[Dean's World] Dave Price: 'Tis An Ill Wind...

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Posted by Dave Price:
'Tis An Ill Wind...
http://www.deanesmay.com/posts/1188488837.shtml


   Via [1]Glenn, here's a couple interesting pieces from [2]Megan
   McCardle and [3]Derivative Musings on rising wages in India and China,
   and the resulting worries over inflation here at home. As is often the
   case in economics, what's bad news for some is good news for many
   others -- but, as in Iraq and Afganistan, bad news is more newsy. As
   we hear that higher food prices are hurting the poor, we rarely see
   mention of the boom times for farmers. And it seems we're always
   either suffering "low wage growth" or "inflationary wage pressure."
   Rising housing prices are making it harder for people to afford a
   home, or the real estate market is collapsing.
   Several things will happen as wages rise in India and China. First,
   and most importantly, Indians and Chinese will consume more, meaning
   they will import more goods from the U.S., yielding more jobs and more
   profits for Americans; this is not just a "psychic" benefit. Second,
   American companies will be at less of a disadvantage in labor costs,
   which again means more domestic business/employment success. Third,
   countries poorer than China and India will inherit their relative
   labor cost advantage, which will tend to dampen the putative
   inflationary threat.
   Said threat is probably well-overstated, in keeping with the news
   trend noted above. Free trade creates deflationary efficiencies, as it
   widens the consumer's choices, and ever-accelerating productivity
   gains are profoundly deflationary. These forces have created a Western
   lifestyle undreamt of half a century ago: in today's America, even the
   poor generally have [4]plenty of food and major appliances. And
   someday, the same will be true in India and China.

References

   1. http://instapundit.com/archives2/008765.php
   2. http://meganmcardle.theatlantic.com/archives/2007/08/roundabout.php
   3. http://derivativemusings.blogspot.com/2007/08/inflation-omens.html
   4. http://www.reason.com/blog/show/122214.html