Wednesday, February 20, 2008

Alan Greenspan Thinks You Make Too Much Money

One thing Alan Greenspan thinks the country could do to improve the economy is to allow more immigration of skilled workers, reports the Dallas Morning News.

"Significantly opening up immigration to skilled workers solves two problems. Companies could hire the educated workers they need. And those workers would compete with high-income people, driving more income equality," said Greenspan.

Driving more income equality... or in layman's terms, lowering wages.

As a former economist, you would think Mr. Greenspan would be able to connect the economic dots of lowering the wages of skilled workers.

America's economy is a consumer driven one. It relies heavily on companies being able to show growth by selling more goods and services to American consumers. In addition, the entire world's economy relies on the American consumer's ability to continue to consume at current levels.

Currently China has maintained year-over-year economic growth of 10%. Coincidentally, 10% of China's economy is its exports to the US. The EU's most recent GDP numbers show a growth of 2.7%. And 2.25% of the EU's economy are exports to the US.

What does this mean? Well, if the US consumer is paid less, there is less spending money. Less money means a decreased need for foreign imports. As the need for imports decrease, so do the economies of the world.

For example, if the US were to halt the importation of goods from China and/or the EU tomorrow, both would see an immediate recession, if not a full depression as their companies cut back productions in line with falling demand.

So while it may be good for the short-term stock price to show decreasing skilled labor costs in the annual reports of multi-national corporations, in the long term, lower wages in the US skilled labor sector only serve to hurt everyone as tax revenues and imports inevitably subside.

1 comment:

Anonymous said...

There is a good article at Sanders Research concerning the American Worker. I think this passage is relevant to this discussion.

"A few businessmen claim they will have to shut down if they must pay a decent wage, but that is how free enterprise is supposed to work. Their workers would then be freed to earn more money in efficient businesses. Decent wages for the poor would mean slightly higher prices for some things, but it also means higher income tax revenues and fewer Americans on unemployment, welfare, and committing petty crimes for cash. Japan allows little immigration, and its cities are much safer, cleaner, and liveable that American cities packed with poor refugees from around the world."