignored, so, you get the funding, to pay the, bribe. How many new and better products and services are not started or not bought to the marketplace, because of funding, Why is this. Competition, the stifling of competition. Corporations and their lackey gov; stooges, stifling any and all competition. The Middle Class is the Business Class. Competition is Freedom, Competition is innovation, Competition is Entrepreneurial and Enterprising, Competition creates Initiative and Imagination. They are stifling the U.S. Citizen from Competing with the World. That is why, Freedom is being stifled in the U.S., to keep us from Competing. I’ve, surmised, many times if the U.S. citizens where completely free from gov; suppression and degradation, the citizens would build their own rocket ships, and leave this gawd for sake-n planet, and leave it to the slave owners, Scum!!

    • Gil G

      Why should there be a “middle” class at all? By traditional measures a middle-class American is very wealthy on a global scale. Nonetheless what is an American supposed to do that makes them middle-class? If they have rare highly-productive skills then they should be wealthy. If they have mundane skills then they should working class. Free markets should see a divide between the highly-productive and not particularly productive.

      • Praetor

        Your a nut!

      • alaska3636

        “Free markets should see a divide between the highly-productive and not particularly productive.”

        One-dimensional logic. It is not enough to say things, one should have things to say. Ya’ dig?

        • alaska3636

          I provide as example of word tossing: Social justice implies a division between moral and immoral animals.

    • docellis124

      Praetor- this is bogus…..I started a business in 1997 without government permission or involvement using money that I had earned in my day jobs to finance the business and still have the business, even now.

      DB’s point that declining freedom (more accurately, declining liberty) is leading to declining living standards among some folks is more accurate than your fantasy.

      • Praetor

        So, which part is bogus, besides building rocket ships. I started a business in early 90’s also, to start the business, the up front money was unbelievable to comply with the rules and regulations required by state and fed regulators (licensing, permits, background checks, inspections, accounting and bookkeeping, minimum wage, all required, just to name a few, and all this to satisfy gov. regulators, and this be back in early 1990’s. So, to start a (Legitament Business!!) today, I can’t imagine the up front cost to just meet the required rule and regulations of the government. So, what bogus fantasy did I or the DB, SPIN.

        • docellis124

          noted……DB did not spin…..

  • Gil G

    Yeah right. The American middle class is disappearing due to global competition. If Bob wants to mow you lawn for $100 and then Sanchez says he’ll do it for $50 then the price of mowing your lawn is $50 and to pay Bob $100 is to engage in charity. Either Bob accepts $50 or he stays unemployable. I’m sure most here wouldn’t listen to Bob when he says no Mexicans and cheap labour be allowed into the U.S.. By the same token a low-skilled American who has nothing to offer but his ability to do menial factory work is never going to underbid a Chinese worker and even if he could he sure as hell won’t make to the middle-class.

    • Maybe Bob could do something else while Sanchez is moving the lawn. Your contempt for people’s ability to survive and even thrive is sadly noticeable.

      • Jim Kluttz

        Excellent point, DB. I think most world improvers, in their arrogance, badly underestimate the “common” persons’ ability to adapt and thrive. After all, each human being living today is a part of an unbroken chain of ancestors who managed the trick. It seems that, as the world improvers wanted, “common persons” in the land of the free have been convinced to question their own abilities to survive and prosper. Now what?

        • People rediscover their potential for “human action?”

      • WPalmer

        I find the argument a bit Pollyannish, It is hard to be creative when you have nowhere to live and no money.
        No more than a handful of people have ever achieved this.
        We have a huge population of homeless and destitute people to test this theory, albeit set back by drug use, but not very much of anything is coming out of that community. They are accused of being idle and told to go and get a job…. What job?
        Industry has sold its skill, equipment, its innovation and moved their facilities en masse to countries like China because of labour costs, union, and environmentalist free environments.
        100 years of industrial development, expertise and innovation virtually disappeared overnight.
        Most innovation and development has been done, what follows is the evolution of that technology, which cant happen if you are no longer employed by it or if it is not here to be employed by.

        • “No more than a handful of people have ever achieved this.”

          Pre-Civil War, the US and its farming communities seem to have managed to make a go of it without a huge population of “homeless and destitute” people. What you are referring to in our view is a cultural issue …

          • Gil G

            How do you know everyone in the “good ol’ days” had a roof over their head and food on the table? Did things spiral downwards after the American Civil War and stay that way?

          • Evidently.

        • alaska3636

          A three act play.
          Act I:
          Man goes to a doctor.

          Man: Doctor, I have these symptoms.

          Doctor: I can alleviate those symptoms with these.
          Act II:
          Time passes. Man returns to doctor.
          Man: Doctor, my symptoms are flaring up worse than ever!

          Doctor: You have achieved tolerance. With these, combined with this, your symptoms will be relieved.
          Act III:
          Man: Doctor! My left leg has been numb for two days! I haven’t been able to see out of my right eye for three! I am coughing up blood! And! I still have that sniffle!

          Doctor: I’m going to recommend you to a specialist.

        • FEEuser

          After you write “because of” is where you get into trouble. Let’s refocus.

