Tuesday, December 1, 2009

Temperature rising

I noted earlier that a root of war had been laid by the increasing blame being placed on China for problems in the US economy of the US government's own making. Now the EU is following the same tack.

As with the situation in the US, China is not to blame for Europe's economic woes. Unemployment is caused predominantly by intervention in the labour market, wherein a floor in wages (*) means potential employers aren't allowed to hire people at lower wages. No amount of campaigning or complaining or blaming foreign countries or reference to need of a "living wage" or whatever the slogan-of-the-day is will eliminate the fact that unless someone's potential work can have a greater value than the cost of paying for that work then that someone wont get work. The unemployed have been priced out of the market by operation of law, but rather than daring to take on such an enormous sacred cow as minimum wages and conditions the politicians of the day find it easier to devalue the nominal wages by inflation and, using mercantilism on the sly, trying to export their way to full employment. The complaint about China comes from that China's own rate of inflation so as to match the fall in the value of the US dollar is interfering with the latter and making former result in significantly higher local price rises than would otherwise be the case. There's more to the woes than just that, but the majority do come back to the question of full employment, inflation, interest rates, and the rise of mercantilism.

(* The floor is composed both of the obvious minimum wage component, but also has added to it a raft of unavoidable costs (such as payroll taxes, the compulsory 9% superannuation contribution in Australia, other government imposts proportional to payrolls, the cost of providing non-monetary conditions) that, because they are incurred solely as a result of hiring someone, are in economic substance part of the wage that the law mandates must be received by that someone if employed. The fact that the said someone would never see most of them on their payslip nor pay taxes on them is irrelevant.)

War with China is still a long way off, and is nowhere near being an inevitability, but nevertheless the thermostat has been put up a few notches. I predict a rise in the rate of reporting in US and EU media outlets of atrocities committed by the communist government of China - and given the Dalai Lama's recent prattle about global warming and his praise for international action (ie more excuse for overbearing government "for a good cause"), probably most will be related to the situation in Tibet.


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