Modern Competition: Part 3 of 3 (Illegal Immigration & Free Trade)

(Survival Manual/ 2. Social Issues/ Death by 1000 cuts/ Modern Competition: Part 3 of 3)

Part I
1.  College and future income

2.  Consumer debt

Part II
3.  Wage slaves

Part III
4.  Illegal (Mexican) immigration
5.  Free trade & globalization

4 . Illegal (Mexican) immigration

A.     Illegal Immigration
1 Sep 2010, SHTF
“…With a 10% unemployment rate, nationally, estimated by the government; it means there are more than 35 million Americans out of work. At more than 16% unemployed based upon Shadow Stats analysis, it means that more than 50 million Americans are out of work, while presumably, 30 million Illegal Latinos are still working. If these 30 million Illegal’s are not working in American jobs, what the hell are they doing here to survive? And if they are working in American jobs, why is this acceptable to our federal government?

Many false arguments arise with respect to the employment picture. The biggest fallacy is that these Latino foreign nationals are taking jobs Americans don’t want. Does any American citizen really believe that there are 30 million Latino “lettuce pickers” in the United States?


A.  “Legal vs Illegal
(–from the web: anonymous)
You have two families: “Joe Legal” and “Jose Illegal”. Both families have two parents, two children, and live in California . Joe Legal works in construction, has a Social Security Number and makes $25.00 per hour with taxes deducted. Jose Illegal also works in construction, has NO Social Security Number, and gets paid $15.00 cash “under the table”.

Ready? Now pay attention . . .

Joe Legal: $25.00 per hour x 40 hours = $1000.00 per week, or $52,000.00 per year. Now take 30% away for state and federal tax; Joe Legal now has $31,231.00.
Jose Illegal: $15.00 per hour x 40 hours = $600.00 per week, or $31,200.00 per year. Jose Illegal pays no taxes. Jose Illegal now has $31,200.00.

Joe Legal pays medical and dental insurance with limited coverage for his family at $600.00 per month, or $7,200.00 per year. Joe Legal now has $24,031.00.
Jose Illegal has full medical and dental coverage through the state and local clinics at a cost of $0.00 per year. Jose Illegal still has $31,200.00.

Joe Legal makes too much money and is not eligible for food stamps or welfare. Joe Legal pays $500.00 per month for food, or $6,000.00 per year. Joe Legal now has $18,031.00.
Jose Illegal has no documented income and is eligible for food stamps and welfare. Jose Illegal still has $31,200.00.

Joe Legal pays rent of $1,200.00 per month, or $14,400.00 per year. Joe Legal now has $9,631.00.
Jose Illegal receives a $500.00 per month federal rent subsidy. Jose Illegal pays out that $500.00 per month, or $6,000.00 per year. Jose Illegal still has $ 31,200.00.

Joe Legal pays $200.00 per month, or $2,400.00 for insurance. Joe Legal now has $7,231.0
Jose Illegal says, “We don’t need no stinkin’ insurance!” and he still has $31,200.00.

Joe Legal has to make his $7,231.00 stretch to pay utilities, gasoline, etc . . .
Jose Illegal has to make his $31,200.00 stretch to pay utilities, gasoline, and what he sends out of the country every month.

Joe Legal now works overtime on Saturdays or gets a part time job after work.
Jose Illegal has nights and weekends off to enjoy with his family.

Joe Legal’s and Jose Illegal’s children both attend the same school.
Joe Legal pays for his children’s lunches while Jose Illegal’s children get a government sponsored lunch.

Jose Illegal’s children have an after school ESL program.
Joe Legal’s children go home.

Joe Legal and Jose Illegal both enjoy the same police and fire services, but Joe paid for them and Jose did not pay.”

B.  Income Gap Growing in Texas, Group Says. Illegal Aliens and a Spineless Government the Cause, I Say!
Friday, May 16, 2008

The Dallas Morning News recently did an article on how the gap between Rich and Poor in Texas is growing. REALLY? You’re just noticing that now?
In Texas the gap between rich and poor is growing. Not only is it true, but they define “rich” as $124K per year and poor at $16K per year. Texas rich is upper middle class up north….barely. And Texas poor, well you tell me how anyone can support a family on $16K a year.

The article ends: “You can either live in Texas, where you may be poor but you have lots of job opportunities, or you can do what these people propose and turn us into Michigan or Illinois, which are hemorrhaging jobs,” he said. “There, if you’re poor, you stay poor.” .

That’s because they’re not over-run with millions of illegal aliens working below the minimum wage for cash. That’s because employers get away with hiring them every day.

