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Guest Post: Why Employment In The U.S. Isn't Coming Back

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If we understand the simple dynamics of value creation, total compensation costs and the cost-basis of doing business (general overhead), then we understand why employment isn't coming back in the U.S.

It is impossible to understand job creation without understanding value creation and labor/overhead costs. People hire other people when their labor creates more value than it costs to hire them.
When labor costs are high, the value created must also be high; it makes no sense to hire someone if doing so generates a loss.
When labor is cheap, the bar of value creation is lowered, and so the risk of hiring a worker is also lower: they don't have to add much value to be worth their wage.
This is why you see many low-value jobs in developing-world countries. There are night watchmen on duty in virtually every parking lot and building in urban Thailand, for example; these workers are providing a fundamental value, "eyes on the street," but it is a low-value proposition: no special skill is required other than being a light sleeper. The cost of their labor is equivalently low, but in a low-cost basis economy such as Thailand's, a very low wage is still a living wage.
In a self-employment example, many vendors in urban Thailand set up their informal food stall (a cart or a tent) for a few hours a day. Their net income is low, because what they provide--readymade food and snacks--is available in abundance, i.e. there are many competitors.
Nonetheless, because the cost basis of life is relatively low, modest earnings from a low cost, low-profit enterprise make the enterprise worthwhile.
Compare that with the typical government job in the U.S. or Europe. It is difficult to measure the true cost of government pension costs, as local governments do their best to mask their pension costs and inflate their pension funds' projected returns. But a back-of-the-envelope calculation yields about a 100% direct labor overhead cost for the typical government job with full healthcare, pension and vacation benefits. So an employee earning $50,000 a year costs $100,000 in total compensation expenses.
Many local government employees on the left and right coasts earn close to $100,000, so their total compensation costs are roughly $200,000 per worker.
How much value must be created by each employee to justify that compensation? Government needn't bother itself with that calculation, as the compensation is not set by market forces and the revenue stream can be increased via higher taxes, junk fees, tuition, licences, permits, etc.
As the legacy costs of healthcare and pensions for retirees become due, local government operating budgets are being gutted to pay these ballooning legacy costs.
As a result, it is now impossible for many local municipalities to fill potholes: it makes no sense to have $100,000/year employees performing low-value work like filling potholes. Put another way, there is a labor shortage in high-overhead government bureaucracies because after paying for legacy pension costs, there is no money left to hire more people at $100,000 a year in total compensation to fill potholes, a job that might be worth $35,000 in total compensation.
The value created by government employees filling potholes is completely out of alignment with the cost of their wages/benefits. If employees cost $100,000 (recall that their annual earnings may be $50,000--we must always use total compensation, not wages as reflected on pay stubs), then in effect all work that generates less than $100,000 in value can no longer be done.
This is why cities and infrastructure are falling apart. Once you raise the cost of compensation far above the value being created by the labor, then most lower-value but nonetheless essential work (e.g. filling potholes) becomes unaffordable to accomplish.
We can understand this dynamic very clearly in a private-sector example. Let's say a high-tech start-up pays its programmers $90,000 a year, with minimal benefits. The total compensation costs of each programmer are thus around $125,000 annually.
Now let's say that the owners are very egalitarian and they pay everyone they hire $90,000 a year ($125,000 in total compensation costs) regardless of their skills or how much value their labor creates. Does it make sense to pay someone $125,000 a year to empty the trash cans in the office? No, it does not. So the trash doesn't get emptied. Does it make sense to have a $125K/year worker being a go-fer, typing correspondence and making copies? No, it does not.
Those menial tasks are pushed down to the programmers and managers, who must do those tasks themselves on a need-only basis.
The new hire is expected to create $200,000 of value annually (the minimum output of value needed to keep the company afloat) or they must be let go, or the firm will lose so much money it goes belly-up.
Now let's say that the local minimum wage law sets the minimum total compensation costs of any employee at $40,000 annually. For example, $25,000 in wages and $15,000 in direct labor overhead (healthcare, disability, workers comp, vacation, 401K pension contributions, etc.)
What is the value created by an administrative assistant who makes copies and empties the trash cans? Let's say the value added is $20,000 a year. At $40,000 per year minimum cost, it makes no sense to hire a "low-cost" worker because the value created by that worker is not even close to their total compensation costs.
As a result, the job of administrative assistant is not just unfilled--it vanishes. It makes no sense to hire workers when the value they create is less than their compensation costs.
How do we measure value created? The most accurate way is to let the market discover the value of the work performed by raising the price of our goods and services to reflect the value added.
Does our product or service become more valuable if the trash in our office is emptied? No; so the trash is not emptied, as the labor cost only raises the cost-basis and lowers gross profit, thus increasing the risk of insolvency.
The same can be said of all sorts of overhead: from healthcare costs that rise far faster than the company's revenues, expansive offices, higher junk fees and taxes, higher energy costs, and so on.
In a global economy, the value added by labor is measured on a global scale. As the overhead costs of healthcare, energy, office rent, local government junk fees, etc. keep rising, each worker in the company must produce more value just for the firm to generate enough gross margins to pay overhead costs and stay solvent.
If overhead costs--the cost-basis of doing business in the U.S.--keep rising faster than gross profits (out of which overhead is paid), then the owners have little choice: they can either close the business before they are personally bankrupted, cut everyone's pay or lay off some employees and somehow raise the productivity of the remaining workers to maintain enough value creation to survive.

This is the U.S. economy in a nutshell. If we understand the simple dynamics of value creation, total compensation costs and the cost-basis of doing business (general overhead), then we understand why employment isn't coming back in the U.S.


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Tue, 01/29/2013 - 11:48 | 3194928 diogeneslaertius
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i dunno, 99% of experts told me this was a Conspiracy Theory and i lack the intellectual fortitude to think for myself so im just going to turn on MSNLSD


so even though all of this is patently obvious im just going to chant "green shoots" like a good muppet

Tue, 01/29/2013 - 11:56 | 3194956 smlbizman
smlbizman's picture


       a 1964 quarter and a 1964 dime , face value .35......todays value...about 7.50, same as minimum we know what labor is worth...on their terms....

Tue, 01/29/2013 - 12:03 | 3194988 Kayman
Kayman's picture


Getting the monkey to chase his tail. While Central Bankers and their ilk churn and skim.


Tue, 01/29/2013 - 12:36 | 3195109 SafelyGraze
SafelyGraze's picture

the solution is as simple as it is obvious: employers should be required by law to hire more workers and to pay them a salary of $40k+

Tue, 01/29/2013 - 12:39 | 3195129 NotApplicable
NotApplicable's picture

Local government kiddies are operating as follows:

1) Conduct Job Classification Survey in order to create a facade of a mandate.

2) Use facade to weed out expensive/undesired employees by eliminating their jobs.

3) Promote favorites into new positions, primarily those nowhere near retirement.

4) Celebrate by massive expansion into anything they can get a grant to cover parts of.

5) Claim they solved all of their problems.

6) Can kicked? (implementation not yet complete, pension bomb still primed)


Tue, 01/29/2013 - 13:23 | 3195215 SamAdams
SamAdams's picture

Thrash the dead horse!  Only jobs in Amerika will be government jobs in support of the communist machine.  The incremental descent into National-Socialist or Bolshevism (depending on if you think corporations or government run things) is happening right now and people are too thick to notice.  The dollar rapidly losing its value (China declaring reserve currency status), the Talmudic-Canaanite bankers are already courting the new superpower.  Self-styled Christian Freemasons left in the states are beginning to worry, putting their drones in Africa, but why did we remove the radar on the Southern border?

Don't worry about your children firing on you, worry about the NATO soldiers who have no allegience to your constitution.  Your boys are overseas protecting opium, uranaium, hopium and lots of other "iums".

