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Guest Post: Capital Exploits Labor: The U.S.-China Trade And Beyond

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Submitted by Charles Hugh Smith from Of Two Minds

Capital Exploits Labor: the U.S.-China Trade and Beyond

In a classic Marxist set-up, Capital is free to exploit labor because labor is in surplus.

The fundamental dynamics of the U.S.-China trade partnership--certainly the biggest economic story of this generation--boil down to "capital exploits labor." I am well aware that this sort of quasi-Marxist analysis is supposed to be passe in the era where young nerds can start billion-dollar enterprises in a garage or dorm room. Capitalism is a priori "win-win," as all those workers in China are getting ahead while our youth launch $50 million IPOs of social networking Web 2.0 companies.

But if you scrape away the high-gloss propaganda and myth-making, then the fundamental dynamic is definitely Marxist: American capital jettisoned American labor as a costly hassle in favor of cheap, no-hassle Chinese labor.

Since Capital's best buddy in the whole world is the Central State and its proxies, i.e. the Federal Reserve, then the Central State and the central bank (the Fed) smoothed over the exploitation and furthered the consumer economy by inflating a credit-housing bubble. Since 60% of American households own a home, this enabled the increasingly impoverished "middle class" to borrow trillions of dollars in "free" money that could be spent--surprise!--on the new imports from China that filled the shelves of big box global retailers everywhere.

Allow me to illustrate this dynamic by deconstructing two recent stories in the Mainstream Financial Media: 'Superjobs': Why You Work More, Enjoy It Less ( Businesses expect a lot more out of their employees these days...

Taco Bell and the Golden Age of Drive-Thru Operational innovations at restaurants like Taco Bell rival those at any factory in the world.

The first piece describes in clinical fashion how U.S. capital is ruthlessly exploiting labor, demanding more work for little to no additional pay. The underlying dynamic here is purely Marxist: capital encourages over-supply of labor, which then drives the value of labor down. Competition for the few jobs available makes desperate wage-earners willing to put up with exploitation and insecurity because the options of escaping the cycle of centralized Corporate value extraction are insecure and risky.

Global Corporate America fosters a surplus of labor in the U.S. via three mechanisms:

1. vast illegal immigration which keeps labor costs down in low-skill corporate workhouses such as slaughterhouses, fast-food outlets, etc.

2. H1-B visas for high-tech workers (now falling out of favor as those positions are better filled directly in India and China).

3. ship production, software coding and back-office functions to China, and to a lesser degree, to India and elsewhere in east Asia.

The unemployment rate among PhDs is roughly 50%. So much for "winning" by becoming ever more educated. The number of slots in academia is shrinking, and the total number of research positions is relatively inelastic. For more on academia's "plantation economy," please read Faulty Towers: The Crisis in Higher Education (The Nation).

With labor in surplus, capital is free to demand whatever it needs to boost all-important profits. The propaganda machines in HR (human resources) spray-paint slogans everywhere ("you're really really valuable to us, Super-Duper Team Member!") but everyone knows the reality: everybody is dispensible, and everyone but the CIO at a hot startup a few months from an IPO is a corporate serf a paycheck away from being booted out of the castle into abject poverty.

As a result of this exploitation--known as "wage abritrage"-- corporate profits (which boost the wealth of the top 10% who owns the vast majority of stocks and mutual funds) are extremely plump and juicy:

In the second piece, BusinessWeek breathlessly assures us that we have thousands of highly efficient factories running 24/7 in the U.S.--fast food outlets. Yes, all 6,000 Taco Bells are miniature factories pumping out "product" in vast quantities. The fast food "industry" revenues are $168 billion a year, and the workers, we're told, are paid $1.25 above minimum wage--woo-hoo, love you, Corporate America!--which means that the full-time employee makes $16,500 a year.

$16K a year doesn't go very far in urban America, but there is no pressure on Corporate America to raise wages.

I realize that I am an outsider, and biased against global corporate power regardless of the nominal country of origin (down with Canal+!), but I still found it noteworthy that BusinessWeek could run thousands of words of glowing praise for the profitable efficiency of the fast food "industry" without noting that it isn't an industry at all--it's just a consumerist fantasy (fast and cheap meals that require no effort or discipline) that produces "food" of low value that pushes the consumer into ill-health with overloads of salt, sugar, and low-grade fat.

70% of the fast "food" served is via the drive-through window, which suggests that an overworked, stressed out, focused on getting through the next two hours American is opting to shut the kids up and stave off hunger by pulling into the drive-through lane and loading up on a "meal" that they know is bad for them but they have no time to make a real meal at home (or so they've been brainwashed by thousands of hours of adverts).

If Taco Bell is the "manufacturer/factory of the New America," then I think we need a peaceful revolution, and soon. The toadies and sycophants of the financial media are pleased to worship 1) CEOs 2) profits 3) efficiencies 4) globalized "growth" as long as its owned by global corporations and of course, everyone's favorite, 5) innovation, because "innovation" drives profits!

Elsewhere in the latest issue, BusinessWeek breathlessly cooed over digital game company Electronic Arts latest "innovation," which was selling a digital parrot for $10 a pop that sits on your digital warrior's shoulder.

Excuse me while I raise my glass to American "innovation." If pumping out fast food garbage (hello, 60% obesity rates, is there any connection?) is the new American "factory" and "innovation" is selling kids with access to Mom's credit card a $10 digital parrot (and what does the parrot say? "Kill 'em all and let God sort 'em out, brawk!") for their hyper-violent fantasy wargame, then this nation is well and truly doomed.

To reap a fat profit, you need to sell the stuff being imported from the American-owned factories in China. Since wages have been flat for decades, that posed a problem, as consumers were tapped out. Never fear, capital's best buddy rode to the rescue, inflating a stupendous credit-housing bubble that enabled the working stiff to speculate "like the big boys" with free money and limitless leverage, all supported by lies (liar loans) and the misrepresentation of risk.

Wall Street reaped tens of billions in profits originating and packaging the debt loaded onto the middle class debt donkeys--not just mortgages, but auto loans, student loans and even credit card debt.

