Regression to the Mean

*Disclaimer* - The thoughts expressed here are not those of my employer, but my own -

I have discussed these matters previously in earlier posts. Nonetheless, I thought it necessary to emphasize a point. Sometimes when talking about social-political problems, I often utilize mathematics to help provide clarity in an unbiased fashion. When we talk about labor compensation and the so-called "race to the bottom" it is important to understand an objective viewpoint.

Developing nations, which historically have trailed the U.S are closing the technology and manufacturing gap in a very methodical way. Obviously this phenomenon did not occur overnight. Essentially, these developing nations, particularly China and India, understood that they would have to begin to provide goods and services if they were to improve their quality of life. They seized an opportunity to get a leg up as it were due largely to America's huge shift to being a consumer nation. Some might ask, "Wasn't the US always a consumer nation?" Well not always, I would venture to guess that since Industrial Revolution, the US shifted from producing to consuming. If my historical reference is incorrect, someone please educate me.

Another critical component, is the fact that most Americans feel very entitled, that is we are a gluttonous people. Many of us have grown accustomed to living beyond our means and with large expectations of huge homes and a SUV with a full gas tank.

Full disclosure, I do drive a SUV. So I am also culpable. Anyway, the point to made is that these tendencies simply do not exist in most developing nations, or at least the wants of the natives of these nations are not as extravagant as our own. If you disagree, I'd encourage you to read the Thomas Friedman's, "The World is Flat", as Friedman provides an excellent account of some of the points I have raised here.

So what exactly is this so-called, "Raise to the Bottom?" Well essentially, it is the fear that skilled or unskilled US laborers cannot compete with developing nations who are paid far less for the same work. I argue that our existing wage structure simply does not scale well. I lump white and blue collar workers in the same boat. Unfortunately, in the near term blue-collar workers are most vulnerable due to outsourcing and the digital economy. What we are witnessing now is a regression to the mean, that is balancing of wages to be equivalent to the improving lifestyle of people in the developing nation.

Since I reside in the rust-belt of America, I constantly observe people reacting to this change. Should they be angry or shrewd? Methinks the latter would be more productive and would serve them well. Who is at fault? Is it our gov't, or perhaps our culture or both?

I suppose that answer will have to wait for another entry. Suffice to say it is all very complicated, but to be clear, all the anger and passion won't change the fundamental mathematical principle. People would be best served to re-educate and re-focus.
There was a time that the term Yankee was not prefaced with the word "Damn" or followed by "Go Home." Instead it was followed by the word "Ingenuity", essentially a can-do mantra.

Those days seem to have passed away like the receding tide. Perhaps if we focused our energies on educating our people and less on fighting two theater wars, we could get back to producing stuff that others need.

In most circles living a frugal lifestyle is very unpopular, however, if America is to sustain or at least mitigate the shrinking manufacturing base, a drastic reduction in consumption is in order. Perhaps this recession will help educate people and break bad habits? Only time will tell.

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    This page contains a single entry by AG published on December 10, 2008 7:50 AM.

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