Macro Economics
American Labor; Not What it Used to Be?

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By washcomp
January 8, 2009

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Please note that the word "class" used below is not meant to be derogatory, but rather descriptive of an economic strata of society on an admittedly over-simplistic basis.

While browsing in a bookstore a couple of weeks ago, I noticed they had on sale a compendium (with CD's of everything) of the cartoons from the "New Yorker" magazine from the early 1920's until about 2004. While the book was shrink wrapped, I've always appreciated their humor and picked up the massive tome sight unseen.

I've been reading the cartoons of the "roaring '20s" and the depression of the 1930's. Most could be run today with the same effect without anyone noticing that they were 70-80 years old.

The one thing that did stand out was the constant reference to the wealth of the investors of the 1920's (which were not only upper, but middle class). These people, were of the generation which fought in World War I.

I did a bit of research. Ignoring the ultra-wealthy (this group, regardless of era, can always afford luxuries which the rest of us can only dream of), the middle class lived in a life style which has not been approached since. Domestic assistance (servants, cooks, whatever) was expected and apparently generally affordable as an example.

Also, looking at the projects accomplished (subways, roads, new areas of cities and so forth), it is obvious that blue collar workers made substantially less (from a relative standpoint) than the middle class (which of course made them also affordable as domestic help).

The stock market crash and the ensuing depression created a great "reset". Ignoring the various New Deal stimulus packages (they were what I would call maintenance), it took until the end of World War II to prime the pump. The end of the war was a generation later (25 years) from the beginning of the 1920's.

Organized labor flourished. The US had little competition from manufacturers around the world and trade boomed.

Relatively speaking, the middle class was economically humbled at the same time as blue collared workers (on a relative basis) increased their economic level. The gap between the average economic basis of these two groups has, if anything, gotten smaller over the past 60 years.

While this has been taking place in the US and in a reconstructed Europe, the "emerging" countries of the world - first Japan, followed more recently (and to a large amount replace) by China, Korea, etc. have been successful because the gap between their classes more closely resembles what we had in the 1920's than what we have today. I suspect that the (admittedly, by proportion, small) Chinese middle class who are addicted to foreign imported products has an absolute cost of living which approaches our, but their relative standard of living is much higher.

Why? Simple - the rest of the population is compensated at a MUCH lower basis.

We live in a society which has grown up with the expectation that "All men are created equal". I don't disagree with this laudable sentiment. What it has created, however, is the inability of our acceptance of a overtly class stratified society. There is no pool of cheap labor which can live above the "poverty level" yet be competitive with their peers in other countries in manufacturing, construction or similar jobs. Now it's true that construction is generally a "local" endeavor (although the Chinese have successfully "exported" construction labor to work of projects they fund in third world countries), but that said, the relative cost to the taxpayer of US construction projects is an order of magnitude more expensive (in real dollars) than they were in the past. Look at the public buildings in your city or town (and their ornate designs), look at the scope of your public transportation systems and similar infrastructure. Many of these projects were completed in short periods of time, and at prices affordable by society at the time they were built, because of the discrepancy in labor costs which our current society finds distasteful.

It is one of the more wonderful events which has taken place in modern history, that in the USA, workers have actually "thrown off their chains", but the result has been that we can no longer sustain the type of industry which made us great.

We find ourselves today in an economic predicament not entirely different than 1931 but our societal expectations are different. We do not expect to live just above a subsistence level in the economic downturn, but strive to keep our existing standard of living (which has largely existed on borrowed time and money) since the 1990's. We expect the world to recognize our "greatness" and lend us money without end in order to maintain the life style to which we have become accustomed. We hold them hostage by saying that unless they lend to us, dire things will happen and we won't buy any more of their product.

Well dire things are happening all on their own and we're not buying any more of their product. Our manufactured products (what there are left of them) have a cost structure related to our current social values which makes them uncompetitive abroad and currently too expensive at home.

In my opinion, something has to give.

I'll leave it to METAR (and anyone who has had the patience to plow through the above rant) to discuss ways out of the box we find ourselves in, and (maybe) more importantly, how we can protect ourselves (if not profit) from the economic storm which is going to buffet us over the next few years.

Wishing I didn't write the above,