The only thing that has been devalued faster than our precious dollar is the perpetual slide in government credibility. Over the years we have heard countless times about the importance of a strong dollar from our leaders.

"Our administration believes in and will do everything in its power to support a strong dollar" or something like this has been spewed out by Republicans and Democrats alike, yet there is little evidence that the policies put in place over the past century have done anything of the sort. Perhaps there was one person that took the heat and did the right thing -- Paul Volcker, during the Carter administration, who had to deal with dizzying inflation.

You don't have to be a U.S. Department of Labor statistician to know the trend in the United States regarding wages and salaries: they're heading lower, in many job categories.

And the reasons are complex: globalization, automation, and lack of unionization have driven real wages and salaries for many job segments down to decade-long lows, and in some cases to levels not seen in more than a generation.

There has been much made of how well United Auto Workers (UAW) members are paid. One figure often used is $73 an hour. And it's also claimed that this pay level puts the U.S. auto manufacturers at a big competitive disadvantage. But that number is inflated and labor costs are not even that important a reason for the loss of U.S. auto market share. The real problem is that U.S. automobiles sell for a lower price but their quality is relatively poor, so consumers prefer the more expensive Japanese models.

The auto industry has used the $73 an hour figure in discussions about its UAW negotiations. But the New York Times points out that this number includes three things that don't all belong together -- wages, overtime, and vacation pay ($40/hour), health care and pension benefits ($15/hour), and retiree pension benefits ($15). That last thing does not belong because it's a fixed cost. If you compare the salary and benefits of a UAW worker to those of a Japanese one who gets less generous benefits, the numbers are much closer -- UAW ($55) vs. Japanese workers ($45).

The more important numbers are the ones that help explain why the U.S. auto manufacturers have lost so much market share and are now at death's door. Labor costs account for 10% of the cost to produce a U.S. vehicle so cutting UAW pay to $45 an hour would not make much of a difference. That's because U.S. labor costs are a mere $800 per vehicle higher than Japanese ones -- yet the typical U.S. vehicle sells for $2,500 less than the comparable Japanese model.

As the ever-increasing stench of socialism wafts from the halls of our legislative branch, one must take pause to wonder exactly how we got to where we are today economically. Yes, I know that there has been a lot of pausing and wondering going on lately. What ticks me off is that it seems that very few of those who are pausing and wondering seem to be able to form the words to express the reality of what they have determined to be true, which is: that the single most significant root cause for today's economic dilemma is the erosion of income for the American middle class private sector.

For the purposes of this piece, I'll state that I consider the "middle class" to be those workers who earn between $14,000 and $125,000 per year. That covers just about every worker from entry level manufacturing to first tier management. We create the bulk of real wages that move throughout this country. We also pay virtually all of the taxes in this country. Never mind that corporations pay huge sums in corporate taxes every year, because the fact of the matter is, they collect those sums from us at the consumer level. Yes, we pay those corporate tax bills, and we know it.

The U.S. economic slowdown is likely to extend into 2009, as the nation's longest expansion in consumer spending subsides, economists in a new Bloomberg News survey predicted.

Further, economists surveyed expect the world's largest economy to grow at a 0.7% annualized rate in Q3 and Q4, or about one-half the GDP of the first-half of 2008. The survey of 50 economists was conducted August 1-8.

Economist Glen Langan, who did not participate in the Bloomberg News survey, said Monday he's watching the export segment for signs of further slowing. "Up to now, U.S. export activity has been able to keep U.S. GDP positive. But if exports slow in conjunction with the housing slump and a pull-back in consumer spending, the next 12 months could see additional slowing," Langan said. "An already clouded economic picture could become more stormy."

Keep an eye on U.S. export data, Asia GDP

Langan added that tell-tale signs of slowing exports will be Q3 GDP from emerging market economies, particularly in Asia. Economists and investors/traders will also receive a snapshot of June export data when the U.S. Commerce Department releases U.S. trade balance data Tuesday at 8:30 a.m. EDT.

26 U.S. states will unveil their latest compliance with federal minimum wage increases this week. Including the District of Columbia, the minimum wage will increase from $5.85 per hour to $6.55 per hour (at the least). This will only affect states with a minimum wage set from the federal standard, of course.

This move could not have come at a better time. Although oil prices see-sawed a little last week -- bringing the cost of gas down a dime or two for the time being -- consumers are still grappling with high gas prices, a slumping stock market, energy price increases and commodity costs that are affecting food staples. If you regularly feed a family of four with two adults making minimum wages, you know all about these price increases. But, so do all of us.

Small business owners may see this differently, though. Those places of business are also seeing costs and overhead go up, and now labor costs may take a sharp increase as well. What will some businesses do? Pass along those increased labor costs to customers as a price increase due to "economic conditions."

About a year from now there will be another minimum wage increase, will will send the minimum up another $0.70 to $7.25 per hour. Do you think the economy in the U.S. will have dug out of its small hole by then? And yes, it's a small hole even though financial companies with previously-idiotic holdings in mortgages may not agree.