But now, at long last, capital's doting partner, the Federal Reserve, has run into a spot of bother: the only way to keep profits rising is to crash the dollar, and doing that has squeezed the purchasing power of the debt donkeys. By exporting inflation to China and the rest of the world, the Fed has engineered massive profits for U.S. corporations (when profits earned overseas are stated in dollars, presto, a 10% increase) but it has also forced China into raising prices and fueled an oil and import-driven inflation in the U.S. which has caused millions of insolvent households living paycheck to paycheck to cut back on their consumption.

China has its own problems, namely runaway domestic inflation (thanks, Federal Reserve) and finding places to dump its excess dollars. It was a wonderfully beneficial trade for awhile: we print paper money, and you give us tangible goods for the paper. Thank you very much, and we can offer you some terrific low-yield Treasuries to recycle your growing stash of dollars.

The Fed's inflation games are sinking the value of the dollar, and the Chinese are not amused. They are trying to buy tangible resources with their ocean of depreciating dollars, and even sinking to buying Spanish debt.

They have another problem: as capital's return in China slips, it will exit China just as fast as it exited the U.S.

There is a grand irony in that dynamic: a supposedly Communist country trying to run a central-command quasi-capitalist economy will find that Marx had a point after all. Not that the leadership is at risk themselves; the ChiCom offspring already have homes in Vancouver B.C. and Los Angeles and citizenship/green cards, and the family fortune is safely invested in Switzerland and North America.

The "story" is that the Chinese consumer is about to step up spending, and as a result, "you gotta be in China to profit from all the trillions in new consumer spending." The reality is that the Chinese middle class is already spending like drunken sailors and their 900 million rural compatriots already own TVs and other cheap consumer goods.

The reality is that Capital has already skimmed the big, fat easy profits, and it's looking elsewhere as labor costs and pesky regulations rise in China. The truth is American and European corporations have already earned out their investments in China, and shipping the factories from China to Vietnam is not much different than crating the factory up in the U.S. and shipping it to China.

There is a theory that the Fed's "master plan" is to sink the dollar to the point that the low-income states in the U.S. will be the lowest-cost manufacturing base in the world.

At $16,500 a year for full-time workers pushed to maximum production, they might be getting close.


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Wed, 05/11/2011 - 11:31 | 1263275 Clueless Economist
Clueless Economist's picture

We need a $4 Trillion Stimulus to save or create millions of shovel-ready jobs.

Wed, 05/11/2011 - 11:58 | 1263386 InconvenientCou...
InconvenientCounterParty's picture

We need cold turkey balanced budget and a collapse into anarchy. And a lot more prayer.

Wed, 05/11/2011 - 12:34 | 1263625 TruthInSunshine
TruthInSunshine's picture
by Clueless Economist
on Wed, 05/11/2011 - 11:31

We need a $4 Trillion Stimulus to save or create millions of shovel-ready jobs.

Paul Krugman, your god, John Maynard Keynes, would frown upon you if he were alive to hear you utter such trivial numbers. 40 trillion is what Keynes would call for.

In fact, you called for the U.S. to print the equivalent number of dollars matching the U.S. debt, and to pay off all creditors with that tidy sum, declaring that this would amount to a Keynesian 'Mission Accomplished!' and get us back to prosperity.

Wed, 05/11/2011 - 13:15 | 1263870 JW n FL
JW n FL's picture

Synthetic Tops in Commodities Provided by the CFTC to the detriment of Americans and Betterment of “People’s Republic of China”!


Every time the CFTC releases its Margin Hike Press Release after hours here in the United States.. China gets to front run the Fucking Dip!


It is not bad enough that the idiots who back test blindly will cause artificial drag on the market with the Synthetic Peaks that have been provided to them, the algo’s can NOT even grasp the concept and for the most part the people who are programming are going to favor the numerically correct solution based on the larger law of averages..


But an American Commission, that is supposed to protect Americans.. is empowering China to once again have the upper hand?


What the FUCK?


Our Government has given China enough freebies for the week! And last week and pretty much going forward for-fucking-ever!


I hate stupid people! I hate the stupid Government that allows 50,000 jobs to go to China a MONTH! Now China gets to front run the downward pressure in Metals which benefits CHINA! Which is a foreign Power! More than the Americans it is supposed to help in the long run!!




Senate Republicans blocked a Democratic Bill to End tax Breaks for Moving U.S. Jobs Offshore! 50,000 Manufacturing Jobs a Month since 2001 have LEFT! The United States for China!


How much more are we going to have to give China? When is enough stupidity enough? This Country is FUCKED! And no one gives a shit! Everyone wants to pray for the rapture or live the lie of the Treasury! And where in the FUCK are the people charged with securing the national Security of the Country? Those mother fuckers are the First ones that should be hung for treason.. going back 30 – 40 years!

Wed, 05/11/2011 - 11:39 | 1263299 SilverRhino
SilverRhino's picture

And those shovel ready jobs will be paying $20 a burger when it's all said and done.

Wed, 05/11/2011 - 12:20 | 1263508 financeguru500
financeguru500's picture

I think the bigger issue no one considers is the fact that the U.S. has exported all of the advanced technological production to a communist country that is considered a potential threat. Note the amount of news covering the buildup of Chinese military and advancements in stealth aircraft.

Consider how much faster advancements will come along with the Chinese reverse engineering the technology they are building in factories for U.S. and Japanese companies.

So far the main thing people argue when comparing the U.S. military to the Chinese military is that the U.S. is more advanced technologically. But for how much longer?

Wed, 05/11/2011 - 13:41 | 1263984 trav7777
trav7777's picture

Until China starts innovating and stops counterfeiting, never

Wed, 05/11/2011 - 11:41 | 1263312 TruthInSunshine
TruthInSunshine's picture


Macy's, the falling into disrepair, garage sale-like atmosphere retailer, has joined The Bernank/Dudley/Geithner/Obama 2012 Re-election/Re-appointment committee.