It’s because Governor Perry and TxDot are turning every road and highway in what was middle class Texas into “lucrative” toll roads. And that’s their plan for the future…..toll, toll, toll. Why?
We have Fund 6 where all the gas tax money is SUPPOSED to be going, but instead is being siphoned off for other “projects”. Gas prices are 2 weeks away from $4/gallon for regular. In Collin County, STATE HIGHWAY 121 (not supposed to be a toll road), when complete, will cost the average user $1800 a year for their work commute.

The middle class is systematically being wiped out. Sales taxes are at 8.25% and, unlike most States, food and clothes are not exempt. What was the middle class has no discretionary income; no dinners out; no movies. The solution? BRING IN MORE Illegal Aliens! But at least we can brag we don’t have a State Income Tax.

It’s because Texas is re-fighting the Mexican-American War alone and losing. Texas is losing its identity, it’s heritage, it’s culture, and it’s standard of living. Crime rates are up, taxes are up paying to educate, feed, house, and provide free health care for people not legally allowed in this country in the first place.

The Feds don’t care. The Dept. of Homeland Security is such a tangled bureaucratic mess that even divisions like ICE don’t know what they’re responsible for. And the politicians: all they know is Hispanics will be the majority racial group in this country by 2060 and they want those votes at any cost.

They talk about “amnesty”. Ronald Reagan, a giant of a man, badly miscalculated when he gave a million Hispanics amnesty in 1986. I spoke to the Regional Director of ICE recently: they are STILL trying to process those illegals from 22 years ago!
How are we going to give amnesty to 12-18 million more illegals? That will take centuries!

And Texas is losing because it’s culture is passive-aggressive. With a very few exceptions, people and towns take action. Most just smile and say how wonderful diversity is in public, and then go home and rant and rave. So much for the myth of the “plain-spoken Texan”.
Meanwhile, half the jobs advertised require bi-lingual language skills, there are Spanish-Only billboards and signs popping up every day, and the people do nothing.…while the small to medium sized business community cashes in.

And now even the big box retailers are joining in. Walmart has more Spanish signage than English in many of their stores. And you can walk the entire length of the store and never hear a word spoken in English. So much for the melting pot theory.  What a Great TV Ad for Texas this article would make! I’m sure all the local Texas Chambers of Commerce loved it too.

5.  Free Trade

A.  How “Free Trade” Ruined America
28 February 2011, The Drifting Ship: The U.S. and Global Economy

The one question that is running rampant in class is, “Where are the jobs, professor?”
How will America get jobs back in America? How do we jump start the American economy without deficit spending? It appears that all economists — at least the ones teaching — haven’t an answer. It’s all about finding the right “incentives” and “business environment” and BAM… back to the booming 1980s. But perhaps it’s due to the entire economics profession selling out to Wall Street interests or corrupted by age-old economic doctrinaires that DO NOT work in the “real world.”

I, however, offer a different take on why there are no jobs in America and it has to do with “free trade” and the practice that Wal-Mart aka “the Temple of More” is notorious for… outsourcing.

[Image above: Our exports]

Today, economists are blind to the loss of American industries and occupations because they believe these results reflect the beneficial workings of “free trade.” Whatever is being lost, they think, is being replaced by something as good or better. This thinking is rooted in the doctrine of comparative advantage put forth by David Richardio in 1817. In sum, it states that, even if a country is a high-cost producer of most things, it can still enjoy an advantage, since it will produce some goods at lower relative cost than its trading partners.

Today’s economists leading the pack and teaching in academia can’t identify what the new industries and occupations might be that will replace those that are lost (manufacturing), but they’re certain that those jobs and sectors are out there somewhere. We just have to look a little bit harder. What does not occur to them is that the same incentive that causes the loss of one tradable good or service — cheap, skilled foreign labor — applies to all tradable goods and services. But there is no reason that the “replacement” industry or job, if it exists, won’t follow its predecessor offshore.

For comparative advantage to work, a country’s labor, capital, and technology must NOT move offshore. This international immobility is necessary to prevent a business from seeking an absolute advantage by going abroad. The internal cost ratios that determine comparative advantage reflect the quantity and quality of the country’s technology and capital. If these factors move abroad to where cheap labor makes them more productive, absolute advantage takes over from comparative advantage.

This is what is wrong with today’s debate about outsourcing and offshore production. It’s not really about trade, but about labor arbitrage. Companies producing for U.S. markets are substituting cheap labor for expensive U.S. labor. The U.S. loses jobs and also the capital and technology that move offshore to employ the cheaper foreign labor. Many economists argue that this loss of capital does not result in unemployment but rather a reduction in wages. The remaining capital is spread more thinly among workers, while the foreign workers whose country gains the money become more productive and are better paid.

