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American Prosperity and Price Deflation

 
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PostPosted: Fri Feb 13, 2009 3:52 am    Post subject: American Prosperity and Price Deflation Reply with quote

American Prosperity and Price Deflation
Written by Richard M. Ebeling
Friday, 09 May 2008

The decades between 1865 and 1900 were the years of America’s industrial revolution. Before this time, America had an economy of primarily light industry and farming. By the beginning of the 20th century, however, the United States had surpassed all of the European nations in manufacturing, including Great Britain and Imperial Germany, the industrial giants of the time.

Mass immigration from Europe, huge capital investments, and technological improvements provided the means for America’s growth and rising standards of living that soon became the envy of the rest of the world.

During the years after 1865 prices in general slowly fell from their Civil War highs. A Consumer Price Index that stood at 100 in 1865 had declined to 57 by 1900, or a 43 percent decrease in prices over a 35 year period. On average prices went down around 1.2 percent each year over three and a half decades.

At the same time, indices of money wages in agricultural and manufacturing employment both rose during this period as labor was becoming more productive due to capital investments, even with a rising population resulting from millions of immigrants joining the American work force.

The index of money wages in agriculture rose by almost 40 percent between 1866 and 1900, while money wages in manufacturing went up 20 percent during this period. Thus, on average, money wages in general increased by about 30 percent for workers as a whole.

In combination with the productivity gains and the capital investments that resulted in the 43 percent decrease in the price level, this meant that in the last 35 years of the 19th century the real standard of living of the American people increased by almost 75 percent as measured by the positive change in the average American’s buying power in the market place.

My comment:

It's remarkable, the U.S. was able to surpass Britain and Germany in the Industrial Revolution so quickly a hundred years ago. A similar feat today would be a country surpassing the U.S. in the Information Revolution (however, currently, the U.S. leads the rest of the world combined in the Information Revolution, in both revenues and profits).

The U.S. generally had strong disinflationary growth, since 1982, when the Information Revolution began, while living standards rose at a steeper rate through production and consumption, which benefited the masses.

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Why China will not surpass the U.S. anytime soon:

In the U.S., the goal is money (for capitalists, entreprenuers, and managers). Capital creation and efficiencies are by-products. The goal in China is to strengthen government, and it's a system that creates less capital and efficiencies.

I stated before: "In 2007, U.S. per capita income was $45,000 and China's per capita income was $2,000. If the U.S. gains $700 and China gains $300 for each $1,000 in trade, then U.S. income rises less than 2% and China's income rises 15%." However, China's state-owned firms don't take social costs into account (which is a one-time cost). So, they've been able to maintain profit growth.

Unfortunately, the Chinese masses don't earn enough to buy many private goods, including foreign consumer goods (at world prices), to help correct global imbalances through consumption. When faced with slave wages or starvation, almost everyone will choose slave wages.

The U.S. has little or no control over many foreign economies. China is the world's low cost producer, because it's willing to work almost for free, paying low wages and using economies of scale. The communist government becomes stronger, while the masses become weaker. Here's what ChinaLaborWatch.org found:

Illegal discrimination based on gender, age, height, province, and origin
Wages below subsistence level.
Workers earn $0.40 an hour, $3.22 a day. After mandatory deductions for dorm and food expenses, daily earnings drop to $2.55 at most
Routine 10 hour shifts, six days a week
Mandatory overtime shifts, without full overtime pay
Denial of paid holidays, marriage and bereavement leaves, to which Chinese workers are legally entitled
Lack of benefit rights for workers such as health insurance, work injury insurance and pension programs
Physical and verbal abuse

Mattel and foreign distributers received $9.65 for each Barbie Doll produced in China, while China received $0.35 for labor, plant & equipment, and electricity.

The masses have too little money to buy goods at world prices (Wal-Mart is a luxury store in China, so they shop at Wu-Mart; they can't even afford the insurance on a Toyota, etc.).

"Some expenses in China:

A quart of milk:
$0.82 --over 2 ˝ hours wages
A liter of orange juice
$1.45 --five hours’ wages
A “Big Mac” with fries and a Coke
$1.93 --6 ˝ hours’ wages
A movie
$ 1.81 --over 6 hours’ wages
A pair of Nike sneakers
$81.93 --nearly 5 ˝ weeks’ wages
Men’s new shoes
$24.10 --80 hours’ wages
One man’s t-shirt
$ 2.41 --7 hours’ wages
A cheap, plain woman’s 2-piece outfit
$12.05 --more than 40 hours’ wages"

"A spokeswoman for Kaisi Metals acknowledged that working conditions at the factory in Guangdong province were not ideal, but insisted that employees chose to work long hours. Workers were paid US$24.33 (€18.69) a week — or US$0.32 (€0.25) per hour — for a 77-hour work week." "Grueling, exhausting, numbing, dangerous and poorly paid would be the only way to describe the work day at the Kaisi Metals factory," the report said.
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