Global Competitive Wage Cuts In Cards, Too?

As I was reading the news from the around the world this morning, I noticed an article at Bloomberg.com: Singapore Cuts Government Salaries as Slump Deepens. And you know, we have been discussing the wage cuts vs devaluations quite a lot recently.

So, I asked Edward Hugh in an e-mail this morning:

Global competitive wage cuts? Who is going to win if everyone does?

And the reply by Edward Hugh was as follows:

"Who is going to win if everyone does?"

This is very much to the point. We don't want a race to the bottom, although we might get one.

I also got this brief comment from one reader on the wage cuts thing:

"The consequence of debt deflation is collapse, is it not? Wage decreases are deflation, essentially, in their relationship to debt but are inflation in their relationship to asset prices. Could anybody invent a more unfortunate combination? And devaluation... how do you insure it is only you who devalues? "

I think this sums the whole issue up in a couple of lines. My response was nothing more than platitudinous really:

Well quite. Everyone cannot devalue. The bigger boys have to stand there and take it like a man (if that doesn't sound excessively sexist). Some new emerging economies like India and Brazil could revalue over time, but this is too long term, and their current weight in global GDP too small for this to be of much assistance. And even they can't really revalue at this point. But the four economies I have here - intentionally - are quite small open ones, so really if they could (3 of them can't really, although Latvia would be well advised to bolt and do a runner I think, despite the pain of breaking the peg) they should devalue, since again their weight in the whole situation is small.For the rest, we need to find collective solutions, but again, these would seem to be some way off at this point, since people are still trying to put the fires out rather than discussing how to renew the trees and vegetation.

So.....

I would say we have three real theoretical connundra to be working on:

1/ How to bail out the severely damaged members of the eurozone without collapsing the whole structure

2/ How to enable people to restore competitiveness without a massive round of competitive devaluations/ wage cuts.

3/ How to facilitate a recovery - say a new Marshall Plan type programme for emerging economies (only an idea).

Where are those men?