Wed, 05/11/2011 - 11:41 | 1263317 NOTW777
NOTW777's picture

how happy must cnbc be for this raj case - they can ignore the market today

next up more obama islam speeches - expect more apologies

Wed, 05/11/2011 - 12:16 | 1263469 InconvenientCou...
InconvenientCounterParty's picture

How would an extraterrestrial see the situation?


1.No ultimatums. Rape and murder your kids, and then be born again. All fixed!

2.Protect life in the womb by all means. Once the spawn pops out, determine worth by checking beliefs, color of eyes, color of skin, intelligence, work ethic. Not up to snuff? Let 'em bleed out and/or starve.

3. Somewhat tolerant of heretics and infidels. Some might say apologetic?


1. Lots of ultimatums. Few if any exceptions. You fuck-up? your condemned to eternal damnation and are snuffed in this life too.

2. Snuff all infidels and heretics with no exceptions.

3. Treats human life consistently --it's all more or less worthless.

In strict religious terms, you tell me which system is more efficient and which is subordinate and should be apologizing?


Wed, 05/11/2011 - 12:33 | 1263607 Marty Rothbard
Marty Rothbard's picture

Islam places great importance on conversion to Islam.  That's what they want, not "snuffing" people.  The Koran also demands that money be of gold, and silver, much like our constitution.  Maybe the US Congress could learn a thing, or two, from the Prophet.

Wed, 05/11/2011 - 11:44 | 1263318 alexanderstollznow
alexanderstollznow's picture

wow, even Chinese domestic inflation is the fault of the Fed!  is there anything the Fed is not responsible for? 

Wed, 05/11/2011 - 11:49 | 1263340 Robslob
Robslob's picture

wow, even Chinese domestic inflation is the fault of the Fed!  is there anything the Fed is not responsible for"


1) Peace

2) Happiness

3) Value

Wed, 05/11/2011 - 11:50 | 1263342 buzzsaw99
buzzsaw99's picture

Lame. Work on it.

Wed, 05/11/2011 - 11:49 | 1263352 Don Quixotic
Don Quixotic's picture

I agree. No one ever told the chinese to trade goods and labor for FRN's. If they requested PM delivery, would they be turned down? Probably not. In fact, I'm willing to bet that the other producer countries would likely follow suit.

Wed, 05/11/2011 - 12:03 | 1263409 Non Passaran
Non Passaran's picture

What delivery?

Anyone can use their FRNs to buy PMs on the market.

Wed, 05/11/2011 - 11:52 | 1263364 topcallingtroll
topcallingtroll's picture

Chinese inflation is the result of an intentionally suppressed currency and refusal to allow normal market forces to balance national accounts.

Wed, 05/11/2011 - 12:37 | 1263651 Marty Rothbard
Marty Rothbard's picture

Actually, it is the result of pegging their currency to an intentionally supressed currency, the dollar, and the fact that, for the moment, commodities are priced in dollars.

Wed, 05/11/2011 - 13:13 | 1263856 TruthInSunshine
TruthInSunshine's picture
by alexanderstollznow
on Wed, 05/11/2011 - 11:44

wow, even Chinese domestic inflation is the fault of the Fed!  is there anything the Fed is not responsible for?


The 'Fed' is a parasitic, devil-worshipping (they kneel to Moloch), international cult, and they've been responsible for the genocide of millions, including the assassination of world leaders resisting fractional reserve and non-gold backed currency, to include numerous American Presidents.

Their front men appear as genteel academics, but they have jackals and ruthless mercernaries working on their big team, with tentacles in every recess of the global stream of commerce, banking, industry and military circles.


Wed, 05/11/2011 - 14:28 | 1264225 Henry Hub
Henry Hub's picture

That's funny, I thought that everything was the fault of John Maynard Keynes ( including the Fed)

Wed, 05/11/2011 - 11:45 | 1263336 RagnarDanneskjold
RagnarDanneskjold's picture

It's not Marxist to behave as Marx warned against. However, your problem is neither Marxism nor capitalism, but Ricardo. Free trade works when there are comparative advantages, the economists of the 18th Century, and today as well, have not explained what happens when a workforce with 10 times the population (China, India and other emerging markets) suddenly compete for your market.

The U.S. can handle Japan and Korea "gaming" the free trade system because their population limits their productive capacity. They end up as extensions of the U.S. economy. China has the capability to take every single industry out of the U.S., as does India. The assumption in the free trade models is that the U.S. and other countries with hollowed out industries can "do something else." When the auto industry was sapped by Japan, those workers could transition into other industries over time. Japan couldn't take out PCs, autos, airlines, construction equipment, etc. They picked a few key industries and made concerted efforts. China, India & Co. are taking jobs fast and all over the place, and China's target industry is "all of them."

Yes, the elite are happy to sell out and the free-market economists are happy to call you a fool for pointing out this isn't working well for American (and elsewhere) workers. That damn selfishness ruins everything from Marx to one-way free trade.

Wed, 05/11/2011 - 11:49 | 1263350 topcallingtroll
topcallingtroll's picture

Free trade never works if it isnt free.

Suppressed currencies, barriers to labor, capital, and trade flows make a mockery of.our current system.

Wed, 05/11/2011 - 11:58 | 1263387 RagnarDanneskjold
RagnarDanneskjold's picture

For sure, but the system can still be gamed with tax laws and other incentives. In any event, the choice is to either force open half the globe's markets or restrict incoming trade with domestic policy. Which one is easiest to achieve? I don't see free trade economists signing up en masse for military duty...

Wed, 05/11/2011 - 12:25 | 1263544 BruntFCA
BruntFCA's picture

Good point, however you also miss something crucial.

A key point of D Ricardo's principle of comparative advantages, is that *capital is relatively immobile* . Now in the 18thC when he wrote it, it was. However, in the 21st C why would you seek comparative advantage in USA when you can get absaloute advantage by shipping everything, lock, stock and barrell to China?

The comparative advantage theory continuously spouted by globalists is way out of date. Moreover, work by mathematician Ralph Gomory dissproves comparative advantage, *even with immobile capital*. You can read an intersting article about CA theory here.