Better stock up on Silver Eagles... oh, right....  Better stock up on AR15's.... oh, right....  We have maybe a few years left before things are so obvious, even braindead TMZ viewers are forced to admit something is seriously wrong with our government. 

Paper complaints as impeachment proceedings and lawsuits will not work.  Did they work for Syria, Libya, Iraq?  What about those people who sued police for not protecting them and lost in NY?  The only thing the psychopaths understand is force, same throughout history.  There are too many on the payroll to win thru justice.

Tue, 01/29/2013 - 13:32 | 3195296 Bananamerican
Bananamerican's picture

The gist of this article seems to be that there are too many "entitled" 1st world laborers in amerika and not enough lice-pickers out and about....yet.
Meet you at the bottom, serfs.

Tue, 01/29/2013 - 13:51 | 3195360 SamAdams
SamAdams's picture

That my friend is precisely why the border is not really enforced.  North American Union, Canada will be joining us along with Mexico.  It will be one big, broke family eating tortillas and sipping moosehead beer.  Both of which I like so I guess there is something to look forward to?

Tue, 01/29/2013 - 14:23 | 3195482 Bananamerican
Bananamerican's picture

try soaking that Tortilla in your moosehead and see if you still like it...i think that's what the Oligarchs are aiming for

Tue, 01/29/2013 - 15:17 | 3195734 Thomas
Thomas's picture

I sure wish I had Charles Hugh Smith's intellect.

Tue, 01/29/2013 - 12:39 | 3195127 Boris Alatovkrap
Boris Alatovkrap's picture

Churn and skim is to making no value?!

Tue, 01/29/2013 - 12:35 | 3195098 Never One Roach
Never One Roach's picture

It's a sad day when the gubbermint (instead of markets) chooses winners (GM, GS. etc) and losers (Twinkies, Lehmans, etc).

Tue, 01/29/2013 - 12:33 | 3195099 rotagen
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Tue, 01/29/2013 - 14:17 | 3195444 youngman
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OBVIOUS......not so...I would bet 98% of the politicians and government workers in Washington DC don´t have any idea about these so called obvious statements....they do not...

But he is right on the money....the USA is overpriced...overregulated..over taxed...overindulged...and other places are where people have moeny...are gorowning...are cheaper..easier...less regulation and taxes...and WANT to work......they are smarter...more stable...cleaner..diligent..more professional...etc..etc..etc

Tue, 01/29/2013 - 11:50 | 3194936 LawsofPhysics
LawsofPhysics's picture

Hhmm, so the real value of one's labor is important then?  What is the real value of creating money out of thin air with the "click of a button".

I think I found the problem, based on the compensation for this "job", I fear that there is some serious capital mis-allocation and mal-investment going on here.

Tue, 01/29/2013 - 13:02 | 3195193 Woodyg
Woodyg's picture

Wages used to follow Productivity Gains - not any more - the economic model is broken -

And it's been broken by the Rentiers and the money printers/changers and their personally owned Kleptocrats.

Lets not blame the victim for christ sakes.

Theres plenty of money and wealth in our country - its just been Captured by the vampires and their minions the kleptocrats.

Tue, 01/29/2013 - 13:24 | 3195262 Bob
Bob's picture

I'm sorry, you must be mistaken.  Charles had nothing to say about that.

Tue, 01/29/2013 - 11:52 | 3194940 Shizzmoney
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The reason workers want to get paid more, is so they can afford their debts, the rising costs of living, and maybe a car/house (I even think for workers, being comfortable and not in AdHoc is more important than having a car/house).

When you have a currency that is centrally manipulated, and a government (which WORKS for the banks) that ignores and lies about why $40K/year doesn't cut it in most urban areas anymore........well then, wages aren't the main problem.

The only good side about debating wages and jobs?  Now we can all know what it felt like to be a slave owner back in the 1800's, "Hey, how about that negro over there! Look at the size of his arms, I bet he'd pull in a good ROI for the cotton fields!"

If there isn't a middle class to buy your shit, there won't be a middle class. 

I can't wait for 2020 when our political class starts to realize this, and when they realize the corporate class does NOT give TWO fucks about America.


Tue, 01/29/2013 - 11:57 | 3194959 trav777
trav777's picture

the middle class is intermixing with people from the 3rd world, and will create a large 3rd world country.  They are not going to do ANYTHING; they never have and never will.

As the US 3rdifies further, stability on a political level will INCREASE, not decrease. 

Tue, 01/29/2013 - 11:58 | 3194967 Toolshed
Toolshed's picture

You could be right, but then.....pigs could fly if only they had wings.

Tue, 01/29/2013 - 12:08 | 3195003 Mad Mohel
Mad Mohel's picture

If my grandmother had testicles, she would be my grandfather.

Tue, 01/29/2013 - 12:37 | 3195113 CrimsonAvenger
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My grandmother had my grandfather's testicles, at least according to him. Apparently she kept them in a vise.

Tue, 01/29/2013 - 12:59 | 3195186 Anglo Hondo
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And if, at the same time, your grandfather didn't have tits, you wouldn't be here.


Tue, 01/29/2013 - 12:46 | 3195151 New_Meat
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can't fly

Tue, 01/29/2013 - 12:23 | 3195050 yogibear
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The money changers (banksters) and government want to level the US living standard with those in China.

To suceed the living standard in the US needs to drop subtantially and the Chinese poor needs to rise.

The Wall Street and global bankster plan is stilll in progress.

Plenty of muppets in the US still have it too good.

Time to grind gound the muppets financially again.


Tue, 01/29/2013 - 12:23 | 3195052 otto skorzeny
otto skorzeny's picture

come to IL if you are illegal-our asshole gov will give you a LEGAL document-a driver's license. because-you-know-the first thing they'll do is go buy car insurance/sarc off

Tue, 01/29/2013 - 12:48 | 3195162 jeffgroove102
jeffgroove102's picture

I loathe trav777's line of reasoning in this regard, and yet respect the logic of the comment. Our pols in this country have a level of hubris approaching absurd, while the population thrives on bread and circuses.

Tue, 01/29/2013 - 13:35 | 3195268 MrPalladium
MrPalladium's picture

Sadly, trav is right.

Our welfare system is subsidizing births at the low end of the IQ spectrum.

Recent massive monozygotic twin studies have the heritability of IQ approaching .8, the same result that Shockley and Jensen arrived at many years ago.

Our immigration policy is attracting populations with average IQs around 85, a level so low that they will never be able to add enough economic value to pay for the education of their children, their health care or their retirement costs.

Trav is also right about the political dynamic in which the entrenched elite can control electoral outcomes in a democracy more easily with a stupid, third world population. Our immigration policy is specifically designed to dilute the electoral power of the European derived population with an IQ above 100.

In response we first had flight to the suburbs, then regional flight across state lines. The next phase will be international flight of the young, European derived population of the U.S., in an effort to escape the costs of supporting a huge third world population at first world welfare expense levels.

In truth, the only thing keeping that portion of our population in the U.S. is the Second Amendment, a protection which might not be needed in a more homogeneous society.  Confiscate guns and escape from multiculturalism with its legal double standards becomes imperative.

The U.S. is faced not only with an economic collapse but a demographic collapse of epic proportions not only of an aging European derived population, but the potential for mass emigration of its younger, productive cohort.

The truth is something that we are not permitted to discuss.

Tue, 01/29/2013 - 15:35 | 3195845 Matt
Matt's picture

While on the surface this all makes sense, a quick look at Latin America shows a tendancy towards revolving door governments, not the long term stability of the Pharoahs.

Unless they do away with the trappings of democracy altogether, and go straight to dictatorship, I suspect to see less, not more stability over time. Especially if there is ever a food and/or energy shortage or currency crisis.

Tue, 01/29/2013 - 17:08 | 3196202 MrPalladium
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Revolving door governments in Latin America leave the wealthy elites of those countries in place. In a third world country looting foreign lenders through inflation and currency crises operates on a shorter cycle. You need revolving governments to promise foreign  lenders "reform" so they will begin lending once again and to give them the "optics" necessary to offload the new debt to investors with promises of "change."

