If It Were Only So Easy Mr Gross

I just read Bill Gross's Investment Outlook, December 2010. He painted a very clear picture of what we should do to "level the playing field", and unfortunately, what we are doing.

It was an interesting piece in which he explained that the problem is that the global economy is suffering from a lack of aggregate demand. Basically the developed countries can't produce products cheaply enough for them to be made domestically. As those jobs are exported there is an increase in domestic unemployment in manufacturing, which when combined with an "unproductive" service industry essentially results in a severe reduction of global demand on the part of the developed world.

This is exacerbated by the industrial policies of the developing world which tend to focus on export to debt-laden developed nations rather than promoting domestic consumption.

So no demand from the developed world makes the global economy creak.

There is nothing new there. Mr Gross's solution is for the developed world-or more specifically the US-to start making things instead of paper (service industries and debt). Ok. But this will require a massive decrease in wages if US production is to compete with the developing world. Mr Gross suggests that Chinese labor works for 10%less then its American counterparts.

I don't know where he gets his figures. 10% doesn't sound insurmountable. But even if it is the correct number then to function properly it would have to be borne by the workforce and management, which might impact profits and even result in a decline in GDP, but an increase in employment.

It would mean deflation. It would mean a decrease in tax revenues if taxes hold steady, and would probably require a decrease in social spending if we were to start to address our national debt burden. It would mean substantive reforms would have to be initiated, for the benefit of the nation, at the cost of sacrifice and hard work.

It would mean a major change in the way Americans live, and I would welcome it. So did Bill Gross, with one major difference. He seemed to think the problem with America is healthcare. Funny how his true colors come out while he is enjoining us all to work harder for less money...