          The primary cause of our moribund economy is not “labour costs, union, and environmentalist free environments.”

          The primary mechanical cause is government interference with human action.

          Government is a band of thieves writ large. It rules us by the unethical, criminal use of FORCE. Government is the tip of a sword wielded by the power elite against the rest of us. Government as we know it operates on the assumption that coercion is the only way to get people to do the “right thing.” It never seems to occur to anyone to ask what the “right thing” IS, or why only people in government should be allowed to define it. The individual citizen, buyer, seller, producer, and human actor, gets completely LOST in this scenario because the power elite vision of how things ought to be is hopelessly collectivist.

          Since we have allowed these gangsters to take over, our standard of living has gone down and we have lost our freedoms. What did you expect?

          One cannot blame one’s economic problems on various “competitors,” whether from China or anywhere else. Without competition, the dynamism of human life would grind to a halt.

          There is yet a deeper cause to all this mess. The fault really lies in ourselves for naively swallowing the monstrous lie that the human race cannot maintain good order or prosper without the super-authority of government.

          Continuing in this vein, we are also at fault for acquiescing to the logical consequences of such a super-authority over economic/human action: government inspired monopolies, protectionism, etc. Under this system of controls, some of us, at least, won’t have to work as hard as we otherwise would have. This may be true for the beneficiaries lucky enough to be able to capture the government and its legal system, but for far too many of us, the result is a lower standard of living, unemployment, and penury. It is, in Bastiat’s words, “legalized plunder.”

          As Mises wrote when discussing free trade and the irrelevance of WHO controls sea ports,

          “The free trader, who advocates complete freedom of movement, cannot understand what sort of advantage it offers to a people if it can send its export goods to the coast over its own state territory.”

          Mises then goes on to excoriate imperialism:

          “Imperialism needs seaports because it needs naval stations and because it wants to wage economic wars. It needs them not to use them but to exclude others from them. The nonstatist economy of trade free of the state does not recognize this argumentation.”

          From “Nation, State, and Economy” (1983 [1919]), p. 78-79.

          In other words, too many of us are steeped in “The Anti-Capitalistic Mentality” of which Mises wrote in that fascinating little book (1956) of the same title. We are held spellbound by elitist propaganda and simply don’t see clearly what is holding us back from prosperity and robbing us of our freedoms. When each individual wakes up and realizes this, then progress can be made. What’s destroying the middle class is really its own misguided mind set. The solution to the problem lies in our own character and in the improvement of our education.

          • Very good cites. Thanks.

          • WPalmer

            Like I said, Labour unions, environmentalists, and regulations. Did I say regulations?
            I am a child of 50’s / 60’s (Wilson’s) and a refugee of Industrial Britain, I was an immigrant during Trudeau’s devastation of Canada, and I was a “permanent resident” of 80’s / 90’s Hong Kong prosperity,
            Now I am a retiree in a completely moribund Canada. I have witnessed the great “Socialist Dream ” and its consequences first hand.
            It’s cause and effect can be boiled down to one sentence, even two words….. ideology and incompetence.

          • FEEuser

            Thanks for the clarification. Regulations is right! Good argument for doing away with government and instituting PRIVATE government, i.e., MARKETS, private covenants on private property. A free market beats the hell out of government any day of the week.

            I’m not surprised that you were driven out by the socialists. They destroy everything they touch. Poor Canada. Should be a marvelous country to live in, but the Canadians have succumbed to the same collectivist sing song as Americans, Europeans, and others.

            It will be the great work of our time to root out and destroy this phony ideology that “only government” can deal with our problems. Where peace and free trade are allowed to flourish, the majority of human problems simply vanish.

      • Gil G

        Are you assuming a George Jetson-esque world where now that American workers have been freed from doing menial factory work they are now free to become millionaires via self-employment involving something artistic such acting, singing, etc.? In the real world the handful who do make it become rich while everyone else who doesn’t languishes hence no middle class

    • 45clive

      Of course if your job has been downsized or outsourced you will likely have to mow your own lawn, because you can’t even afford Sanchez. That is what is really happening. Guys who have good middle class jobs can afford to buy domestically produced items or craft items. Guys in lower class jobs can’t and at that point can only afford the cheap imports, if they can afford the products at all. Traditionally middle classes have had discretionary income to spend as they choose. Lower class earners don’t and often do without, which doesn’t do the overall economy any good – domestic or overseas. That is the core of the issue. If wealth is not dispersed the economy cannot grow. The middle class has traditionally funded investments in money markets. Lower classes not so much for obvious reasons.

      • Even such a grudgingly diminute concession to free market principles and human resilience as the Republican and Clinton collusion in welfare reform early in the decade of the 1990s, resulted in millions dropping off welfare rolls and entering the work force, like Star Parker herself points out about herself. The woman who almost single-handedly pushed and shamed Minnesota into vouchers for poor families to put their kids in any school started as a welfare Mom who quit, worked three jobs to put her kids through private school and then ran for City Council for the sake of the other children in her area.

