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Will Business-Friendly Policies Boost Middle Class?

Jeff Macke
Monday, 22 Oct 2012 | 4:06 PM ET

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The third and final presidential debate of 2012 takes place tonight at 9 pm ET. The topic is foreign policy.

Libya, Afghanistan, Iraq and, of course, Iran's obvious efforts to produce nuclear weaponry will all be addressed. Also on the agenda will be military budgets and the creation of what seems to be a drone army the U.S. is using to hunt terrorists. While these are critical to our long-term national security, they are also thorny, complicated matters on which the two men share many of the same views.

Based on an aggregation of the polls the race is a dead heat with 15 days until Nov. 6. Mitt Romney and President Barack Obama will each try to convince voters tonight that they have a plan to bring jobs home — the jobs that have been "outsourced" to China.

Related: America vs China: "Free Trade Is Only for Friends," Says Prof. D'Aveni

Lost in the noise of dismal corporate earnings and election year negativity lurks a happy little secret: America's middle-class is about to come back with a vengeance. Jobs that were believed to be lost forever are making their way back to the States. The rebirth is a function of macro economics and corporate pragmatism, not policy.

In other words, the next president of the United States will likely go down in history as the man who got Americans back to work.

Americans are becoming more confident about the health of the economy. In the latest Wall Street Journal/NBC News poll, 45% of registered voters say that the economy will improve over the next 12 months. That's up from 42% one month ago. Housing has rebounded and the unemployment rate continues to tick lower. U.S. consumer sentiment rose to its highest level in five years this month. As I discuss with Henry Blodget in the attached clip, Americans are feeling more optimistic because they're working.

Middle class jobs "want" to come back to the U.S. To a certain extent they already are. Airbus, Honda (HMC), Boeing (BA) and Ford (F) are all building and expanding plants in the U.S. American workers are educated and hungry.

Related: Remade in America: 5M Jobs Are Coming Back, Report Says

According to the Census Bureau, the median income level in the U.S. was about $50,000. Adjusting for dual income households you get a range of $50,000 - $100,000 a year that accounts for some 40% of the population. There are various definitions of "middle class" but 2/5 of the population seems like a good range.

No one, anywhere, will ever make $50,000 a year assembling iPhones. The economics simply don't make sense. Why move production away from China when it's already cost effective to produce and ship the devices around the globe? Cars on the other hand are big, bulky, complicated to make and expensive to ship. Those jobs are the target.

The average wage for a member of the United Auto Workers is estimated at $29 per hour plus benefits, bringing the total to $50 to $55 an hour. $50 an hour multiplied by 2,000 work hours a year brings the total to $100,000-$110,000 a year. Labor cost at this wage is about 10% of the total selling price of a car.

Boeing spent just under $1billion to split production between South Carolina and its existing plant in Washington. Prior to the plant opening, but after it was built, the National Labor Relations Board charged Boeing with shifting production as retaliation against its union. The average starting pay in South Carolina is $14 compared to $15 an hour to start in Washington.

Boeing won but only after 6 months of delays and threats by the NLRB to shut down the plant without it ever even opening for business.

Corporations aren't going to bring jobs to the U.S. if they have to worry about last-second grandstanding from groups like the NLRB. American corporations won't repatriate the $1 trillion to $2 trillion stuck overseas if that money is subject to a tax rate of 35%, among the highest in the industrialized world.

Both candidates have said they want to get out of the way of big business by lowering the corporate tax rates. If they can live up to those vows, America is 4 years from having the fastest growing middle class in the world.

Related: Ford to Add 12,000 Workers: An All-American Comeback Story

The jobs issue has always centered on the dramatically lower cost of foreign labor. As labor and shipping costs overseas rise, building plants in the U.S. becomes not just compelling but almost irresistible to both foreign and domestic manufacturers. Chinese scandals and the growth of the Chinese middle class are raising the cost of doing business abroad. The job of the next president is to drive down the cost of doing business in America — by facilitating the free market and not driving down wages. The U.S. middle class is back as many experts have argued on both Breakout and The Daily Ticker. But the rate at which the middle class grows depends on some of the policies the government pursues.

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