Perhaps I was giving Trav too much credit, but I assumed he meant the substance of government - what it actually does - and not its "form", meaning the particular personalities that temporarily run the continuing show.

Tue, 01/29/2013 - 11:57 | 3194962 Toolshed
Toolshed's picture

You think this shit will go on till 2020? Wow are you optimistic!!

Tue, 01/29/2013 - 12:03 | 3194981 Shizzmoney
Shizzmoney's picture

You think this shit will go on till 2020? Wow are you optimistic!!

Not so much optimistic, but more a reflection that politicians in Western Countries can kick the can farther than most around here think, and the fact they also have the majority of the guns and the printing presses to keep the masses subdued ENOUGH until the dam finally breaks.

2015 could be a date as well; bubbles tend to burst at the end of second term presidencies (Reagan/Clinton/Bush all had crashes at end of their terms).

Tue, 01/29/2013 - 14:22 | 3195477 MrPalladium
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It all comes a cropper when the DHS paychecks are worthless.

Tue, 01/29/2013 - 12:02 | 3194979 Sudden Debt
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It's not normal that everybody can buy 2 cars.

It's not normal that everybody can buy a big house

It's not normal that everybody can go on vacation twice a year


Everybody expects so much that average doesn't cut it anymore!


I have kids, fresh out of school, WHO EXPECT TO MAKE AS MUCH MONEY AS I DO WITH NO SKILLS AT ALL!!

Sure, when you hire them, they say: I WANT TO MAKE THIS MUCH MONEY!

And when you ask them WHY WOULD I HIRE YOU AND PAY THAT MUCH? Their eyes turn into glass...



And so, the lower class prefers to sit at home, smoke their crack pipe and wait for the postman to come by so they can rob him...

Tue, 01/29/2013 - 12:05 | 3194994 Shizzmoney
Shizzmoney's picture

On the bright side, when the hyperinflation happens, it's gonna be pretty lulzy to see CEOs in the food stamp lines so they can afford a $10000 loaf of bread.

Tue, 01/29/2013 - 12:22 | 3195034 otto skorzeny
otto skorzeny's picture

I have no problem with a potholefiller making that kind of $-AS LONG AS IT'S NOT AN CITY/STATE AFSCME UNION SHITHEAD FUNDED BY THE TAXPAYER  ONE.

Tue, 01/29/2013 - 12:29 | 3195076 Umh
Umh's picture

So the politician should outsource the work to his buddies?

Tue, 01/29/2013 - 12:41 | 3195143 otto skorzeny
otto skorzeny's picture

like they don't already?

Tue, 01/29/2013 - 13:24 | 3195264 tickhound
tickhound's picture



Memo to Humans:

When finished outsourcing, I will automate.  You are an expense.  Please learn to manage your guilt when I subsidize your consumption.


The Machine   

Tue, 01/29/2013 - 12:32 | 3195091 Tango in the Blight
Tango in the Blight's picture

There are CEO's who create less value than potholefillers.

They run their companies into the ground and then still get huge golden handshakes.

When they drive away from their bankrupt companies they won't have to worry about driving in a pothole because some potholefiller did his work properly.

Tue, 01/29/2013 - 12:42 | 3195144 NotApplicable
NotApplicable's picture

WAT??? Those CEOs are creating massive amounts of value. Just not for the shareholders, customers, or general public.

Tue, 01/29/2013 - 23:39 | 3197644 michael_engineer
michael_engineer's picture

What your describing sounds like a bane approach, kind of like Romnesia was.

Tue, 01/29/2013 - 16:39 | 3196103 michael_engineer
michael_engineer's picture

As if every CEO doesn't want to make 600x the wage of a potholefiller.

The outrageousness goes both ways.

Tue, 01/29/2013 - 12:23 | 3195047 Dr. Engali
Dr. Engali's picture

You're assuming that the political class gives two fucks for America..which they don't. As long as they are being showered hookers ,blow ,and fiat ,they will continue to sell the country down the road.

Tue, 01/29/2013 - 12:28 | 3195070 Dr. Engali
Dr. Engali's picture

okay thanks.

Tue, 01/29/2013 - 17:59 | 3196445 Theosebes Goodfellow
Theosebes Goodfellow's picture

~"I can't wait for 2020 when our political class starts to realize this..."~

Do you really think this is all going to hold together until 2020? Seriously? What part of "macroeconomy in its death-throes" are you not seeing? The world is fixing to become much, much more local. Wait for it..., wait for it...

Tue, 01/29/2013 - 11:53 | 3194947 Raymond K Hessel
Raymond K Hessel's picture

That's fatalistic.  

Instead of bemoaning high labor costs, the right reaction is to figure out ways to increase the value proposition of employees.

Instead of focusing on scarcity, let's focus on abundance.

Tue, 01/29/2013 - 11:54 | 3194949 caimen garou
caimen garou's picture

can't afford to fill potholes? here is a cheap filler,bernake,kugman, lisman,just to name a few.

Tue, 01/29/2013 - 12:25 | 3195057 otto skorzeny
otto skorzeny's picture

those are some pretty jew-y names- just sayin'

Tue, 01/29/2013 - 11:54 | 3194951 I need more cowbell
I need more cowbell's picture

"I can't wait for 2020 when our political class starts to realize this, and when they realize the corporate class does NOT give TWO fucks about America."

Dude, really? As if the political class DOES? Vanna, I'd like to buy a clue for $200.

Tue, 01/29/2013 - 12:03 | 3194987 Shizzmoney
Shizzmoney's picture

Dude, really? As if the political class DOES? Vanna, I'd like to buy a clue for $200.

The political class of COURSE doesn't give a fuck about America; it's that they think the CORPORATE class of America, does.

Hence why the political class has Jaime Dimon's cumstains on their suits.

Tue, 01/29/2013 - 12:23 | 3195051 Nels
Nels's picture

You really think there's a lot of difference between the corporate class and the political class?  There's just the moneyed class and their accomplices.   Even the blind squirrel toadies to the rich at PBS can see that, check out the report by Bill Moyers on Amgen's connections to Senators on both sides of the aisle.

Tue, 01/29/2013 - 12:30 | 3195072 Shizzmoney
Shizzmoney's picture

You really think there's a lot of difference between the corporate class and the political class?

There is and there isn't. FOr example, there's a bit of an misinterpretation on what I consider "the political class".....I'm more referring to the punditocracy, not the actual assholes in DC (who are VERY much corporate).

Because of the boomerang effect, it's hard to judge who is in what "class".....although in this corporate fascist system....I definitely see your arguement that both are in fact, one in the same.

I guess the political class could be summerized as academics/MSM bloggers and personalities/economists and the corporate class would be bankers/CEOs/government officials.

Tue, 01/29/2013 - 11:54 | 3194952 Hedgetard55
Hedgetard55's picture

President Obama understands this well, and is working his butt off to make the USA more competitive.

Tue, 01/29/2013 - 11:57 | 3194965 Sudden Debt
Sudden Debt's picture

competitive with Nigeria if he keeps up this pace....

Tue, 01/29/2013 - 12:30 | 3195080 Bad Attitude
Bad Attitude's picture


Tue, 01/29/2013 - 12:37 | 3195114 Shizzmoney
Shizzmoney's picture


Tue, 01/29/2013 - 12:05 | 3194993 SRVDisciple
SRVDisciple's picture

I think you forgot the "/sarc" at the end of your comment

Tue, 01/29/2013 - 12:25 | 3195055 Dr. Engali
Dr. Engali's picture

Yes he is helping to accelerate the country down to slave labor wages in line with the rest of the third world. Well slave wages for us...for the fed's not so much.

