It seems that the EU and China as well as many other economies both established and “emerging” are complaining about the US only clause in our stimulus package. I know I have been harping on this for awhile now. But, they keep complaining and there are so many lessons and insight to be gleaned from this issue. Many have been touched upon in previous posts. I would like to explore an overall depth of this issue.
If you have been with me all along, you know that I put much more merit in labor hours then actual currency. If you haven’t been with me a quick but necessary synopsis goes like this. We should not judge how much somebody is paid by the dollar figure as much as we assess how many of hours they have to put in at work to pay for needs and wants. If a man could live on bread alone, the man who only makes $1 a day but pays only a penny for bread is richer then the man who makes $100 a day but pays $3 for the exact same loaf of bread.
So with this concept of the importance of the "labor hour" fresh in our minds, we have to consider what our employers have to offer as compensation to attract good candidates, and what kind of expenses our employees have to cover with their salaries. Our employers often offer, and are required to offer some kind of health care program. The employee is most often required to pay a growing large portion of that health care cost themselves. I have what is considered good health care, but still i pay close to $200 a month for the premium and I still have to pay deductibles and co-pays when I go to the doctor. So right off the bat I have to pay $200 a month or around $1.70 and hour just for health insurance. Now if the Chinese really make 40 cents a month, how do they pay for their health insurance? Oh wait, their government subsidies their work force by giving them free health insurance. Then again, it is also acceptable to just let them die. It is kind of one of those negative effects of being Communist. You can't use the need to pay for health insurance to demand more from the employer.
What other cost might an employer in the good ole US of A be either asked or required to pay that people in say China, India, or the E.U. might not have to? All employers have to pay into a retirement fund called "Social Security". This is a tax, and could arguably be said to be covered by the tax leveled against foreign companies. But for the most part it is another unfair advantage. First of all our skyrocketing daily costs is not being paced with an increase in the benefit. Also, one could easily counter that if you had a national health care plan, that SS, Medicare, and Medicaid would become unnecessary. one of the biggest costs for the elderly is medical expenses. Many have their houses paid off and some kind of savings from they employment years. Or they could go greet people at Wal-Mart for enough to suit other needs. But, aside from all of that, it is a staple of our society that some kind of "retirement savings" plan should be offered. In many of our older and larger industrial models, these plans came in the form of "pensions". That meant that the company keeps paying the employer for sometimes 20, 30, even 40 years after they are no longer contributing to the production of the company. In countries where the government, work force, or a combination of both do not require retirement savings plans, they are at an advantage. lack of such future expectations in the culture can cause and "intangible advantage". In the US we all expect to live to at least 75 or 80. ten to 15 years after we retire. if you live in a society where mortality is never expected beyond 70, there is a huge advantage to your expected cost over the economies with more longevity.
That said, it should be noted that other economies subsidies their labor force in ways that are not immediately recognizable. Ideas such as national health care, free higher education, housing, and energy support are benefits to its labor force that advantages them financially over the US labor force. Intangibles such as a road system that has allowed us to "sprawl" in a way that requires an automobile to live. Insurance, public transportation systems, and other related cost associated with that "infrastructure" that was developed to get us out of the great depression. So unless these countries are willing to end their unfair subsidies and/ or send us the money to pay each for the advantage to each of our laborers, I do not think they have a case for "protectionism".
One last quick thought to demonstrate the uniqueness of this mess we are in. A "durable good" is defined as a product with a lifespan of less then 3 years. The "no prize" this week goes to anybody who can name me 5 durable goods from the Great Depression era. 5 products that were expected to last more then 3 years.