The Solution to the Recession: Lower Wages! Hey, Has the Private Sector Ever Been Wrong?

As I have mentioned a number of times before, not only does corporate America own us by manipulating congress to do its bidding, but through something called disaster capitalism, where they now can make the "acceptable" argument for reducing wages across the board as a way to pull us out of a recession. You won't believe the following argument to lower our wages. From a November 11, 2009 CNN article titled, "Americans are overpaid, For the global economy to rebalance, the pay gap between Americans and the rest of the world must shrink:"

U.S. workers are overpaid, relative to equally productive foreigners doing the same work. If the global economy is ever to get back into balance, that gap needs to be closed.

Of course, U.S. workers should earn more than their peers in China, Moldova, or Vietnam. But how much higher should U.S. wages be? The answer depends in large part on two measures: the difference in productivity in making goods that can be traded across borders, and the quantity of such tradable goods. Both measures point to a narrowing wage gap.

The global wage gap has been narrowing, but recent U.S. labor market statistics suggest the adjustment has not gone far enough.

One indicator is unemployment … The 7.3 million jobs lost are more than treble the 2 million of the next worst post-war recession, in 1980-82 … but there could be another factor: the recession has revealed many workers are paid more than they are worth.

The huge surge in reported productivity … that suggests that some production is being outsourced altogether, often to lower-paid foreign workers. The big U.S. trade deficit -- cut in half but still at alarmingly high levels -- is another sign of excessive pay for Americans. One explanation for the attractive prices of imported goods is that U.S. workers are paid too much, relative to their foreign peers.

Global wage convergence is great for the poor but tough on the overpaid rich. It's possible to run the numbers to show that U.S. manufacturing workers should take average real wage cuts of as much as 20% to get into global balance.

A combination of moderate inflation to reduce real wages and a further drop in the dollar's real trade-weighted value might be an acceptable combination.

Welcome to the return of 19th century England.