Tue, 01/29/2013 - 11:56 | 3194960 Sudden Debt
Sudden Debt's picture

but... why not use the illegal immigrants to do those jobs nobody wants?

I bet that 35K for a Mexican sounds like big money.

Tue, 01/29/2013 - 12:31 | 3195084 Shizzmoney
Shizzmoney's picture

35K sounds great to me, and I'm WHITE (I make 32K LOLOLOLOLOLOL).

Tue, 01/29/2013 - 15:27 | 3195794 Sudden Debt
Sudden Debt's picture

I have no idea what salaries are in America :)
On TV it's like everybody makes 250k a month just for going to work once a month :)

Tue, 01/29/2013 - 19:26 | 3196765 strayaway
strayaway's picture

'Illegal alien' is the legal term. US residents are either citizens or aliens. Aliens come in two flavors; legal and illegal. Illegal aliens do work (US) Americans won't do for illegal alien wages. 

Tue, 01/29/2013 - 12:01 | 3194976 Meat Hammer
Meat Hammer's picture

Another example of the current labor value ratio fuckedupness is somebody being paid billions to press CTRL+P.

Tue, 01/29/2013 - 12:03 | 3194983 buzzsaw99
buzzsaw99's picture

The value created by government employees filling potholes is completely out of alignment with the cost of their wages/benefits...


The value created by the maggots at the top lining their pockets is completely out of alignment with their destruction of society...


Fixed it. At least the pothole fillers are doing something constructive. I would rather pay pothole fillers $15M than Lloyd Blankfein.

Tue, 01/29/2013 - 12:27 | 3195064 Sauk Leader
Sauk Leader's picture

In Chicago they come around every once in a while and fill it with "soft patch" which in 2 weeks they have to come back out and fill the same hole. In addition to that, each road crew no matter what has a "driver" position who fucking sleeps in the truck while the other guys are out working. (filling pot holes is not in his job description) It is not so much about pay as it is work rules the unions get in there to maximize the headcount. Who would have thought you could save over $100,000+ by having one of the pothole fillers drive the truck too!

Tue, 01/29/2013 - 13:26 | 3195271 SoquelCreek
SoquelCreek's picture

Both California and Illinois have become governments of the Union, by the Union, and for the Union.  The two biggest spenders in California politics are taxpayer-funded, public-sector employee unions (California Teachers Association (CTA) and Service Employees International Union (SEIU)). Is it any surprise then that both states have massive debt and bottom-scraping state credit ratings.  Unions once stood for something and protect "the little guy."  Now they rule the roost here in California, extracting dues or taxpayer dollars from "the little guy."

In fact, for the Democratic Party, California has become "the oasis of Democratic politics."  See what this means to everyday Californians.  I'll be it seems familiar to people in Illinois, too.


California: The Oasis of Democratic Politics


Tue, 01/29/2013 - 12:04 | 3194989 AgAu_man
AgAu_man's picture

In a "Global Economy" with few if any trade barriers, the economic equivalent of the Water Equilibrium model must rule:  The poor countries will fare better (cheap labor, few regulations) and the rich countries will fare worse (expensive labor and many regulations).  This is common sense, not a PhD thesis or a Nobel Prize work.

The EVP & General Counsel of a Fortune 50 company to told me this some years ago.  He also correctly analyzed back in 2007 that the US had a serious problem with Corporate Governance (mostly worthless) that will cost the country dearly.  Poor corporate governance translates into poor political governance.  "It's a moral disease, and a question of how a leader's World View translates into Values and intentions.  Do you plan to actually 'build' something (create value), or just 'harvest' something (extract value), to get wealthy?"

He also forecast that the people in lofty positions (here or anywhere) will fare much better to protect their wealth & interests, and that this will result in a great wealth redistribution upwards.  All exactly as foretold.  Before ZH!

Tue, 01/29/2013 - 13:20 | 3195251 SoquelCreek
SoquelCreek's picture

Your analogy is good, but I would use different wording.

There is "build" something (create value).  In this example, you are creating something new.

There is "mine" something (extract value).  In this example, you are merely extracting something of value that already exists.  It can still be difficult, but it depletes the available resource over time.  This is indeed what some coporate managers do when they pick the bones clean of a dead or dying corporation.

Harvesting something implies farming.  You have to tend and grow something before you can "havest" value.  This implies a renewable value stream.  Good product managers are essentially farmers.  You plant and nurture a new product or service that creates a valuable crop that you harvest over time.  Pests and bad weather (competitors, changing market dynamics) can serverely degrated your "crop".  Best of all is when you create a nearly perpetual revenue stream, or a "cash cow."  While you're harvesting, though, you better be building a new product or service to plant anew.  Otherwise, prepared to be "mined".

Tue, 01/29/2013 - 12:05 | 3194996 Spastica Rex
Spastica Rex's picture

If only we could get robots to do all work, except for banking and politics.

Tue, 01/29/2013 - 12:06 | 3194999 the not so migh...
the not so mighty maximiza's picture

good article

Tue, 01/29/2013 - 12:06 | 3195000 tempo
tempo's picture

robots, automation kills jobs. Globalization sends remaining jobs to unregulated, slave labor areas. Tax revenues in developed countries decline. QE supports new bonds to cover deficits to support high Govt union wages and entitlements. Lots of meaningless BS on TV to divert and dumb down. Your screwed unless you are a trust baby, connected with the progressives,a doctor or an engineer will to travel. The problem can't be fixed.

Tue, 01/29/2013 - 12:08 | 3195007 Spastica Rex
Spastica Rex's picture

Automation just allows workers to to be employed in more pleasurable pursuits, like working in massage parlors. Don't be a Marxist.

Tue, 01/29/2013 - 12:11 | 3195014 Mad Mohel
Mad Mohel's picture

They are working on that also, the Fuckatron 3000.

Tue, 01/29/2013 - 18:31 | 3196525 JuliaS
JuliaS's picture

Only in an upside down world we start with a human using his muscle to plow dirt and getting fed at the end of the day, but progress to a self-harvesting field powered and fertilized by black miracle goo discovered in unimaginable quantities, with everybody around going hungry!

Where did the food go? Did the machines eat it all? Are people becoming homeless because rich robots are moving into their apartments? Do people commit suicides for owing too much money to cyborgs? Are computers consuming so much electricity that there isn't enough of it left to keep the lights on at night?

Machines create wealth. They free workers. They reduce labor requirements. They make life safer. The problem is that the benefits of automation and mechanization do not go to laborers. They go to machine owners, much like the fruits of slave labor go directly to the slave owners.

In a fiat world, the issuer of fiat is the real owner of everything - the land, and everything above it, including machines and their inferior orgranic predecessors.

Tue, 01/29/2013 - 12:09 | 3195004 fonzannoon
fonzannoon's picture

Funny I went on youtube to Listen to Perot's "Giant sucking sound" quote from the debate and every vid showing it would not play.

Tue, 01/29/2013 - 12:10 | 3195011 buzzsaw99
buzzsaw99's picture

The giant sucking sound is the squid.

Tue, 01/29/2013 - 12:41 | 3195139 krispkritter
krispkritter's picture

I thought it was Becky in the bathtub with the billionaire Buffy...

Tue, 01/29/2013 - 14:53 | 3195609 Apply Force
Apply Force's picture

Still there;


Wanted to watch for myself...

Tue, 01/29/2013 - 12:13 | 3195016 ejmoosa
ejmoosa's picture

I'll help you out.  The rate of profit growth for the last twelve months is directly correlated to the rate of job growth the following twelve months for the National Economy as reported by the BEA in their GDP report.

And the rate of job growth turns negative when that rate of profit growth falls below 7% or so.


Want more jobs?  Create an environment that leads to higher profit growth.

Tue, 01/29/2013 - 12:13 | 3195019 Never One Roach
Never One Roach's picture

Vietnam and India and Indonesia are the future sweatshops of the world. China is too expensive now. People there want three meals a dare they!