Wed, 05/11/2011 - 12:51 | 1263739 SoNH80
SoNH80's picture

Western workers trying to compete with Chinese slave (laogai)/quasi-slave (Apple iPad factory) labor = accelerating treadmill

Wed, 05/11/2011 - 11:48 | 1263337 Bob Sacamano
Bob Sacamano's picture

Hope he is not participating in any of this exploitation by buying products from these companies. 

Look forward to seeing how the company he starts works. 

Wed, 05/11/2011 - 11:46 | 1263338 topcallingtroll
topcallingtroll's picture

Good analysis.

Surplus labor is a temporary problem in a free market. We need to remove all employment barriers so all people are incented to work up to their marginal level of productivity, whatever that might be.

And china does take it up the poop chute in the end. He who lives by the manipulated.currency shall die by the manipulated currency of bangladesh, vietnam, laos, etc.

There are many examples of labor exploiting capital. I will be damned if i am going to rent a trenching tool when my three mexicans are cheaper and do a better job.

Wed, 05/11/2011 - 12:36 | 1263637 weinerdog43
weinerdog43's picture

Unfortunately, your analysis stinks. 

No, even Henry Ford saw that you have to pay people enough to afford your product.  When you're in a race to the bottom, eventually you won't have any paying customers. 

I'd also love to hear how the working Joe is exploiting our poor, poor capital class.

Wed, 05/11/2011 - 14:49 | 1264329 goldsaver
goldsaver's picture

Capital ( raw resources, equipment, buildings and money) can no more exploit labor than gold could exploit jewelers or wheat could exploit bakers. It is a mindless argument. Capital is necessary in order for labor to, well, labor. Without machines, factories, etc laborers would have to go back to domestic production of the 17th century. And even then, the peasant worker had to invest in his capital (tools, anvils, looms) in order to produce.

Now, if you mean the Financial sector leeches that ride along the shoulders of those who produce (laborers and industrialist alike) by moving pixels around a computer screen and demanding interest for their "production" of counterfeit debt dollars... yeah, they exploit everyone.... until they don't.

Wed, 05/11/2011 - 11:50 | 1263339 falak pema
falak pema's picture

The Oligarchy game plan since Reagan/Bush/Clinton days that set it up : Use international labour arbitrage to shift production base around the globe changing the venue of production on same criteria every twenty so years. What they didn't anticipate was that it worked so well, so fast, and the greed asset spiral, generated and invested in FIRE economy, would bubble and back fire so fast. That's like the last shot in the Mankiewicz film : There was a crooked man!...Just that title...

Wed, 05/11/2011 - 11:49 | 1263341 bob_dabolina
bob_dabolina's picture

Silver is getting hog slammed.

Wed, 05/11/2011 - 11:57 | 1263375 falak pema
falak pema's picture

so do silver bears and silver bugs ride the roller coaster up and down together?

Or is this the road to hell and deadly deflation? ( That'll be the day IMHO! We're not yet there).

Wed, 05/11/2011 - 11:58 | 1263399 InconvenientCou...
InconvenientCounterParty's picture

just algos chasing the latest alpha asset --crude.

Wed, 05/11/2011 - 11:51 | 1263346 silvertrain
silvertrain's picture

Dont worry about it..The us can keep workers on even at a loss..

Wed, 05/11/2011 - 11:51 | 1263347 Zing
Zing's picture

I almost always really enjoy a CHS article.  One of the best macro-commentators out there.

Wed, 05/11/2011 - 11:51 | 1263358 imapopulistnow
imapopulistnow's picture

And the progressives will make things better?  Not a chance.

Wed, 05/11/2011 - 11:57 | 1263396 falak pema
falak pema's picture

not US progressives. But the world will pull the rug under the US's feet one day...Then there will be a paradigm change...and 'progress' may mean something else...if the new, new Oligarchy is from third world and less fat and greedy...But that is crystal ball gazing... and hopium!

Wed, 05/11/2011 - 12:06 | 1263426 swamp
swamp's picture

The world IS pulling the rug out from under the US's feet, now. It's in progress, now.

Wed, 05/11/2011 - 12:43 | 1263676 weinerdog43
weinerdog43's picture

"And the progressives will make things better?  Not a chance."

Exactly.  Who needs clean air or water?  5 day work week?  Bah, humbug!  Get those 8 year olds back in mines! 

Wed, 05/11/2011 - 15:04 | 1264398 goldsaver
goldsaver's picture

You Sir, are an idiot.

So your argument is that only progressives want clean air and water. Interesting. That form of argument is called "argument by intimidation". "You couldn't possibly oppose my views since that would make you worst than Hitler!". Without actually refuting the point, you attempted to intimidate the target of your vile. If we are to look at countries where progressive government cotrols have been enacted (East Germany, North Korea, Soviet Russia, Brazil, Mexico) You will find that the air and the water is polluted to the point of been physically poisonous.

The 5 day work week did not come about from progressive policies. THe 5 day work week was made possible by the improvements in productivity brought along by the industrial revolution. Factory owners could reduce the work week to 5 days in order to save the cost of labor while increasing production. It is called efficiency, you moron.

About the 8 year old in the mines... Child labor came along not as a way to exploit children, but as a way for children not to DIE of starvation. If you would bother to read some Locke, you will find that British families in the 1800s could not afford to feed more than 2 children. Since there was no birth control, life expectancy of children under 5 was 25%. Child labor, provided by factories, was a way for those children to STAY ALIVE!. Latter, improvements in efficiency and technology, allowed parents to make more money (production was improved due to efficiency and jobs became more specialised) allowing the parents to feed their children and making it possible for children to not work.


God, I hate voluntary ignorance!!!

Wed, 05/11/2011 - 15:36 | 1264587 NP40
NP40's picture

The 40 hour work week came about because of the good hearted nature of robber barons ? Perhaps, you'd like to invite your amoeba sized brain back into the same time zone as the rest of your extremeties ? In the late 1800's, workers struck for a 40 hour work week in Bay View, WI. The governor of WI. at that time called in the National Guard who killed 7 strikers and wounded numerous others, including women and children. The outrage sparked wildcat strikes nationwide leading to the 40 hour work week.

