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America made a major mistake pushing higher wages instead of pushing productivity. This started years ago as a solution to growing inequality. Increased productivity tends to lower the price of goods and inflation. It could be argued that higher wages are a chief contributor in causing America to become less competitive in the global market, productivity matters. The trade deficit has exploded and much of the reason is based on other countries being able to produce goods at far lower cost. High wages have only widened the advantage low-income countries have over America in producing less expensive goods. Of course, it is not the only factor, a slew of regulations and things such as high healthcare costs also feed into this. Over the last several decades this has resulted in a hollowing out of America’s middle-class as companies shifted production overseas. Years ago Trump cut the tax on large companies in an effort to bring jobs back to America. A big reason this was not as successful as we hoped is that over-regulation and healthcare costs in America trump an advantage the tax cut provided.America’s trade deficit has been widening, again. The U.S. international trade deficit widened 0.8% in May to $75.1 billion. This is the largest deficit since October 2022. The numbers from the last several years highlight that for all the commotion it created, the trade war with China has failed to bring down the trade deficit.
As for productivity, for years businesses shouted they were seeing huge gains in productivity but the truth is that productivity can be difficult to measure. Sagging productivity is tied directly to the idea we may be looking at stagflation. Today supply chain disruptions and other problems continue to take a bite out of productivity, New systems touted as gains, can carry with them a lot of negatives. With the onslaught of computers and word processing the garbage in garbage out pipeline has exploded. This has resulted in a simple search for information dropping the person searching into a loop that circles back upon itself and rendering little in the way of helpful information. An example of more is not always better is evident in the way government is constantly growing. It is not uncommon for laws and bills flowing from Washington to run thousands of pages in length. Ironically, while the old way of typing and copying was inefficient compared to modern methods, it did limit the number of pages a person could create. Truth be told, many of us have wasted a full day or more on a machine that is malfunctioning or refuses to do our bidding. The idea we save time by not fixing something discounts the cost and waste created when we are forced to throw away an item that still or should have a great deal of useful value. Sometimes I have to wonder whether people will ever look up from their cell phones long enough to realize a lot of things are not working and complicated is not always better.Another issue acting as a double-edged sword on productivity is the “Amazon business model.” The inefficiency of shipping products directly to consumers is a subject raised here on AdvancingTime in a recent post. This inefficiency was hammered home on December 26th and 27th on NBC news. While the news did not blame Amazon directly it attacked the wasteful process of selling online. The NBC piece looked strongly at how new products purchased online were often returned and at the cost to a business for taking these items back. It reported it cost $33 to take back an item sold for $50 and how this is crushing profit margins. NBC went on to detail how many of these items end up in landfills and were never used. Waste may add to America’s GDP but should be considered a huge negative to the American economy.As a side note, it should be mentioned that many of these items ending up in landfills unused were manufactured in China. How ironic, the fact we buy so much from China rather than making more goods at home is one of the reasons for the current supply chain debacle. There is a slang expression we sometimes hear people say, “You can’t make this shit up.” This idiom is used to describe a situation, event, or action that is or seems especially bizarre, surreal, or hard to believe.To put this in context, Americans send their wealth overseas to buy the goods our system is designed to throw away. It is a sad situation that we live in a world where our political leaders cheer waste since it adds to the GDP. Simply put, raising wages without a corresponding rise in productivity hurts more than it helps.Footnote; Information from the following articles fed into this post.
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