Tue, 01/29/2013 - 12:32 | 3195090 Gimp
Gimp's picture

Next they will demand a 40 hour work week, Overtime and God forbid - UNIONS.......arrrrrrgghhhh

Tue, 01/29/2013 - 12:32 | 3195095 Shizzmoney
Shizzmoney's picture

My company, which makes housewares by slave labor in China ($1/hour), is slowly migrating its vendor contract to these countries.

Pretty sick when a corporation sees $1/hour as a "negative cost"

Tue, 01/29/2013 - 12:13 | 3195021 Uncle Zuzu
Uncle Zuzu's picture

None of this would be happening if Bernie let the free market do what it is supposed to be doing: deflation.

Tue, 01/29/2013 - 12:16 | 3195027 LawsofPhysics
LawsofPhysics's picture

FAIL, Unless you also deflate the human population, demand will remain the same and continue to grow along with all those hungry mouths.

Tue, 01/29/2013 - 12:32 | 3195094 Gimp
Gimp's picture

WAR coming to a neighborhood near you soon

Tue, 01/29/2013 - 13:13 | 3195220 walküre
walküre's picture

Why does monetary deflation automatically equal a drop in supply as you're suggesting?

If demand remains the same, the supply side will sell for less as long as they can afford to produce

That would be a healthy contraction of the financial system and would require that government compensations, benefits and pensions shrink. That's never an option which is why they're inflating until money is worthless and government is getting paid in worthless inflated money.

Tue, 01/29/2013 - 13:19 | 3195246 LawsofPhysics
LawsofPhysics's picture

"If demand remains the same, the supply side will sell for less as long as they can afford to produce"


Only if the inputs are available.  The whole "flation" debate is really useless.

Tell me, what's the "price" of something I won't sell or the "price" of something that nobody wants?

Tue, 01/29/2013 - 12:13 | 3195022 falak pema
falak pema's picture

there is another way around the problem : by redefining the product including quality measures in terms of content and servicing that include higher local servicing. 

If the product has to be made so as all servicing is local oriented, like recycling obsolete parts and integratiing added value components that have quality inputs that are locally manufactured, hi tech; we could create more inputs which are local, in terms of servicing and maintenance.

Its an holistic approach to the problem. Not a straight one off substitution of a component for another. Our labour force has to get more service oriented and less taylorist oriented. Those taylorist jobs of economies of scale are never coming back. Also robotics will intervene soon more and more. So going fast into that sector, although destroying low qual jobs, will create more add on potential for complementary services. A whole new interface opens up for services. And a whole new set of human skills. 

Every true revolution is born like this, out of dire necessity. Human nature only moves when it really has to. 

Tue, 01/29/2013 - 12:27 | 3195068 Spastica Rex
Spastica Rex's picture

"although destroying low qual jobs, will create more add on potential for complementary services"

Massage parlors!

Tue, 01/29/2013 - 13:01 | 3195191 falak pema
falak pema's picture

you are  a fan of fatal fantasy! 

Tue, 01/29/2013 - 16:17 | 3196000 Helvetico
Helvetico's picture

This is the first intelligent comment I've read on ZH in a long, long time. It has, for the most part, been taken over by cliché-spewing partisan fuckheads as incapable of independent thought as the "sheeple" they hold in such low regard.

Falak is right about giving up on manufacturing: that ship has sailed, at least regarding large-scale manufacturing. Niche producers can still do well, but that won't be enough to put the economy back on its feet. 

Local jobs that CAN'T be replaced..repairing bridges, roads, roofs...hold more hope for Americans, but only if governments redirect funding away from bloated pension funds toward infrastructure. This will be a difficult transition for Americans used to disposable consumer culture and constant geographical mobility. Americans don't like sticking around one place for a long time and repairing what they have, but present circumstances give them little other choice.

It will also require Americans to pay more for higher-quality, locally-made goods. This will be a long, hard haul, too, since Americans prefer cheaper, foreign-made goods, right down to the flags they wave. Being patriotic means buying locally when possible.

The Federal government will have to re-enact import tariffs to protect nascent industries: no large, modern nation has risen without a well-thought-out industrial policy that plans decades ahead. Libertarians and Free Market Absolutists aside, no sane, well-educated person thinks the economy can recuperate without close cooperation (not collusion) between the private and public sectors.

Military spending needs to contract significantly, with the proceeds redirected toward research and development in areas where the US is or will be lagging. This will require a lot of Americans to readjust their "we're number one" jingoism so that it refers to technological advancement not purely devoted to blowing shit up.

Business culture has to develop a long-term perspective; the current quarterly outlook which puts earnings per share above all else is highly destabilizing and, over the long-term, self-destructive. Sadly, I don't see how this can be done without major regulatory overhaul (lower taxation on investment held over longer time periods, etc.), and I don't see how our captive Congress can begin to regulate its corporate pimps.

Finally, Americans have to realize that the boom days are over...forever. There's no more frontier to explore, no more running away from the East to the Midwest to the West; no more fleeing the Rust Belt for the Sun Belt. Sure, they'll still flee en masse to the next economic promised land, but the problems of exploding demographics will continue to follow; more people means more schools, roads, water mains, sewers, cops, etc. until taxes rise, fueling another cycle of flight to more "business-friendly" climates, leaving behind bankrupt, decaying municipalities, and so on, until every last corner of Florida, Texas and California is packed with vacant strip malls and abandoned real estate projects.

If Americans learn to stay in one spot, build something of value and fix it with American-made goods and services, they stand a chance. If not, they would be well-advised to emigrate.


Tue, 01/29/2013 - 12:14 | 3195026 Father Lucifer
Father Lucifer's picture

I always wondered where all the fucking secretary's went. Thanks for the enlightenment.


Tue, 01/29/2013 - 12:29 | 3195073 DeadFinks
DeadFinks's picture

If I could afford to hire a fucking maid, I wouldn't care if she didn't do windows.

Tue, 01/29/2013 - 12:20 | 3195040 joego1
joego1's picture

We will see jobs in this county again when we all see that we are no longer a rich country. That time is coming soon. Initially a lot of flapping around and then a lot of work for everyone that is still able to work.

Tue, 01/29/2013 - 12:19 | 3195041 otto skorzeny
otto skorzeny's picture

oil within spitting distance of $100 a barrel doesn't help either(up a $1 today on good cons confidence news/sarc). gas has jumped 50 cents a gallon this week here

Tue, 01/29/2013 - 12:22 | 3195045 rosiescenario
rosiescenario's picture

Charles overlooked the fact that a large percentage of those government employees spend their time trying to stop productive members of society from running a profitable wonder more new jobs are created in Texas than in CA....folks are fleeing this over regulated, bureaucratic snake pit. Brown sent a team to Texas to try and find out why Texas was successful....he should have had this team stay home in Sacramento since that is where the problem lies.

Tue, 01/29/2013 - 12:26 | 3195066 otto skorzeny
otto skorzeny's picture

Moonbeam probably sent them down to pick him up some primo weed and a few high-cap mags

Tue, 01/29/2013 - 12:38 | 3195124 Accounting101
Accounting101's picture

Right, all those police and firemen, teachers and librarians spend all day trying to figure out how to prevent you from being successful. Come on man, stop being a rube!
The author produced a big pile of shit and you brought it to your kitchen table.

Tue, 01/29/2013 - 12:46 | 3195152 otto skorzeny
otto skorzeny's picture

that's not the argument shithead-but keep paying 2/3 of what you make in some form of tax to support these govt assholes. also -stop by the local FD and give some BJs to the "hero" firefighters sitting around doing nothing but watching TV and working out.

Tue, 01/29/2013 - 13:10 | 3195209 Accounting101
Accounting101's picture

That is until they are coming to save your worthless behind. I know, I know. You are a little capitalist, or I should say a government whore when it directly benefits you.