U.S. worker productivity increased at a 2.2% annual pace in Q1 2008, above the consensus estimate, as businesses cut both jobs and worker hours to contain costs, the U.S. Labor Department announced Wednesday.

Economists surveyed by Bloomberg News had expected productivity to increase 1.7% in Q1 2008. Productivity is now up 3.2% on a year-over-year basis.

Productivity increased 1.8% in 2007 and 1% in 2006. Productivity measures output per hour worked. Economist say rising productivity usually leads to increases in income, as businesses can increase salaries/wages paid without increasing their per unit costs.

Meanwhile, unit Q1 2008 labor costs, a statistic adjusted for increases in efficiency, increased to 2.2%, compared to a 2.8% increase in Q4 2007. Labor costs have risen just 0.2% on a year-over-year basis, the smallest increase since 2004. Labor costs increased 3.1% in 2007.

Economists surveyed by Bloomberg News had expected Q1 2008 labor costs to increase 2.2%.

Economist Peter Dawson liked the Q1 2008 productivity report, for the most part. "There is some concern about employers curtailing employee hours, but in general, the 2.2% increase in productivity is a healthy stat. U.S. workers are becoming more productive. It'll help businesses contain costs amid all other cost increases. It's a generally good report."

Economic Analysis: As Dawson noted, in general, a favorable Q1 2008 productivity report. The nation's workforce continues to become more-efficient, which is a good sign, given increasing business costs in other areas -- raw materials, commodities, energy and transportation costs, etc. Early in 2008, companies are containing employee costs, and increased productivity is contributing to this goal.

A recent report published by the National Federation of Independent Businesses (NFIB) gives indications that although American small businesses are certainly tightening their game plans a bit, they are by no means going down for the count. The report reviews a number of important indicators, testing everything from optimism to inventories. A casual read of the complete survey provided in PDF format, provides proof that while small businesses are actively adjusting to current economic trends, in many ways they're simply applying some timely critical thinking within a "business as usual" format.

Some statistical highlights that I picked out from the report really gave me pause to wonder. For instance, 46% of the business owners responding reported that when attempting to hire new employees, they were faced with a lack of qualified applicants for the jobs they wished to fill. Overall the survey indicates that current and pending employment opportunities are steady to strong for 2008, while the available labor pool remains tight. We could speculate that depressed entry level wage scales have some bearing on this situation.

Almost on cue, the European Central Bank took a page out of U.S. Federal Reserve's playbook Wednesday.

In a widely-expected statement, ECB President Jean-Claude Trichet warned that the euro-zone's inflation surge was likely to last longer than expected, Bloomberg News reported Wednesday.

The comments came one day after the ECB made $500 billion in short-term loans available to banks to avert a year-end liquidity crunch. The $500 billion move was part of a coordinated effort among the world's major central banks to increase liquidity in the international finance system to head-off a potential credit crunch stemming from subprime mortgage and related asset defaults. Many economists and analysts expect the major central banks -- the ECB, the Fed, the Bank of England, the Swiss National Bank and the Bank of Canada -- to continue to sequentially add liquidity to the system through at least Q1 2008, and probably longer.

On Wednesday, Trichet said the euro-zone "faces a 'more protracted' period of elevated inflation than previously expected, indicating no imminent plan to reduce interest rates."

U.S. non-farm productivity surged to an annualized rate of 6.3% in Q3, the strongest productivity gain in four years, the U.S. Labor Department announced Wednesday.

The revised statistic is a substantial increase from the preliminary 4.9% Q3 productivity increase announced by the department a month ago.

"All in all, it's a great productivity number for the quarter, which leads to a good annualized rate," economist David H. Wang told BloggingStocks Wednesday. "This will relieve some inflationary pressure in the economy, and also give the Federal Reserve some leeway regarding interest rates. The Fed can now see that labor is not adding that much to inflationary pressures in the U.S. economy."

Over the past 12 months non-farm business productivity has increased 2.7%, the largest four-quarter gain since late 2004. During Q3, manufacturing productivity increased 5%, while non-financial productivity gained 4.2%.

Economic Analysis: The high Q3 productivity stat is good news for the economy, employers, and employees. With high productivity, the U.S. economy can grow rapidly without inflation, easing pressure to raise prices. This simultaneously means worker productivity per hour is rising, which usually leads to raises, higher real incomes, and higher living standards. After registering productivity giants that averaged 2.5% per year for 1996-2005, productivity had slowed to about 1% in 2006. With the revised Q3 2007 stat, there's now additional evidence that productivity has resumed advancing at an impressive rate.

McDonald's (NYSE: MCD) wants to improve its image in China and get the communists off its back. It is even giving its employees new uniforms.

The fast food chain will also up wages (subscription required) by between "12% to 56% above China's minimum-wage guidelines."

McDonald's had been accused by local unions of underpaying workers and making them speak English instead of Chinese. The company has over 850 stores in the large country.

The hamburger company can join Wal-Mart (NYSE: WMT) as another US company being pushed around by the government . The world's largest retailer has been forced to allow its workers to join a Chinese union affiliated with the government and to allow a branch of the communist party to operate in its stores.

