[AcesUp]

[ QUOTE ]
It really is that simple, by continually moving up the quality chain and giving simpler tasks to others to do cheaply we do improve our standard of living.

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The problem is that we're not just "giving simpler tasks to others" anymore. We're farming out our technology and technology development; we're increasing the knowledge base of foreign industry, not just increasing productivity. This can be seen by the increasing number of white collar positions (IT, software development, hardware development, etc) being moved overseas.

Don't get me wrong...I don't think this is necessarily a bad idea. Ultimately, it will increase the standard of living globally. But, short term, Ray is correct -- it will decrease our standard of living here in the U.S.

If you believe in classical economic theory (I don't, but it will suffice for this discussion), once the barriers to entry for other nations is eliminated, the U.S. won't necessarily be able to compete in many industries where the products we develop can't stand on their brand. As more and more countries start to produce products substitutible with our own, prices will tend towards perfect elasticity, meaning that if we don't drop our prices to that of our foreign competitors, people will stop buying our products.

That means the U.S. has a couple of choices:

1) Prevent entry of foreign competitors into the market (i.e., government regulation of free trade);

2) Greatly improve domestic productivity (presumably by improving technology, which will ultimately increase the standard of living for a few, and decrease it for many more);

3) Drop our prices to compete (which will reduce our median standard of living in this country);

4) Significantly differentiate our products to remove substitutability (for example, Coca-Cola is obstensibly the same as generic cola, but the brand sets it apart).

While all four of these will continue to happen (and have happened since foreign trade originated), #2 and #3 are going to be more necessary in the global economy that is recently emerging. As such, our median standard of living is likely to drop (or at least level-off) in the near term.