Your idiocy in referencing child labor doesn't even warrant comment. Have you studied history under the scholar Glenn Beck ?

Wed, 05/11/2011 - 18:11 | 1265482 sellstop
sellstop's picture

Thank you.

Regulations came about because people demanded them. There was a time when govt. was responsive to the will of the voters.

The lack of trans-generational memory means we have to do the hardships all over again.


Wed, 05/11/2011 - 11:51 | 1263360 goinsouth
goinsouth's picture

It had to happen.  ZeroHedge's critique of the status quo inevitably goes to the best source for a critique of Late Stage Capitalism: Marx.

If you'd like to read another fine synopsis of our poltical/economic situation, and how similar the Obama Administration is to the Weimar Republic (again, could have read i on ZH), check out Global Capital and 21st Century Fascism."

Link: and Zero Hedge have more in common than most realize.

Wed, 05/11/2011 - 11:56 | 1263374 Marley
Marley's picture



Wed, 05/11/2011 - 12:00 | 1263397 AR15AU
AR15AU's picture

Was it our labor which was costly? Or was it the EPA? Or was it OSHA? Or was it Affirmative Action? Or was it the IRS?

Wed, 05/11/2011 - 12:41 | 1263660 LoneCapitalist
LoneCapitalist's picture

Yes. Good points.

Wed, 05/11/2011 - 20:52 | 1266037 XPolemic
XPolemic's picture

Nope, labour offshoring began in the late 70's as a reaction to the rising cost and power of the labour movement (unions). As capital moved to where labour was cheaper, it needed to pass through currency exchange mechanisms (banks and financial markets), both on it's journey out to labour, and it's return journey back as profits.

Those who oversaw managing the FX risks became extremely wealthy, and the interbank FX market is now the most liquid, most traded, most hedged, most managed financial market of them all. It runs 24hours a day, 7 days a week.

The first cross currency interest rate swap was in 1981, when IBM entered into currency swap arrangement with the world bank (for accounting reasons). The FX/IR swap market is now 250 trillion (gross), as capital chases cheap labour, and returns to investors in the first world as profits.

But we are slowly coming to the end of the age of financial oligarchs, just as we came to the end of the age of industrial oligarchs when money managers were on the rise. These days, you don't need people to manage money, computers can do 90% of the work just fine. So the rise of the information oligarchs was the signal that the age of financial oligarchs was coming to an end.

Whenever power changes hands it is disruptive, violent, tenous and often chaotic. It is also a long drawn out process, which never seems to end, and then suddenly, everything is different. Assuming civilisation is not destroyed by a solar storm or asteroid some time this year, I would be looking at up and coming technology companies. Remember that in any revolution, the first wave of revolutionaries are almost always disposed of (MS, Apple, Sun, Oracle), to make way for the 'new normal'.

Wed, 05/11/2011 - 12:04 | 1263411 hugolp
hugolp's picture

Good analysis. I dont see nothing marxists on it.

As a curiosity, class analisys, which most people think is a marxists thing (class warfare, class warfare!) was actually developed by early classic liberals (predecessors of libertarians). Even Marx acknoledges that class analysis was developed by classic liberals before him in some letter to Engels. The early classic liberal philosphers argued that there were two classes, the producers and the exploiters. The producers were the ones working in a free market while the exploiters were the ones favored by government (usually big land owners and industrialists with monopolly rights).

I would like for libertarians and in general for free market people to not be afraid of class analysis and actually embrace it.

Wed, 05/11/2011 - 15:12 | 1264452 goldsaver
goldsaver's picture

Identifying obvious classes of people is not class warfare. Saying "some people are college material while some are not" is not class warfare, only a statement of observable reality.

Class warfare is when some jerk off uses those differences to exploit or give illogical preferences to different classes: "The rich are stealing form the poor", Whites are racist and keep blacks down" "Men keep women for reaching their full potential" "The Jew merchant is the cause of your hunger"


BTW, it is clear that some people are producers and others are leeches or moochers. You can not tell me that Ben Bernanke has contributed to civilization and produced more than Bill Gates. Or that a welfare queen is equal in production to a brain surgeon.

Producers are favored by the free market because they provide a value for their efforts. A leech or a mooch does not produce, it only consumes.

Wed, 05/11/2011 - 12:04 | 1263416 the grateful un...
the grateful unemployed's picture

just revisited some of Godards agitprop cinema, Tout Va Bien, "Everything is All Right". Though the film is some 40 years old, the French May 68 revolution is a mirror image of what is happening in America right now. The speech the manager of the Sausage factory gives is repeated every day on CNBC. The French government never had the means to completely propagandize the people, hence a workers revolution came about. Simply put, in the modern American equivalent space, it is impossible to "shout them down", as this film attempts to do. 

The only viable solution is to vote with your feet, to either leave the country, (even as the MIC makes every foreign destination live threatening, and the war on drugs makes sleepy villages in Mexico Narco trafficing hell.) We are increasingly stuck here, for better or worse, with no choice other than to go off the grid, sit on a few ounces of gold and wait, while we form pockets of resistance. Information is useless, they have more of it.

This is very much like what the Romans found in Northern Europe. They could defeat the tribes in the battlefield, but they couldn't keep their supply lines open. Eventually the empire collapsed around it (the empire being just a manifestation of power and greed concentrated in one place, Italy is a fine country, with wonderful people, it is not the Roman empire, just as the America empire does not represent its people, and less so each day)


We can destroy the empire (think Bernanke/the Corporate Washington Inside Trader Beltway) without destroying ourselves. In fact destroying the empires most viral aspects, would return the soil and our country to us, but only a few people realize this. ZH'er mostly

Wed, 05/11/2011 - 13:17 | 1263879 SoNH80
SoNH80's picture

110%, exactly.  The best an individual U.S. citizen can do at this point is passive resistance, deep-cover mode informal networking, preparation.  The mice survived the comet strike that killed the dinosaurs, etc.

