Friday 5 August 2005

Pic of the day: Foreigners sure are nice! Don't you just love how they make stuff cheaper? And how they take your jobs? It's the same thing, really.
(Ironically, in this picture from the anime Mahou Sensei Negima, the foreigner is European and the local is Japanese. The world certainly is a round place.)
(And yes, pictures from popular anime seem to draw random readers to my website. If you are one of them, welcome. ^_^)

Wages and strawberries

The key to understanding the world economy is buying strawberries.

Here in Norway, the strawberries are expensive this summer. This is not because of the King or the Prime Minister or a Zionist conspiracy. It is an act of God, in a manner of speaking, but only in so far as God let it rain on righteous and unrighteous during much of the season when the strawberries should have matured. The harvest rotted away. People still want strawberries though, and since there are fewer of them, they pay more to secure a basket for themselves.

The opposite can also happen. For instance when Spain invaded South America, they brought home ships loaded with gold. The value of gold fell, first in Spain and then across Europe as more of it flooded the market. Too bad for those who had saved their fortune in gold, but nice for those who wanted to buy.

This is how markets work: When supply goes up, the price goes down. When supply goes down, the price goes up. Changes in demand have the opposite effect, of course, but tend to be more gradual.

***

Now in all free countries and then some, the labor market is also literally a market. It is just slower moving, usually, because humans take a lot longer to mature than strawberries. However, the same thing that happened with the Inca gold can also occasionally happen with human labor. Indeed, it just did. We just found a continent full of it.

Bolton, the new US ambassador to the UN, has famously said that he would want the security council to have only one permanent member, to reflect the real power in the world. Likewise many others like to talk about how the US is now the only superpower in the world. And in many cases this is true. But when it comes to labor, China with its 1.2 billion humans and India with roughly 1 billion certainly are superpowers too. With the end of the cold war, a world divided was united. One of the half worlds had labor and money. The other had only labor. If you have ever mixed a drink, or even made lemonade, you can probably guess what happens.

The relationship between money and labor has been profoundly disturbed. Since humans flow a lot slower than lemonade, it takes years and decades for the process to complete. But the direction of it can not be mistaken. There is plenty of labor, so it grows cheaper. There is less than plenty of capital, so it will get harder to come by. In short, wages and salaries should go down, while capitalists grow richer. And this also came to pass.

Actually, the trend has been for wages and salaries to rise, and at a fairly brisk clip. But this trend has now been broken. Some places, including the USA, has seen people work longer hours for the same pay, and it has become harder to keep a job if you are not in good shape. The reason is of course that there is always someone else to take the job if you don't do it well enough. And in manufacturing, the factory must compete against its rivals in China where the wages are much lower. Unless you produce more with fewer workers, you cannot win.

China, India and Brazil are building new high schools and colleges. Today they compete in making T-shirts. Tomorrow they will compete in everything except possibly teaching English. It has just begun. And like the price of strawberries, it is not because of your President or Prime Minister, it is not because of Jews or the Muslims or the Illuminati. It is because labor is a commodity. Wages are based on supply on demand, not on a divinely inspired sense of righteousness. You didn't complain about this when the wages were rising. Now the tide has turned, for a few decades at least. Unless some horrible disease makes humans scarce upon the face of the earth, prepare for it to continue this way.

(The flip side of this is, as you may have noticed, that lots of stuff has become cheaper and cheaper for each year. First clothes and shoes, lately electronics, and it just keep spreading. So even if you don't get richer, you get a bit richer anyway. This probably doesn't make you happy, though, since the bastiches with lots of moneyare getting even richer even faster than you. Most people don't get happy just because they have what they need, they keep comparing themselves to others. But that is a long story in itself, and most people think that isn't a part of economics. I disagree, but more about that elsewhere.)