Saturday, 25 September 2010

Labour is always Scarce

The fundamental premise with economics is scarcity. Society has endless desires but only scarce resources to meet those needs. Despite the industrial, telecommunications and off-shoring revolutions we have undergone, we all still would like that extra bit more. Free Markets always create more jobs then there are people to carry them out, new ones that didn't exist 20 years ago. When politicians say we need to protect jobs what they really do is take jobs and create unemployment. The left warned of this during the Thatcherite years. However we all found new jobs. My job didn't exist back then. It was created by the free market (in fact you could say an American created my job by inventing the majority of the leading technologies we use today).

Despite Chinas one billion plus population that 40-50 years ago was enduring starvation they have now moved, in many cases, to a calories surplus state. The progress its people have seen by embracing a little bit of free market economics is phenomenal. As countries become more wealthy their capital structures evolve also. Years ago China had masses of impoverished rural peasants that would work for practically nothing. Now their economy has a service sector, a younger generation of consumers who don't just subsist but buy electronic goods or designer labels. 

As developing countries become more prosperous, the low cost labour that continually brought down the costs of goods and services to the West begins to run dry. As I've warned before we have taken the China deflationary juggernaut to be the defacto standard when in fact it was a mere blip in history. Labour will get scarce once again. There won't be the numbers to do the low cost manufacturing jobs as people in such countries will become more educated and move into the new jobs in law, finance or computers. Cost pressures will increase. Currency debasement throughout the globe will push prices ever higher. Chinas population will increasing move into jobs that didn't exist 20 or 30 years ago, into service jobs to meet an ever prospering nation.

Where will our next low cost destination come form? Africa? There are a lot of problems with the continent, in many cases poor infrastructure and a history of expropriation of property from foreigners. Most of Asia is now going through a similar process to China. South America doesn't have the numbers or the poverty China once has. India has great levels of poverty and could be a potential candidate but is also developing into higher level jobs, so oddly is similar to China. There could be a revolution in robotics that automate most of the once manual jobs but these tools generally progress over a long period of time and there is already a fair amount of mechanisation in manufacturing around the world. 

The expansive monetary policies that many governments are pursuing will be a disaster. Here in the UK our inflation has been above the Central Banks target for around 9 months now (CPI has been higher than 3%), and they have recently been talking about more QE, ie printing money. You want to know what the future brings? Inflation and lots of it. That's something I can agree on with Peter Schiff.

1 comment:

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