Wed, 05/11/2011 - 12:08 | 1263433 infotechsailor
infotechsailor's picture

marxist indeed.


they aren't being exploited, they are being properly utilized. if they were slave labor that would be one thing, but voluntary consent to man a factory for twice the pay of cutting rice a paddy is just the world economy at work.  the only thing we are exploiting is the world's acceptance of Benny Bucks for their hard earned goods... 

Wed, 05/11/2011 - 12:11 | 1263444 theopco
theopco's picture

Is it voluntary if there are no other options?

Wed, 05/11/2011 - 12:21 | 1263514 NidStyles
NidStyles's picture

That's the thing, there are other options. Just few people wish to take that step into being self-sustaining, because that mean's real work rather than mindless dribbling while wrapping tacos.

Wed, 05/11/2011 - 12:43 | 1263694 LoneCapitalist
LoneCapitalist's picture

Weve all heard the many stories about those that started with nothing and built a thriving business. There are always options.

Wed, 05/11/2011 - 13:16 | 1263893 SoNH80
SoNH80's picture

Hard to build a thriving business when incarcerated in a gulag making products for export to the West.

Wed, 05/11/2011 - 13:33 | 1263965 hugolp
hugolp's picture

China does not even respect property rights, so its not like its an environment for the poor to start busniesses.

Wed, 05/11/2011 - 12:14 | 1263450 hugolp
hugolp's picture

Be careful. Globalization has been done in big part on the back of (not very publicited) government regulations and not-really-free-trade agreements.

The myth of globalization being a free market movement is only that, a myth. Not to say everything in globalization has been bad, but it has had a lot of injustices.

Wed, 05/11/2011 - 12:23 | 1263531 NidStyles
NidStyles's picture

It's promarily a fight against the Hegelian Dialect's that are used by the regulated and central planning economists. It's hard to point out the obvious to a person that doesn't even understand what a Free-Market really is. Much less to educate them on how they are being deceived by catch phrases.

Wed, 05/11/2011 - 13:00 | 1263799 hugolp
hugolp's picture


Wed, 05/11/2011 - 13:15 | 1263887 SoNH80
SoNH80's picture

There is actual slavery in China (laogai--Chinese Gulag).

Wed, 05/11/2011 - 12:29 | 1263532 Marty Rothbard
Marty Rothbard's picture

Anyone who ever believed that the bubble times were going to last forever, has gotten what they deserve.  If they had bought gold, instead of that McMansion, that would always go up in value, or a Civic, instead of that Navigator/Escalade/Hummer, for which there would always be $1.50 a gallon fuel for, or if they'd gone backpacking, instead of to Cancun, they would be fine.  I'll never forget telling an old girlfriend, that I was living in a mobile home because I didn't want a mortgage.  According to her, nobody paid cash for a home.  I told her my parents had, and that I would too, and I did.  It's not complicated.  You can live below your means, and be financialy secure, or you can get a new loan payment, every time you get a raise.  It's your choice.  I was ridiculed many times for having an old car, living in a cheap house, trying to warn people about the housing bubble, and telling them they should diversify into gold.  

   When I was laid off by Daimler (I'm an engineer), I looked at it as an extended vacation/early retirement.  I walked out of the place smiling, and without a care in the world.   I had been warning my all my coworkers that we would be laid off for two years (we worked at a class 8 truck plant in North Carolina), but only one considered it, and realized that I was right.  Ironically he is a Mexican national with a green card.  The day before the big announcement, a coworker told me that I might get laid off, but not him.  He had too much senority.  We were both laid off.  That was in June of 2008.  I often wonder how many of those guys have lost their homes, cars, and marriages.  All unnecessarily.  It's nice when a long term strategy comes to fruition. 

   You see, to me the american dream is to have no debt, live in your own home, and to owe no federal or state income tax.  This year I finally made it.

Wed, 05/11/2011 - 12:44 | 1263682 Bob Sacamano
Bob Sacamano's picture

Hearty congrats.  Living below one's means is a philosophy that sadly died about 60 years ago. 

At the end of the day, folks are just too greedy and borrow for things they can not afford buying things they really don't need.  But the federal government feels compelled to ensure no one feels the full pain of bad decisions (in part because it helps at re-election time).  The US is in trouble with this philosophy. 

Wed, 05/11/2011 - 12:42 | 1263690 the grateful un...
the grateful unemployed's picture

and to subvert the hidden role of consumerism, to promote hedonistic, and sensual, and thereby transitory, pleasure. Restaurant stocks do well because people always get hungry the next day. People are trading in consumer purchases which give them pleasure, for goods which provide autonomy, a solar panel instead of a big screen TV. It's all right out of the Bible, "teach a man to fish"...

A McMansion is a waste because it covers the land with empty rooms, land which should grow food) Consumerism will evolve its message into the autonomy product, or service, (gold being one part of this). We all need something useful to do, its a shame we can't direct qualifed workers, such as yourself, toward creating autonomous solutions for the rest of us.

Wed, 05/11/2011 - 15:18 | 1264402 Marty Rothbard
Marty Rothbard's picture

Actually, I consider a big TV a good deal, as long as it is energy efficient.  Get a LCD illuminated by LEDs, or a laser TV once the prices come down.  Avoid plasma, at all costs.  Staying at home, and watching videos/playing computer games is about the best entertainment value there is.  How many pro sports games can you go to for the cost of a TV, and electricity to run it?  Not many, unless you are selling hot dogs, or a cop!

  If the government wants me back in the work force, they should eliminate the personal, and corporate income, and payroll taxes, and worker "protections" like racial, and sex discrimination.  The only thing they protect people from, is having a job.  Worker safety could be addressed by requiring employers to buy worker injury insurance from a the private firm of their choice, and allowing the firm to set the rate based on the cost of providing benefits.  Sort of like my auto insurance is cheaper if I don't have many claims.  Liberty Mutual insured UPS while I worked there, in the 80's.  They had inspectors that looked for hazards, and talked to the workers.  When they found something, they helped management address the hazard so the cost of providing benefits, and thus the premiums were low.  Nothing works like an immediate financial incentive.  Management loved it.  It made their job easier, and their business more profitable.  Things got fixed before people got hurt. Beat the hell out of OSHA.  Under those conditions, I'd start my own business, and I wouldn't be the only one.  Even if I worked for someone else, employing me would be more profitable, creating a greater demand for labor, so I could be paid more.

