That sentence distills the present problem down to its essence: American workers are unwilling to adjust the price of their labor to third world levels and suffer the hit in standard of living that this would bring about. This, however, is what Bush and the corporations would like to see happen.
You come close to hitting the nail on the head here. If we weren't saddled with the responsibility to support a host of handouts across the board (personal and corporate welfare, unfunded mandates, etc...), we'd be able to take the paycheck hit and continue to enjoy the standard of living while being more competitive with the low cost countries.
Since we have this enormous handout system the only way to keep it running is to inflate the currency and deficit spend. The side effect of this is to enslave us to the resultant artificially inflated asset values (like real estate). It won't get better until it shakes out and the Feds do a LOT of cutting on the handout side and I'm not going to hold my breath for that...