The price of doing business in China just got higher.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Profits of the 500 largest companies in the U.S. are up 80% from 2000 to 2006 with revenue up just 39%. Why? U.S. productivity is growing 3.9% per annum, one of the highest productivity growth rates in the world.

Another interesting data point from Shlomo Maital in this weekend's Barron's editorial is that total capital formation is only 17% of GDP, with two-thirds of it reinvested in obsolete plant and equipment. With unemployment and investment in new capital formation so low, this could mean employees are in a strong position to demand higher wages.

Although Maital did not conclude this in the editorial, what the economic data suggest are that economists and other pundits calling for the collapse of the consumer -- and, ergo, the U.S. economy -- are simply way off. As the housing market collapses, this has more to do with the mortgage market and new home sales. Do not expect this to spill over completely into consumer spending. The growth in wages in this economic cycle to date has been muted, but do not expect that to last forever. High productivity and the supply-and-demand balance favoring the laborer will more than offset the impact of the mortgage market.

On Tuesday, the federal minimum wage will increase from $5.15 an hour to $5.85 an hour, and observers are wondering what effect, if any, this will have on hiring and the economy. As you can see from Department of Labor statistics, many states already have substantially higher minimum wages, so many areas will not be impacted at all by the increase. However, many states tend to raise their minimums in response to federal increases.

A large portion of minimum wage workers (there were about 1.7 million in 2006) are female and tend to be black or Hispanic, and young. According to the Associated Press:

Minimum wage workers will get an additional 70-cent boost each summer for the next two years, ending in 2009 at $7.25 an hour. That comes to just above $15,000 yearly before taxes for a 52-week work year.

Now, someone in such a job and earning $5.85 an hour would bring home $12,168 a year before taxes. The federal poverty level for singles is $10,210, couples is $13,690 and $17,170 for families of three.

While it may seem cynical to oppose wage increases, the economics of artificial wage floors sometimes contradict what is politically popular. For instance, many restaurants will cut jobs or put off hiring new workers in response to the increase. Who benefits from that?

Wikipedia has an interesting overview of the economics of the minimum wage, and an interesting point-counterpoint list. With Democratic Presidential candidates like John Edwards emphasizing the minimum wage in their campaigns, Americans might do well to brush up on the issue.

Tom Petruno at the Los Angeles Times makes a strong case [registration required] for strength in companies catering to working-class folks as opposed to hedge funds managers and Hollywood types. The trend has been in the opposite direction in recent years. Consider this: "On Wall Street, Coach Inc. (NYSE: COH) versus Wal-Mart Stores Inc. (NYSE: WMT) hasn't been much of a contest since 2000. The high-end leather goods maker's stock price is up 1,326% since then; shares of Wal-Mart, the retailer to the masses, are down 9% in the period."

But here's what's changed. Wages are rising: "Average weekly earnings of U.S. production workers rose 4.4% in the 12 months through March, according to the Labor Department. That was up from a 3.8% increase in the 12 months ended in March 2006 and a mere 2.6% in the period before that." Worker incomes rose 1.1% in the first quarter, the largest such rise in six years.

At the same time, growth in corporate profits is slowing. So if you decide to go with the hypothesis of working- and middle-income people having more money to spend, here are two stock picks:

America's Car-Mart (NASDAQ: CRMT) is the other company from Bentonville, Arkansas. These guys specialize in buy-here, pay-here used cars, and have struggled recently with an increase in bad loans, but are making efforts to tighten up. If people are making more money, they'll want new cars, and they might even be able to afford their car payments. Pat Dorsey of Morningstar suggest CarMax Inc. (NYSE: KMX), but Car-Mart is smaller and looks a little cheaper. Plus they're from Bentonville, so they must be good.

Suffice to say, Wal-Mart CEO Lee Scott will not be singing New York, New York with Andrew Cuomo at Madison Square Garden anytime soon, although I secretly am dying to see that. As I reported last week, Lee Scott doesn't like New York and New York doesn't like him.

In a column for Time.com, Bill Saporito argues that New York and its labor unions messed up by blocking Wal-Mart Stores, Inc. (NYSE: WMT) from entering the city:

The unions have got their walled-city approach wrong. Here's the UFCW, which has been losing membership at a steady pace, turning down a historic opportunity. You can't organize stores that don't exist, Stu. Supermarkets have been pulling out of the city, not moving in, given the high costs and the competition from retail banks for the store space. And Wal-Mart has kicked the UFCW's ass all over the country - there's not a single union Wal-Mart store anywhere. Whatsa matter, Stu, you don't got game for those hicks from Arkansas?

He goes on to urge unions to organize around Wal-Mart, and embrace it. The problem is that Wal-Mart's model of ruthless efficiency with sub-par wages and benefits just doesn't work in a union setting. This is not a knock on the unions. In the past, Wal-Mart has closed stores after the unions voted to get in. In the great book The Wal-Mart Effect, Charles Fishman discusses research showing that if Wal-Mart raised its average wage above $12 an hour (It's currently around $10), the stores would no longer be profitable.

Whether New York should have welcomed Wal-Mart with open arms is a legitimate question. But the idea that New York unions could have changed the face of the company is unrealistic.