Tue, 01/29/2013 - 13:16 | 3195234 Tango in the Blight
Tango in the Blight's picture

Should they start fires so they have something to do?

Tue, 01/29/2013 - 12:46 | 3195154 NotApplicable
NotApplicable's picture

They're fucking starving us with their insane pensions. Is this really that hard for you to account for?

There's value freely paid for, then there's value delivered at the barrel of a gun. The two should never be confused.

Tue, 01/29/2013 - 13:25 | 3195269 Accounting101
Accounting101's picture

Bullshit! Pensions have nothing to do with our current budgetary problems, which includes an employment problem. Teachers in the state of Michigan will put in excess of $100,000 of their own money into the state pension system and that money is invested to produce yields. That's their god damn money, not yours. You may be starving, but its an intellectual starvation.

Tue, 01/29/2013 - 13:34 | 3195301 LawsofPhysics
LawsofPhysics's picture

"That's their god damn money, not yours."

Yes, moreover, what are they forced to invest in?  My guess is that they have a limited set of choices.  Wall street forces 401kers to play the bullshit game, steals their wealth in a collapse, while profitting, and then demand the same folks bailout the same big banks and trading houses.  WTF?  How fucking stupid are these sheeple?

Tue, 01/29/2013 - 13:40 | 3195325 Accounting101
Accounting101's picture

I absolutely agree. These state pension systems have billions and billions of dollars that need investing. Unfortunately, because of ZIRP and Wall Street run amok, these pension systems are forced into the casino.

Tue, 01/29/2013 - 13:41 | 3195326 SoquelCreek
SoquelCreek's picture

The pension issue varies GREATLY by state.  In California, many of the pension woes date back to the Dot-Com bubble.  Remember how some people were going to become millionaires selling dog food over the Internet using sock-puppet spokesmodels (  That same mentality spread to the California Legislature where they granted UNFUNDED, RETROACTIVE pension benefits to state employees.  It was never going to cost taxpayers a dime because the Dow would be at least 26,000 by now (it's roughly half that now).  Many county and city governments followed the example.  Now, its taxpayers that are on the hook to make good on those defined benefit pension plans.


The CalPERS Brochure Selling California SB400

Sure, Governor Jerry Brown and the California Legislature enacted some minor reforms that blunts some of the more abusive pension practices like salary spiking.  But even career California Democrats realize that this is just a start. Here's what Willie Brown (no relation to Jerry Brown), a career Democrat, California's longest-serving Assembly Speaker, and former Mayor of San Francisco said.  It's amazing how truthful a politician can be when they're no longer seeking office.

"As reforms go, the pension deal that Sacramento lawmakers reached last week is just a start to correct the mistakes that former lawmakers, including me, have made over the years. 


""The world is changing. Years ago it was the likes of Southern Pacific and other big businesses calling the shots in Sacramento, and we were all highly critical of them.

"These days it's labor. That's not the portrayal union leaders like to see in the media, but it's the truth." 


Tue, 01/29/2013 - 13:50 | 3195353 SoquelCreek
SoquelCreek's picture

"That's their god damn money, not yours."

Yep. And it was criminal to see what happend to Indiana teachers' and police officers' pensions when the Obama Administration dictated the terms of the Chrysler bankruptcy bailout, wiping out the preferred bondholders.  Here's the Indiana State Treasurer, Richard Mourdock.

Tue, 01/29/2013 - 13:27 | 3195274 linrom
linrom's picture

The jobs that are being created in Texas are:

1. filed by Mexicans

2. related to energy exploitation boom......soon to be a bust

3. job creation has nothing to do with taxes period, it's all about demand and making your employee pay your upkeep.

Tue, 01/29/2013 - 12:31 | 3195059 RKDS
RKDS's picture

It's not coming back because too many people at the top think they're worth too much and too many productive people work themselves to death worshipping those non-producers.

Suppose I want to start a business.  Let's say I decide to mow lawns, but it could be absolutely anything.  So I go to a bank or government or somebody and borrow $50K for startup costs.  Then I run out and spend all but $20 on a new Corvette.  Later, I go to purchase a lawn mower but, surprise, they cost $300.  With no lawn mower, I can't mow lawns and my business goes bankrupt.

Now, is the problem that lawn mowers are too expensive, business is too difficult/regulated, or that I was a total retard for thinking I deserved a new Corvette just for being the boss?  That's the situation many "businessmen" are in today.  They start with insane executive rewards, wasting all of their capital on them, and then cry that they can't afford to actually do the work that drives the business.

You can't demand more pay for yourself and more work from others forever.

Tue, 01/29/2013 - 13:14 | 3195230 MyBrothersKeeper
MyBrothersKeeper's picture

Your argument is non compelling and makes no sense.  A rational business person would see what this corvette driving landscaper is driving or how they are operating his/her business.  They would see the waste and would make much better use of the 50K borrowed and eventually drive the corvette driver out of business or make him operate more efficiently.  That's what free market capitalism does.  You are also assuming the bank etc wouldn't want a detailed explanation/business plan explaining how the money would be spent as they want to ensure the risk of lending capital was not too great for whatever interest they are charging.

If your arguemnt were true, anyone could start a business, buy a new car, be greedy about running their business, spend much less time than their competition and still stay in business. If you ever ran your own business you would know that it doesn't work that way.  It is also why the governments role in business should be very simple: promote transparency and competition.  Doing so rewards serving customers and efficiency and punishes those who don't with failure. It also makes the most capable workers always have competition for their skills.

The article is 100% correct in my opinion nd just plain common sense.

Tue, 01/29/2013 - 13:56 | 3195323 RKDS
RKDS's picture

If your arguemnt were true, anyone could start a business, buy a new car, be greedy about running their business, spend much less time than their competition and still stay in business. If you ever ran your own business you would know that it doesn't work that way.

Read what I said.  I made it very clear that doing these things would bankrupt somebody.  I've seen it happen time and again.  Wall Street pimps and slum lords think they're the end-all-be-all of the business world but they're as clueless and out-of-touch as the government they rail against.

Further, a "business plan" is the new strategic marketecture.  Nobody knows what it means but they feel smart when they say it.  Big deal...and not like anybody ever lies, right?

Finally, I do run my own very small business and I do it without external funding precisely because of the idiocy of people whose knowledge is miniscule while their desire for profit off of my back is anything but.

Seriously, think about it, if the boss can't do the work of hundreds or thousands of employees, how can he be "worth" the sum of their salaries?  The fact is that he and his cronies are a disproportionate drain on resources, leeching the productive capacity right out of the business.  Without such a monsterous burden, there's room to take risks and price competitively...

Tue, 01/29/2013 - 21:28 | 3197237 MyBrothersKeeper
MyBrothersKeeper's picture

That makes zero sense on so many levels.

Tue, 01/29/2013 - 13:15 | 3195235 MyBrothersKeeper
MyBrothersKeeper's picture

Your argument is non compelling and makes no sense.  A rational business person would see what this corvette driving landscaper is driving or how they are operating his/her business.  They would see the waste and would make much better use of the 50K borrowed and eventually drive the corvette driver out of business or make him operate more efficiently.  That's what free market capitalism does.  You are also assuming the bank etc wouldn't want a detailed explanation/business plan explaining how the money would be spent as they want to ensure the risk of lending capital was not too great for whatever interest they are charging.

If your arguemnt were true, anyone could start a business, buy a new car, be greedy about running their business, spend much less time than their competition and still stay in business. If you ever ran your own business you would know that it doesn't work that way.  It is also why the governments role in business should be very simple: promote transparency and competition.  Doing so rewards serving customers and efficiency and punishes those who don't with failure. It also makes the most capable workers always have competition for their skills.

The article is 100% correct in my opinion nd just plain common sense.

Tue, 01/29/2013 - 14:04 | 3195401 SoquelCreek
SoquelCreek's picture

"You can't demand more pay for yourself and more work from others forever."