In short, if you want more, and better paying jobs, make employing people more profitable.  Profit is not a four letter word.  Cost is a four letter word.


Wed, 05/11/2011 - 12:50 | 1263734 NidStyles
NidStyles's picture

Congrats. You are living the real American dream.

Wed, 05/11/2011 - 13:13 | 1263877 Truthiness
Truthiness's picture

That is a great story. Congratulations. Just curious - now that you are no longer working for Daimler using your engineerings skills, what are you doing to occupy your days?

Wed, 05/11/2011 - 13:50 | 1264012 Marty Rothbard
Marty Rothbard's picture

I grow fruits, and vegetables, take my dogs for runs in the woods, sharpen my RPG skills, comment on ZH, and, go to Ron Paul Rallies, keep up with developments in the alternative/decentralized energy space(I really want to fire the power company,  I am 90% sure that Rossi, and Focardi have something), keep an eye out for good investments, consider tax strategy, and keep all my crap running. Keeps me fairly busy.

Wed, 05/11/2011 - 15:17 | 1264493 Marty Rothbard
Marty Rothbard's picture

By the way, growing fruits, and vegetables is the perfect hobby, for the forward looking engineer.  After all, agriculture is an advanced form of active nanotechnology.  Solar powered, requiring only chemically simple, commonly available raw materials (no rare earths as far as I know), generally nontoxic, and usually with fairly short lead times.  It's just we hijacked the machinery from nature instead of building it ourselves.  The products are also the perfect barter goods, since everyone needs them, and they are generally of  better quality than the commercially available equivalent.

Wed, 05/11/2011 - 15:19 | 1264507 goldsaver
goldsaver's picture

Marty, you are my hero. I'm 4 years behind you. I will be 100% debt free (mortgage) in 3 years, and my 4th year is to put in my solar system. After, I will only make enough to stay under the Income Tax threshold and only doing the things I truly enjoy.

If this Empire survives for 4 more years, I will be set. If it doesn't, I have the supplies to still make it and the PMs to pay off the mortgage earlier.

Wed, 05/11/2011 - 16:25 | 1264839 Marty Rothbard
Marty Rothbard's picture

Cool! I never had a fan club before!


The secret to staying below the tax threshold is, as I'm sure you know as a gold buyer is unrealized capital gains(even if the IRS pretends bullion is a collectable, and not a financial asset). I suspect some day sales of gold will not be taxed.  You may even be able to swap it, with the treasury, for coins like back in the good old days.   A few capital losses don't hurt either. 

I can give you some good advice (even if it is free) on your solar plans.  The cheapest solar electricity is the stuff you don't have to generate.  In other words panels, inverters, and batteries are way more expensive than conservation.

1.  Go through your house, and look for power savings.  Throw out all your incandescents, electrical space heaters, old computers.  If you like a big monitor, and a big hard disk, plug them into your laptop, at your desk.  Mobiles are way more energy efficient, and nearly as capable as a desktop of the same time period.

2.  When you have too, replace your appliances with the highest efficiency ones you can afford.  Side loading washers save in 3 ways, lower water bill, less hot water you have to heat, and they spin faster so your stuff spends less time drying, whether you hang it our or not.  If you have a dryer, get one that stops automatically when stuff is dry, rather than running out the clock.

3.  Consider a ground source heat pump, with a desuperheater (the DS will heat your domestic hot water for free in the summer, and at lower cost in the winter).  Even if you have a gas water heater its nice to have free hot water in the summer, and if the price of natural gas goes up it gives you options.  The fact it is ground source will mean it will use less electricity, in both the winter, and summer, than one with an air outside unit, plus bums can't steal the outside unit for the copper.  They are also easier to install, since you dont have refrigerant lines running outside, and everything is in one package, of course you do have water pipes, four if you have a desuperheater.

4.  If your windows are old replace them with triple pane low e.  Insulate your house if you need to.  Replace old weather stripping.

5.  Consider a wood stove or a fireplace insert with a hot air blower to use when it gets really cold, or there is a power failure.  Of course buy your firewood in the summer, if you don't cut your own.

6.  If you live in a net metering state (most are now) get a grid tie inverter, and keep your connection to the utility.  Any extra power you generate will go into the grid, and run your power meter backwards.  This may work even if you live in a state without net metering, the older your meter is the more likely it will work.  The grid is like the perfect battery.  Unless you live somewhere with unreliable power consider not having batteries.  It does not cost much more to buy an inverter can use batteries though, if you change your mind.   It is very nice to be connected to the grid in times of high usage, and it keeps your voltage up when the compressor in your heat pump starts, so your lights don't dim.

7.  Consider using gas appliances where ever possible.

If you have any questions, reply to this comment, and we'll talk.




Wed, 05/11/2011 - 13:08 | 1263845 jmc8888
jmc8888's picture

America 2011, multiple summa-cum-laude's competing for a minimum wage fast food job.

Can one get a job at mcdonalds without a doctorate today?  If so, when will that change to 'no'? 1 month? 1 year? 3?


Wed, 05/11/2011 - 13:17 | 1263900 Geoff-UK
Geoff-UK's picture

No value added.  Please remove CHS posting privileges.

Wed, 05/11/2011 - 13:23 | 1263917 eureka
eureka's picture

"Free Trade" is a wet dream; capital invariably conglomerates and manipulates markets & institutions.

Capitalism is a volume leverage game - completely disconnected from social and physical reality.

Blow up Wall Street, dismantle the empire and build local self-sustaining economies.

Or wait for WWIII to free your mind from delusions of benevolent capitalism and "free" markets.