Economists like to call this wrenching adjustment short-run “wage adjustments.” But when the loss of jobs leaves people with less income but the same mortgages and debts, upward mobility collapses. Income distribution becomes more polarized to the upper tiers of society, the tax base is lost, and the ability to maintain infrastructure, pension funds, and public commitments is reduced. Nor is this adjustment just short-run. The huge excess supplies of labor in India and China mean that American wages will fall a lot faster than Asian wages will rise for a long time. That is economic reality.

Until recently, advanced economies retained their capital, labor, and technology. Foreign investment occurred, but it worked differently from outsourcing. Foreign investment was confined mainly to the world’s advanced economies. Its purpose was to avoid shipping costs, tariffs, and quotas, and thus sell more cheaply in the foreign market. The purpose of foreign investment was not offshore production with cheap foreign labor for the home market.

When David Ricardo developed the doctrine of comparative advantage in 1817, climate and geography were important variables in the economy. The assumption that factors of production were immobile internationally was realistic. Since there were inherent differences in climate and geography, the assumption that different countries would have different relative costs of producing tradable goods was also realistic.

Today, acquired knowledge is the basis for most tradable goods and services, making the Ricardian assumptions unrealistic. Indeed, it is not clear where there is a basis for comparative advantage when production rests on acquired knowledge. Modern production functions operate the same way regardless of their locations. There is no necessary reason for the relative costs of producing manufactured goods to vary from one country to another. Yet without different internal cost ratios, there is no basis for comparative advantage.

Outsourcing is driven by absolute advantage. Asia has an absolute advantage because of its vast excess supply of skilled and educated labor. With American capital, technology, and business know-how, this labor can be just as productive as American labor, but workers can be hired for much less money. Thus, the capitalist incentive to seek the lowest cost and most profit will seek to substitute cheap labor for expensive labor. India and China are gaining, and America is losing!
Until outsourcing is reversed one should not expect jobs to return to America any time soon. That is just something I like to call the harsh economic reality of 2011!

B.  Cost of US ‘free’ trade: collapse of two centuries of broadly shared prosperity
April 1, 2011, The Christian Science Monitor, By Ian Fletcher

It’s time to face a brutal truth about the American economy: Even if rising gas and food prices don’thasten a double dip recession, our 200-year tradition of broadly shared prosperity is over. That’s because the great American job machine has been destroyed by a reckless free-trade policy.

Since the end of the cold war, and accelerating after NAFTA in 1994, Washington has pursued a globalized economy made possible by ever-expanding “free” trade agreements. This policy is a major factor in America’s increasing inequality, our rising indebtedness, community abandonment, and the weakening of the industrial sinews of our national security.

[Photo above: Our imports]

About to crumble
The good news is that this global order of free trade is about to crumble – within the next 10 years at most. The unsustainable American trade deficit alone makes this a near-certainty.
For now, though, America’s economy continues to struggle because our trade deficit – fluctuating around $500 billion a year for a decade now – acts as a giant “reverse stimulus.” It causes a huge slice of domestic demand to flow not into domestic jobs but foreign wages.

Our trade deficit helps Guangdong, Seoul, Yokohama, even Munich – but not Gary, Indiana, Fontana, California, and the other badlands of America’s industrial decline. Washington’s response? Yet more stimulus, leading to an ever-increasing overhang of debt, both foreign and domestic, the cost of whose servicing then exerts its own drag on recovery.

Despite the 216,000 jobs added last month, the American economy has, in fact, entirely lost the ability to create jobs in tradable sectors. This cheery fact comes straight from the Commerce Department. All our net new jobs are in non-tradable services: a few heart surgeons and a legion of busboys and security guards, most of them without health insurance or retirement benefits.

These are dead-end jobs, and our economy as a whole is being similarly squeezed into dead-end industries. The green jobs of the future? Gone to places like China, where governments bid sweeter subsidies than Massachusetts can afford. Nanotechnology? Perhaps the first major technology in a century where America is not the leading innovator. Foreign subsidies are illegal under WTO rules, but no matter: Who’s going to enforce them when corporate America is happily lapping at their very trough?

Part of the problem is that today’s free-trade order is in reality a curious mixture of genuinely free trade practiced by the United States and a few others with the technocratic mercantilism of surging East Asia and Germanic-Scandinavian Europe. It wasn’t always like this.

A history of protection
From 1790 to 1945, America grew and prospered in a largely protected economic environment. Our trade then was not “free.” But after World War II, we wandered away from Alexander Hamilton’s vision of a relatively self-contained American economy in order to win the cold war. We threw our markets open to the world as a bribe not to go communist. If we fail to return to a policy of strategic, not unconditional, economic openness, we may lose the next cold war – to a Confucian authoritarianism no less opposed to the idea of a free society than Marxism, and considerably more efficient.

