I’ve described the Apple Computer method of generating extraordinary profits:
- Make everything in the third world.
- Sell everything you can in the first world.
- Depend on other entities to pay those buyers first world wages.
- Pay your own first world workers as little as possible, regardless of profitability.
This has worked like a dream and was adopted by everyone from IBM to Walmart. Eventually though the strategy only works if most firms don’t use it. After all we need somebody to pay the first world consumers well enough so they can afford cars and smartphones. If no one does then we depend on governments to do so but their subsidies (unemployment insurance, food-stamps etc) are too meager to sustain the game.
As they watch it all come to an end they tell shareholders that lost revenue will be made up by sales to Chinese peasants and the third world elite. Economists marvel at the ever increasing skew in income distribution and propose tax changes to fix things. Raising the taxes of Apple computer will not make them change their strategy! Raising any CEO’s taxes won’t make him hire a first world worker. Tax policy treats the symptoms, not the problem. We have a global (peasant) labor glut and Chinese wages are spreading like a plague.
We have a chance to get two ugly outcomes at the same time:
- A profit slump as first world consumers run out of money.
- A permanent decline in wages as they march down toward third world poverty levels – crushing budget deficits and GDP growth along the way.
The Chinese slowdown that comes from all this allows them to devalue their currency locking in a self reinforcing mechanism for the further destruction of wages and (first world) industrial competitiveness. The race to the bottom is accelerating and theFed can’t save us this time because rates are already at zero. The fix is simple. We must cut off the blood sucking parasite attached to our neck.
We have paid for enough skyscrapers in Shanghai.