Yep, you do it by creating a bigger pie.  You create wealth.  You create a good or service that customers are willing to pay for using their own money.  It won't be forever, but hopefully it's long enough until you develop the next great product or service.

Tue, 01/29/2013 - 14:31 | 3195484 RKDS
RKDS's picture

Yes, but if the pie is growing, you don't have to squeeze others to increase your take.  The problem is when that doesn't happen and you have a zero-sum game.  They don't teach that kind of thinking in management programs, so they churn out truckloads of fools who think all they have to do is cut wages to pay themselves a bonus and business will continue as usual.  Long term, you have, for example, Borders/B&N grow as it kills off small book stores before starting to eat itself and then one morning we wake up with no book market at all.

Tue, 01/29/2013 - 12:25 | 3195060 smiler03
smiler03's picture

What a stupid article. Has the author never heard of outsourcing? The Americans invented it after all.

Tue, 01/29/2013 - 12:27 | 3195062 My Days Are Get...
My Days Are Getting Fewer's picture



except for the Federal Goverment, every employer is trying to outsource any and every non-critical job.  Manpower hires the worker for 30 hours or less and provides his services.  This is why America will become the land of part-time employees and self-employed persons.

Forget about the work product being worth more than the total cost of the employee.

Every business owner asks themself - I got to get this work done - what's the cheapest solution.  Outsourcing may not be that reliable, but it usually cheaper up front.

As technology improves, the business owner buys smarter machines and better systems to eliminate outsourcing.

A contractor had a job of cleaning up a NJ shore house after Sandy.  Part of the job was to remove 3 feet of sand and muck in a large crawl space with a 5-1/2 ft ceiling.  Glen told me:  I have a choice - I get 10 Mexicans off of the street to do the job with shovels and buckets - bucket brigade.  Or, I rent a specialized auger and conveyor and use my own guys to do the clean-up.  It is just a matter of cost - both solutions will work.  I will charge the same for the work no matter what.


Tue, 01/29/2013 - 12:34 | 3195078 akarc
akarc's picture

This is why you see many low-value jobs in developing-world countries.

And Chinese Apple/Foxconn workers with crippled hands by age 30. Insures worker turnover. Bring them over here to fill pot holes pay them more than Apple and let them spend their wages here.

I really can't shed tears for folk that may have to take out their own damn trash. Thinkin it might spur conservation!

Tue, 01/29/2013 - 12:30 | 3195085 mightycluck
mightycluck's picture

Great article!

Tue, 01/29/2013 - 12:38 | 3195122 IamtheREALmario
IamtheREALmario's picture

I think I have seen a "competitive index" somwhere that takes into account a bunch of different factors and compares them by country. I don't recall any that were purely financial in number.

When I was growing up in manufacturing some 30 years ago, we had a term called "unproductive overheard", which was used to describe all overhead that did not contribute to the value add of product. So, in essence all SG&A, R&D etc. were part of nonproductive overhead.

It would be interesting to see how a couple of ratios have changed over time for a country such as the US:

1. Total Unproductive overhead (banker, lawyers, think tanks, government, regulation, taxes, insurance, education, licensing, management etc.) / Value creation ("value add" created in the US and not through foreign labor arbitrage, ex: Apple)

2. Total government spend / Value Creation

It should be no surprise that as a country gets more service and government oriented it becomes less competitive.

Tue, 01/29/2013 - 12:48 | 3195163 NotApplicable
NotApplicable's picture

Well, that all depends upon ability to maintain a global empire.

Don't discount the value of slave labor!

Tue, 01/29/2013 - 12:47 | 3195155 ian807
ian807's picture

Robotistan approaches.

Artificial intelligence gets a bit better every year. Fairly soon (i.e. 10-15 years), low skill labor will have the same costs as running a lawn mower without any need for a person to do the mowing. Google self-driving vehicles alone will eventually put thousands out of work. Cabbies? What for? UPS deliveries? Automated, thanks. Trains, planes? We're already able to "fly by wire." Soldiers? A hundred mini drones are more effective and cheaper.

This is what will depress wages worldwide. China will suffer more than the USA, but this is where things are going.

Tue, 01/29/2013 - 14:17 | 3195445 mumcard
mumcard's picture

What will we do with all those idle mouths?  I know!  Let's have a war.

Tue, 01/29/2013 - 12:47 | 3195157 New_Meat
New_Meat's picture

"Now let's say that the owners are very egalitarian and they pay everyone they hire $90,000 a year ($125,000 in total compensation costs) regardless of their skills or how much value their labor creates."

Kurt Shilling in his subsidized 38 Pitches attempted this.


- Ned

Tue, 01/29/2013 - 12:53 | 3195171 Snoopy the Economist
Snoopy the Economist's picture

Maybe it was a zh article but I recall recently that the gov't has over a million people making $100k/yr. That's a lot of porn surfing for a cost of $200k/yr each.

Tue, 01/29/2013 - 13:05 | 3195201 SoquelCreek
SoquelCreek's picture

A very interesting and thought-provoking post!  It explains much of the data.

Why is the civilian labor participation rate (EMRATIO) persistently so low?  It hasn't been this low since the early 1980s when it peaked lower for a very much shorter time.  Don't forget, the federal government bailed out the banks, some insurance companies, GM, and Chrysler.  Don't forget, the federal government also spent $878 BILLION in Stimulus and the Federal Reserve manufactured over a $1 TRILLION to buy government debt. Despite all this, the numbers are actually quite poor.


Why has the average duration of unemployment (UEMPMEAN) peaked and remained so high for so long?  Part of this effect may be due to 99 weeks of unemployment benefits, but the cost of government rose significantly in some places relative to the private sector economy.  For example, the California Legislature granted UNFUNDED, RETROACTIVE pension benefits to public employees as the NASDAQ approached 4,000 back in 1999.  It was never going to cost taxpayers a dime. Riiiight.  Despite the Dot-Com bubble crash, the September 11 terrorist attacks, and the subprime mortgage bubble crash, those benefits essentially remain in place and California's CalPERS pension system insists that it will make above-average returns in the future.


If you subtract the median unemployment duration (half the people experience a shorter duration, half longer) from the average duration (what is the average duration for all workers), you can see that some workers are having a very difficult time finding new employment.  I'm willing to bet that most of those unemployed people are low-wage workers who have become just too expensive based on all their other carrying costs and the uncertainties of new government policies such as ObamaCare and others that may be coming.


Tue, 01/29/2013 - 13:15 | 3195236 LawsofPhysics
LawsofPhysics's picture

When you have a printer, can use "mark to unicorn" accounting, and have captured the government and justice department, you make make your books whatever you want them to be, steal what you like and never be held accountable.

Tue, 01/29/2013 - 14:12 | 3195426 SoquelCreek
SoquelCreek's picture

Amen, brother.  On a completely unrelated topic, did anybody see the recent "Frontline" episode?

The Untouchables

FRONTLINE investigates why Wall Street's leaders have escaped prosecution for any fraud related to the sale of bad mortgages.

Tue, 01/29/2013 - 13:32 | 3195290 JR
JR's picture

When the Fed is gone, America’s wealth and employment will return like magic.

Germany did it; if Germany did it, so can America if her people require the Fed and its banker-controlled Congress “to stand a little less between them and the sun.”

Then, and only then, can America once again become the rising tide that lifts all boats.

If Congress issued debt-free and interest-free money, says Sheldon Emry in Billions for the Bankers Debts for the People, “money issued in such a way would derive its value in exchange from the fact that it had come from the highest legal source in the nation and would be declared legal to pay all public and private debts.”

Emry pointed  out in 2001 that Germany used debt-free and interest-free money “from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years.

“Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole capitalist and communist world to destroy the German power over Europe and bring Europe back under the heel of the bankers.