Wed, 05/11/2011 - 14:30 | 1264239 Marty Rothbard
Marty Rothbard's picture

Assuming you are talking about the US, how do you know?  We are living in a centralized economy.  M3 manipulated, and a state secret. Interest rates manipulated both on the short end, long end, deposits, and loans.  Consumer housing decisions manipulated, even by tax credits. Consumer automobile decisions manipulated, even by tax credits.   Big banks, too big to fail, and too big to prosecute.  Commodity markets manipulated.  Stock markets manipulated.  People convicted of counterfeiting, and labeled as terrorists, for making bullion coins.  Online gamblers prosecuted, when the law allows them to gamble. Labor market manipulated by nonenforcement of immigration laws.  Fat Punjabis prosecuted for insider trading, while brokerage proprietary desks allowed to openly front run orders.   Central bank giving notice of decisions to favored firms, before announcements.  Central bank hatchet men, buying equities to push up markets. Proprietary trading desks making perfect quarters of profits.  Banks allowed to fraudulently mark to model.  Foreclosure fraud ignored.

Dude, we got no estinkin' free market.  We dont even have crony capitalism.  What we have here is full blown fascism.  We are just one more false flag attack from a police state.  I hope you leftists are happy that you are getting the socialism you've wanted, you just didn't realize it was going to be national socialism.  Seig heil.

Wed, 05/11/2011 - 13:49 | 1264006 trav7777
trav7777's picture

It's not "capital," it's management.

Who the fuck is capital anymore?  The companies are publicly's management.  And they do it to drive profits in order to enhance their own bonuses.  Where are the dividends??  The profits don't flow to "capital" or ownership, they flow to managers.

and you either sell your soul or you are born into this club.  Management isn't subjected to the same wage arbitrage as productive workers.  WTF does a CEO actually do that is worth $20M?  Nothing.  But because he's at the top of the club, it's like a freakin pyramid scheme or a primitive village where the chief at the top gets all the loot by virtue of just being chief.  And all his fellow club members vote him a big payraise because he will vote them the same thing when it's his turn to do so.  To maintain these payraises REQUIRED taking the money out of workers' pockets.

The parasite class appears to have all the levers of power now.  Management, bankers, they are all parasites.

Wed, 05/11/2011 - 13:57 | 1264051 SoNH80
SoNH80's picture

Hear, hear.  Too many parasites.  And why the F do all the CEOs even look the same (bald as a billard ball, jug ears, goofy fake friendliness...)

Wed, 05/11/2011 - 13:59 | 1264050 Econmike
Econmike's picture

The real elephant in the room, in my opinion is the fact that many "American" corporations are essentially Chinese now. Caterpillar, Proctor and Gamble, Yum Brands...etc. Take a look where there profit growth is coming's not the US. Now, if these corporations futures lie in China, I imagine they are going to be pretty sympathetic to whatever Chinese government officials tell them to do...including where to put their campaign contributions. Take a look at where the American Chamber of Commerce gets most of its donations, it's not mom and pop's donut shop or US steel, I can guarantee that. Our government is owned by bankers, the saudis and the chinese.

Wed, 05/11/2011 - 21:29 | 1266106 Bob Sacamano
Bob Sacamano's picture

So then, the question is how could we get corporate profit growth in the US (rather than China) so they would care more about the US markets (?).

Am guessing that is not something BHO is working on. 

Wed, 05/11/2011 - 14:13 | 1264137 eureka
eureka's picture

Capitalist & "free"-market ideology is impotent -

unable to solve the problems it is designed to create -

it blames obvious systemic flaws on individual morality.

It is old-testament, pathetic, denial or just a lousy act.

Wed, 05/11/2011 - 14:26 | 1264216 silberblick
silberblick's picture

If you haven't seen it yet, here's a hilarious animation about Americans and how they are being hosed by their government:

Wed, 05/11/2011 - 15:09 | 1264435 Clowns on Acid
Clowns on Acid's picture

Ahh..if it was only as simple as that.

Capitalism and Socialism/Marxism have no conscience. They are just "isms" that reflect the means at which the "leaders" of a society address / promote their self interest. Self interest is in the DNA of all humans.The world really has not changed in this regard, but it has evolved largely via technology advances (itself a function of the capitalist rather than socialist / marx models). The world will always be imperfect, and a dangerous one filled with self interest.

Capitalism is honest in the sense that the individual are up front about making a profit (self interest), whereas the Socialist/ Marxist model hides its self interest behind slogans, politically correct dogma (race / gender based e.g.), while splitting "proceeds" with corporations (facsism).

Where the capitalist US model has failed is by NOT being capitalist, but socilaist / facsist. Starting with unconscionable Federal spending and regulation. The CRA Act made it possible, and indeed encouraged housing speculation (notably not by the people who the CRA Act was supposed to "help"), which then engendered the entire CMO/CDO securitization distribution model that eventually took down the system. Barney Frank, Chris Dodd and Fannie Mae, et al were the most vocal supporters of the helping the "people" (hiding their self interest...while promoting "help to people"). The corporations (self interest) went to where the $ was. The robo signings were obviously illegal, but indeed the far lesser of all the "crimes". Following the "broken window" theory, the real crimes have been the bailouts, stimulus, and QE^. 

The banks, indeed individuals (save for Bear Stearns and Lehman..who were the largest abusers (on a per capita / leverage basis) all avoided monetary sanction. But within the facsist model only a few public hangings (those w/o out poltical cover) are necessary, and then the pols begin a new scam with the bailouts and "stimulus" money. Following the capitalist model, banks equity prices would have gone to zero, bondholders would have been given a haircut down to the floorboards, the Fed guarantee deposits, and let the banks figure out the rest. Frank, Dodd, and leaders of Fannie would have been permanently sacntioned. 

What has ocurred since the credit "crisis" is not capitalism, it is the usual socialist/marxist approach using the political leaders to pass regulation to promote/protect their hidden self interest. The arguments from the literati on ZH should be focusing on this fact, rather than bemoaning the fact that "capitalism" is not perfect.

One must start with the fact that if Fed spending is $4T, then the political class can make a lot of friends with this budget (all of whom are promoting their self interests). Why else is there such a shreek in the Lame Stream media when cutting the Fed deficit is the obvious and rational policy to follow? 

Cut Fed spending and the US begins to approach the lesser of the 2 evils - Capitalism.  If not....well a lot of ZHer's are prepared for the worst...and that wil be that.



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