There is an appropriate policy response. For starters, the US should apply compensatory tariffs against imports subsidized by currency manipulation, an idea that originated with Kevin Kearns of the US Business and Industry Council and was recently passed by the House of Representatives. Also essential is a border tax to counter foreign export rebates implemented by means of foreign value-added taxes.

The fundamental reality of free trade is that it relieves corporate America from any substantial tie to the economic well-being of ordinary Americans. If corporate America can produce its products anywhere, and sell them anywhere, then it has no incentive to care about the capacity of Americans to produce or consume. Conversely, if it is tied to making a profit by selling goods made by Americans to Americans, then it has a natural incentive to care about American productivity and consumption.

Productivity and consumption are prosperity. [Think about that. The US has lost productive capacity,  there are less production jobs, unemployment has increased considerably and become a structural problem (very long term), the US dollar is declining in value–prosperity is slowly evaporating, like soil moisture before an expanding drought . Mr Larry]

C.  Globalization and American Wages: Today and Tomorrow
October 10, 2007, EPI Briefing Paper #196 Globalization and American Wages
Today and Tomorrow,  by L. Josh Bivens

The continuing integration of the rich United States with a far poorer global economy has provoked much anxiety among American workers. Because it is well-known that basic economic theory predicts that global integration leads to gains for all nations, this anxiety is often treated as a political puzzle. A once again fashionable explanation for this puzzle is that globalization’s benefits are huge but diffuse (primarily, lower prices for imported goods), while its costs are small but concentrated (workers displaced by imports); hence, the gains are hard to see, but the losses are all too visible.1

This Briefing Paper reexamines what conventional economics actually predicts about the effects of integrating the rich United States and poor global economies. Contrary to popular rhetoric, there is no puzzle to be explained: conventional economic theory argues that American workers will indeed be harmed by this integration—and their anxiety is well-founded.

The paper also provides rough empirical estimates of integration’s effect on American wages and inequality. Lastly, it uses some prominent forecasts about the future potential reach of service-sector offshoring to make a very rough guess as to the future wage implications of these forecasts.

The key findings indicate:
•  In 2006, the impact of trade flows increased the inequality of earnings by roughly 7%, with the resulting loss to a representative household (two earners making the median wage and working the average amount of hours each year) reaching more than $2,000. This amount rivals the entire annual federal income tax bill paid by this household.
•  Over the next 10-20 years, if some prominent forecasts of the reach of service-sector offshoring hold true, and, if current patterns of trade roughly characterize this offshoring, then globalization could essentially erase all wage gains made since 1979 by workers without a four-year college degree. [A couple decades ago, wives went to work to supplement the erosion of a one income family, that 2nd income is now rapidly eroding; over the next decade or so, lower class  and less fortunate children may again need to return to work ‘to help make ends meet’. Mr Larry]

[Before 1938 (when the US Child Labor Laws were enacted), a great many American children worked to help support their families. More recently, because of the loss of substantial numbers of good paying US production jobs, increasing energy prices as we decline from Peak Oil, the US household donsumer debt structure, and erosion of income from 2 income families–we may again see pictures comparable to the one above. When Amazon and Apple market shares tank and Walmart scales back it inventory and floor space, look for a line of ‘Made in USA’, young teens ‘rough and ready work dungarees’ at your favorite clothing retailler.]

Globalization’s real costs: not just unemployment or adjustment
Some readers may think these results are obvious. Nobody, for example, denies that, say, U.S. steel workers displaced by import competition face hardship from trade. These costs, however, are often thought to be small and manageable with temporary government assistance.

This is, however, a radical understating of globalization’s costs. Note that the above example did not take into account the adjustment cost of workers’ unemployment spell between jobs. These adjustment costs are, of course, real and should be of concern to policy makers, but they are not the first-order costs of globalization to American workers.

Rather, the losses identified above are permanent wage-loss suffered by labor in this simple economy. Empirical studies in the trade and wages debate have generally used production and non-supervisory labor as a proxy for labor in the United States, and non-production and supervisory labor as a proxy for professionals. Occasionally, workers with a 4-year college degree stand in for professionals, with the rest of the workforce standing in for labor.

Production workers constitute roughly 75% of the entire U.S. workforce, and workers without a four-year college degree constitute roughly 70% of this workforce. Hence, while gross gains may exceed gross losses in the U.S. as global integration proceeds, it is not necessarily the case that winners outnumber losers. Global integration, in short, has the potential to inflict permanent harm to most American workers, and the scale of this harm is much larger than commonly realized.

[Sooner, or later, we’ll return to the time honored, ‘old fashion way’ of competing – by production, work, scrimping to save, investing wisely and personal responisbility…Mr. Larry]


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