It is the aggressiveness and profit taking of the international banking families - ever pushing government in their direction – prostituting America’s regulators and congressmen and presidents, financing wars, and helping themselves to the treasure called the U.S. Treasury – that has impoverished America. And you're right: If this is not stopped Americans won’t have a pot to cook in and will continue in financial crisis hidebound toward collapse.

How could a government of the people allow this to happen? Answer: the chokehold on political control called the Federal Reserve Bank. Bring back a sound money system and America again can offer opportunity to her people.

Great article, Charles Hugh-Smith.  The challenge is to reverse this “financial feudalism.”

Tue, 01/29/2013 - 14:23 | 3195478 HeatMiser
HeatMiser's picture

Germany also removed the people that declared war on the German financial system.

Tue, 01/29/2013 - 13:32 | 3195292 Fix It Again Timmy
Fix It Again Timmy's picture

"Not sustainable" - pretty much applies to everything nowadays, therefore......

Tue, 01/29/2013 - 13:51 | 3195309 QQQBall
QQQBall's picture

One overlooked aspect - internet. I now bid my servcies on internet; in the old days they would just call and ask me if I wanted to take on the assignment. Now via a 3rd part website, they post the job and a bunch of guys bid on it. Fees have been flat for over a decade. So, I bid against guys that may have 1/3rd the experience.... the govt weakened the imapct of my profession designation by handing out State licenses. So you essentially have a greater supply and  smoother bidding process = lower price equilibrium

Tue, 01/29/2013 - 13:38 | 3195310 ItsDanger
ItsDanger's picture

Potholes arent being filled because there is no incentive when you can get $100,000 for doing nothing.

Tue, 01/29/2013 - 14:52 | 3195606 RKDS
RKDS's picture

There are only so many legislative and boardroom seats and some of those folks hold several at once...

Tue, 01/29/2013 - 13:51 | 3195359 jplotinus
jplotinus's picture

Well it is about time! Thank you Charles Hugh-Smith for describing precisely why capitalism is an utter failure and must be discarded.

I could not have been clearer myself.

Capitalism requires slavery. Or, as close to $0.00 for labor costs as is possible. Otherwise, it costs too much.

Using his exact terms to say the same as that expressed above:

"People hire other people when their labor creates more value than it costs to hire them."

Left unstated is the assumption that people who hire have an ordained right to profit off of those who provide the work.

That is to say, to exploit them.

Granted, people in America assume there is no other model for the provision of goods and services than one that depends on taking advantage of work that people perform. It is likewise cast in stone that your health and your pension is your problem and shouldn't be the concern of an employer, especially a public one because goodness knows employers should not have to pay taxes. Taxes are bad, bad, bad because it is bad, bad, bad that people should have a decent salary, healthcare and a pension.

We here at ZH do not want good paying jobs, pensions or healthcare, right, bitchez?


Tue, 01/29/2013 - 14:15 | 3195442 linrom
linrom's picture

I am in agreement with your post.

Tue, 01/29/2013 - 14:21 | 3195469 JR
JR's picture

The classic opponents of capitalism are Communists. And the daily workers' mantra has always been that business is fascist and capitalism is a failed system. Not true, of course.

And only Communists would call the activities of the international banks and the current Congress and President capitalism. The tyrants who have taken over the control of our economic system are the real enemies of capitalism; in the equity markets, for example, the banks have completely walled out entrepreneurs, retail investors and, yes, capitalists.

As W. Cleon Skousen asks in The Naked Capitalist, Have you ever wondered why some of the wealthiest people in the world have been financing Communism, Socialism, Black Panthers, SDS, Weathermen, and many other forms of violence and revolution?

The reason is to gain economic and political power to seize the human and natural resources of the entire world. In short, George Soros et al. are not capitalists.

Tue, 01/29/2013 - 13:55 | 3195372 QQQBall
QQQBall's picture

Taking advantage of work that people perform?  The distortion is the third person in the transaction. I can hire someone to fill potholes at $x/hour. The government steps in and does the hiring; now the work is not depednet upon quality or price, it is directly related by the provider's relationship to the third party (government).

Tue, 01/29/2013 - 14:16 | 3195441 SoquelCreek
SoquelCreek's picture

Sounds an awful lot like healthcare in America, whether it be via insurers or the government.  In either case, YOU are not the paying customer.  Hence, YOU have little control over the price or the quality and YOU don't really care what it costs.

Tue, 01/29/2013 - 14:00 | 3195384 bobbydelgreco
bobbydelgreco's picture

every thing charles says is right but he misses the big killer for small business & that is big business office products, telecommunications, insurance (all kinds) marketing which in this stupid country means only 1 thing google antitrust ain't going to happen the future no small business the result i believe is the end of the american experiment

Tue, 01/29/2013 - 14:21 | 3195468 SoquelCreek
SoquelCreek's picture

Huh? I'm a small business owner.  Office products are cheaper than ever.  Telecommunications is cheaper than ever.  Marketing costs, thanks to the Internet, are cheaper than ever.  The fastest growing costs for my business are ...

1. Insurance (here's my company's experience with health insurance costs)

2. Government--not so much in direct costs yet, but in the uncertainty in what the government is going to do or not do.  Neither California nor the federal government are acting particularly sanely at the moment.

3. Electricity--in California, this is directly related to #2.

Tue, 01/29/2013 - 14:06 | 3195404 Frederic Bastiat
Frederic Bastiat's picture

If goods are allowed to fall in value (deflation) then workers will desire less compensation, and labor will become cheap again.  But for some odd reason, we want the price of everything to constantly rise. 

Tue, 01/29/2013 - 14:41 | 3195565 strayaway
strayaway's picture

The government blessed caste of low wage illegal aliens creates an even larger surplus of unskilled and semi skilled workers to destroy higher paid union jobs in, for instance, meat packing, landscaping, or roofing. It must actually be the policy of the Obama administration to destoy non-governmental unions except those doing government work or employed developing government pet projects. 

Tue, 01/29/2013 - 14:53 | 3195611 QQQBall
QQQBall's picture

You have it backwards. The union wages were inflated. $80/hr to screw in car seats. Does that pass the sniff test?

Tue, 01/29/2013 - 17:53 | 3196423 strayaway
strayaway's picture

$80/hr to screw in car seats will encourage overseas production and/or the hiring of the illegal alien caste to the extent that these things are legal or management can get away with it. We probably don't disagree on that. We may disagree on whether wealth should be more evenly distributed in this country by substituting tariffs on importers for middle class income taxes as was the case until the 16th amendment took effect. We may also disagree regarding whether businesses hiring illegal aliens to avoid paying benefits that can instead be paid by taxpayers when poorly paid illegal aliens or their families show up at hospitals should be encouraged to do so.

Tue, 01/29/2013 - 15:28 | 3195789 jplotinus
jplotinus's picture

"And only Communists would call the activities of the international banks and the current Congress and President capitalism. The tyrants who have taken over the control of our economic system are the real enemies of capitalism; in the equity markets, for example, the banks have completely walled out entrepreneurs, retail investors and, yes, capitalists."

As dodges go, the often expressed one, exemplified in the quote, is exquisite. There are many who seek to claim capitalism is not capitalism when it fails. Worse, there are those who seek to rebrand failed capitalism as socialism. Some go so far as to refer to Obama or to Democricsns as socialists. Nothing could be further from accurate.

Come to think of it, the inability of capitalism to take responsibility for its own failures is very telling. Learn to deal with your own failures, bitchez, and stop trying to shift blame where it doesn't belong. America has nevah had a socialist government, system or even an inclination to one that wasn't brutally thwarted or otherwise repressed, as in the McCarthy era.

Tue, 01/29/2013 - 15:31 | 3195818 jplotinus
jplotinus's picture

"You have it backwards. The union wages were inflated. $80/hr to screw in car seats. Does that pass the sniff test?"

Who are you to tell auto workers they make too much?

How much do you make and what do you do for a living, b____h?

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