America Is Samoa

This piece by Peter Schiff shows how raising costs killed the competitiveness of Samoan industry. In this case, it was the simple act of Congress requiring a minimum wage. And there was really only one industry – tuna canning. The cause and effect are clear.

The Samoan representative desperately sought to fend off what he was sure would be an economic calamity. He asked the Department of Labor to issue a report examining the potential consequences of the law upon the islands’ economy. The report explained that “nearly 80 percent of workers covered by the FLSA earned under $7.25 per hour. By comparison, if the U.S. minimum wage were increased to the level of the 75th percentile of hourly-paid U.S. workers, it would be raised to $16.50 per hour.” Therefore, the study continued, “there is concern that [the tuna canneries] will be closed prior to the escalation of the minimum wage … and that production will be shifted to facilities outside the U.S.” Ultimately, the Department of Labor concluded that “closure of the tuna canneries will cause a total loss of 8,118 jobs – 45.6 percent of total employment.” (emphasis mine)[iv]

Despite this dire forecast, the law went through. Two years later, the results could not be clearer: Chicken of the Sea closed its cannery and moved its production to a largely automated plant in Georgia,[iv] while StarKist has reduced its workforce and is threatening to leave as well.[v]

….

Among the unintended consequences of congressional “benevolence” are rapidly rising consumer prices, due to the higher shipping costs now necessary to bring consumer goods to the islands. Before the minimum wage hikes destroyed most of the canning jobs, lots of canned tuna were shipped from American Samoa to the U.S. (over 50% of the canned tuna in American markets came from American Samoa). One benefit of all the shipping traffic was a low cost of imports, as ships were coming to the islands anyway to pick up the tuna. However, with fewer ships coming to Samoa to pick up tuna, goods are now much more expensive to import. That is because the round trip cost of the journey must now be factored into import prices, as ships bringing in those goods now leave tuna-free. As a result, consumer prices rose from a 2006 annualized rate of 3%[v] to roughly 20% by 2008.[vi] So, not only is unemployment wide-spread, but the cost of living has risen sharply as well – a double whammy.

The same loss of competitiveness is responsible for the prolonged economic agonies of the US – successive speculative bubbles and collapses that result from the Fed’s ill-advised attempts to stimulate the economy through monetary policy, rather than by addressing the fundamental issue.  Little by little, costs have gone up everywhere as less is produced and more is skimmed by parasites. Samoa is just a simplified microcosm of the US.

Failure to properly measure the extent of this problem and the sense of entitlement which blinds Americans to economic reality are dooming us to a slide into depression.

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