        Tax credits would be better, so that every cent spent on education for the child comes off taxes. That’s also incentive to work or looky here START a NEW business.

        Set the poor free to do business!

  • Fritz Knese

    Real free enterprise does not use slave labor which includes economic slavery. The USA should do all it can to promote free enterprise within its borders and not trade with others who have essentially slave labor. The Wal Marts of the world should not get away with using slave labor to make profits in the name of free enterprise. You are totally correct about corporate personhood, intellectual property, etc. Unfortunately it is hard to see how a free enterprise system can evolve from where we are now with 85% of the wealth in the hands of the top quintile.

  • lulu

    Lots of points to comment on, but i want to start with our capacity to survive. We may have the ingenuity and creativity as well as connections or network plus community of a sort, but we as North Americans have been ‘softened’. Unless there is an ability to maintain a reasonable infrastructure that includes adequate shelter, food, and medical goods and services, a lot of people will be walking on the edge of ability if not to survive but to be productive. We are not physically nor mentally equipped to be self sufficient and in particular in view of the kinds of places where we are drawn to live. So i am not sure what degree of collapse of the middle class we are pondering here, but it is a truth that in the absence of the health care we have come to expect and generally receive, life doesn’t proceed very well or very long. Certainly humans can do it, but it might take a generation or two to realign ourselves. Have i heard wrong that thousands are about to have their water shut off in Detroit? Try living without that convenience for a while. We need a middle class and it needs to be healthy and reasonably happy in order to use the creativity within; however, if one’s focus is singularly on survival, there is not much left for other things in spite of necessity being the mother of invention. If we are talking about gradual system corrections and change, well we can handle that, but an erosion of the viability of our productive class that happens too quickly will not be a pretty situation.

    • Well said, agree all. Our indusrialised world has caused the basic skills of practical living to be lost. There remain many who have retained these skills but would need to be available to train others and how would they be paid? Back to division of labour and civilsation as we know it; it would indeed take some generations to pass before we could recover en mass from a devastation of one sort or another. This will be when local networks and skills come to the fore. WE need to decentralise before we go broke: http://harrogateagenda.org.uk/

  • Greg Jaxon

    I have a new meme to spread about all this: it has the same kind of persuasive power that Piketty’s r>g nonsense does, and the benefit that it is easier to prove and also not utter nonsense. Here goes. (The basic argument is Fekete’s, with refinements by Weiner.)

    Your job is your future income stream.
    When a company “creates a job”, we mean that it commits itself to paying out that income, perhaps in perpetuty (to you and to your successors there), or maybe just for the duration of the current product cycle. The entire salary schedule constitutes the company’s “bid”
    for your labor, and your wage demand is your “ask” for the same.

    Finance 101 teaches us that whatever salary schedule the company envisions, the payment stream has a “present value”.
    Since everyone still listening understands “discounting to present value” I will dispense with the tidy examples.

    Point is that when you hold salary and job duration constant and vary only the risk free rate of return used to calculate the “discounting
    the time(s) until payment(s)” you notice that low interest rates drive up the present value of your job. Even if you only count your own (say 20) years to retirement, the interest rate drop since 2000 has made a 30-40% increase in the present value of your employment.

    Sounds good? Well… are you working 30-40% more or better than you were in 2000? If not, why have you raised your price so much?
    Inflation hasn’t been that bad… Recall we’re holding the other terms of employment constant. Your salary – constant, the work load constant. What you have to bid to get that job – 30% more. What the company has to pay? More.

    This is a severely stark meme.
    High school math.
    Spread the word.

    • I think that there are subtle differences of definition here: Value, Price, Cost all seem to get confused when applying Fin 101. It could be argued that the ‘cost’ to the employer has fallen by virtue of lower interest rates therefore the discounting mechanism is working in his favour. This doesn’t necessarily translate into a higher wage to be paid; all things being held constant the ‘value’ of the work hasn’t changed. I think Greg would be good at the FED or Wall Street using disingenuous arguments which apply only on a theoretical basis; in practice the price of labour is set by referrence to demand and supply given constant skill levels.

    • no republicrat

      so in your world truck drivers should get a big raise because diesel fuel cost reduction?

  • no republicrat

    Chinese Competition, Yes, but not a word about Mexico. ( Sorry if i missed the word. Time restraint.)
    Mexico floods the U. S. with illegals who have to eat. They can’t argue too strenuously about their pay.
    This has been destroying the middle class since NAFTA. OK, add the one sided China trade deal.

  • Barney Biggs

    I look at a world population growing quickly and education elsewhere in the world the equal of NA and I do wonder if any of these scenarios will stand the test of time.

  • Ernie Hopkins

    The whole lack of competitiveness meme is just that. In addition to the issues described, federal/state/local governments have literally outlawed US business operations. The only way around is with lots of grease, all “legal” of course, and never considered as “bribes”. Local and state play along since they typically get more disposable money in the form of grants, no repayment loans, matching funds in a 95 to 5 ratio, etc. than they get off the taxpayers in their locale. The taxpayers are essentially simply the seed money for “greater” things. This is only possible due to monopoly funny money.

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