Reply #11: "Competitive" means cheap labor

[many a good man]

As the value of the dollar declines, American goods become relatively cheaper in foreign markets, thus increasing sales. In theory this should cause an increase in manufacturing activity in this country.

Theoretically, it should slow down the loss of mfg jobs here because our labor becomes relatively less expensive. It should slow down outsourcing, too, for the same reason. But there are at least two main reasons why these logical assumptions will be proven false by current circumstances:

1) the wage differential between US and foreign workers is still astoundingly huge. Even if the dollar tanks 50% it will be insignificant when compared to workers earning 1/20th of what American workers get. Furthermore, our main competitor in mfg is China -- who is keeping its currency artificially pegged to the USD.

2) Mfg has declined significantly in the past 3 decades so any boost in that sector is less likely to benefit the economy as a whole.

I think the devaluing of the dollar signals US competitive weakness. Our chief product right now is debt. We are taking advantage of the interdependency of the world economy to blackmail the central banks of our competitor nations. But they have already stopped investing in our stock market. When consumption in the US falls because of low wages, foreigners will have less incentive to play our little game. If they choose to stop buying our debt, all the consequences mentioned in the article will happen: stagflation, 20% interest rates, etc.

But look on the bright side: hopefully Europe will buy up all the once-great US corporations and bring a little enlightenment to our economic policy...