Forum Post: Why economists are wrong
Posted 12 years ago on May 27, 2012, 8:01 p.m. EST by Misaki
(893)
This content is user submitted and not an official statement
31 July 2011
The experts in political economy say: spend more money, and employment will go up.
This is wrong. The decisions made during spending are important to whether it will raise employment and help the poor, and for a simple reason: charities are not in the business of giving people jobs. Over the last two years, over five dozen American billionaires have pledged to give the majority of their wealth to a worthy cause, but many of the poor in the US are more concerned with the basic necessities of living—food, shelter—that philanthropy does not tend to provide.
The unreliability of the political process, currently locked in a battle over reducing spending, means that it falls on every individual to do what they can to support the nation's economy. Most people are already aware of this—but "what I can do" is, in fact, the opposite of what many people think. The belief that someone in the system, somewhere out there, is directing the flow of resources to where they are most needed misguides people into doing things that would seem to directly contradict common sense.
But these actions are completely rational, because support for accepted measures of success is the basis of any stable society. Any change in the ideas of what it means to 'succeed' should not be taken lightly, and must be made with careful deliberation on the concepts that hold society together. The United States of America were formed around the idea that what is best for the individual is best for society, given the interactions of competing goals that result in a civilized framework. The consequence is the assumption that the way to help society, and reduce the economic problems that exist in the current time, is to progress towards nominal success within the current framework.
This informing by society of individual success, and consequent progression by the individual in the direction indicated by society, cannot be seen to lead to a desirable result when the goals which were originally critical to the determination of the framework have been removed from the decision-making process. The framework attempts to conform to reality, but does not predict the changes that will occur or the effect these changes will have on people's goals, and cannot be relied on to dictate accurate standards of success independent of the calculations of the multitudes that comprise the nation at any given point in history. The continued affirmation of goals is necessary to the maintenance of an environment that supports those goals, and the absence of this input is one of the reasons for the rise in financial complexity that lead to the financial crisis.
What the nation would benefit most from, therefore, is a framework that does not dictate a standard of success, but instead allows that standard to exist independent of the framework that all of society conforms to.
What does this mean for the present? The idea of working as hard as you can, and spending as much money as your income will allow, is not a measure of achievement that leads to lower unemployment or a balanced society with equal opportunity for everyone. While the American constitution fiercely defends the right for people to do this if they so wish, a framework that encourages everyone to think this is the right thing to do is not one that will address the problems of unemployment and inequality that currently exist.
The best things people can do to help the lower-income segments of society are to be more careful about purchasing products that lack sufficient competition to bring them down to a reasonable price, to avoid working excessively if the only benefit is to be able to purchase such products, and to support changes to the framework of society that encourage other people to act with similar economic prudence by removing the emphasis on financial success as a measure of personal worth.
Americans need to focus on conserving work so there is a share of it for everyone who is willing to work smarter and not harder, in order to achieve the confidence in one's actions that is essential for spiritual and psychological health. This requires both freedom of choice and a way to measure progress in the direction one chooses, whether it is efficiency of work, annual income, time available for other goals, or the amount contributed to one's company or the nation in the form of taxes or excess value.
Economists are not going to fix the economy, since they see their job only as knowing how to make the numbers go up and where those numbers go is not their responsibility—and after all, maybe it isn't!—and while the President means the best for the nation, he is dependent on his economic advisors and partisan conflicts have drawn attention away from the real problems that many people are reminded of every day. The future, as always, lies in the hands of the people.
Vote for the solution here.
Economics does not solve problems because economists are often paid for by interest groups such as the FED. Jay Hanson claims that economics is often political propaganda with agendas hidden in the assumptions. Science in general consists of causal reasoning based on assumptions, which has its limitations. In the field of economics the assumptions often depend on political views and financial interests.
In eight slide shows Jay Hanson, the maker of the website Dieoff.org, investigates the reasons why the current political and economic system fail. Limits to growth are politically incorrect and banned from the public discourse but they still exist. Capitalism needs more-and-more natural resources to fuel economic growth. In order to supply those natural resources, more-and-more energy is needed. Humans are social animals and their social instincts block rational solutions. Therefore humans must become aware of their social nature to solve the problems their behaviour is causing.
Corporations exist to make money and for this they use finite energy and natural resources. During this process corporations transform natural resources into garbage. When energy and natural resources are gone, money will be worthless and the planet Earth will look like a garbage dump. Corporations are out of control because they control politics. Money is social and political power and enables people to buy the time and energy of others. Money allows rich people and corporations to manipulate poor people, to buy favours of politicians and to use the finite resources of the planet. Consequently there is no democracy in countries controlled by corporations.
Social instincts prevent humans from dealing with disturbing facts like the coming energy shortages, because it is socially not acceptable to have a low status by driving a small car or wearing old clothes, to have negative thoughts about work or to go against customary behaviour by actively engaging the issue. For example, cutting the tires of SUV's with a knife or scorning the people driving them is rational Earth saving behaviour, but it is generally frowned upon. It would be better that it is not acceptable to drive a SUV, sail a luxury motor yacht, instal terrace heating or waste energy on unnecessary items in general. Suicide terrorists and resource wasters are essentially the same: while killing themselves they take others down with them.
http://www.naturalmoney.org/buildfuture.html
Sounds like a good argument for work conservation and a reduction in unnecessary consumption, while arguing against "full employment at 40+ hours/week" from Natural Money.
Work conservation is the first step in making these things socially acceptable, by making the "challenge" to get by on as small a budget as possible (from working as little as possible) instead of working and spending as much as possible.
So it's interesting but we need work conservation for this vision to succeed.
You can stop outsourcing jobs. A holding fee on money will make international trade work based on comparative cost advantages like David Ricardo explained in his book On the Principles of Political Economy and Taxation. A relative cost advantage between countries will result in balanced trade as the currencies will not be hoarded because of the holding fee. A country that has a trade deficit will see its currency drop until exports match imports. Currently some countries run large current account deficits for a long period of time because of carry trades based on interest rate differentials and exporting nations hoarding currencies of importing nations.
Current account deficits destroy productive capital of importing nations. This is a process of reverse economic development resulting in a third world economy. Complete industries have been wiped out in the United States because the US Dollar was propped up by high interest rates and currency hoarding by exporting nations like China and Japan. This created useless capital in China and Japan. Those countries produce goods and services for US Dollars that will prove to be worth less in the future as the United States has too little productive capital to support the value of its currency. To balance the trade useless capital in China and Japan may need to be destroyed and replaced by useful capital in the United States.
You can substitute taxes on labour by taxes on fossil fuels. Replacing a tax on labour with a tax on fossil fuels will help to replace fossil fuel consumption with labour and renewable energy resources. The use of energy is an important cause of poverty as it causes trade balances of reverse developed nations like the United States and the United Kingdom to go negative, while it also creates the perceived need for costly resource wars to protect the exchange of natural resources and energy for currencies that would otherwise be worth less as those nations have too few exports to support the value of their currencies. If the money spent on resource wars is spent on energy conservation and renewable energy then the trade balance of the reverse developed nations would improve and consequently the wealth of the people living in those countries would increase.
Work conservation is feasible when taxes are lower so you have to downsize government. Work conservation is a good idea as many jobs are senseless but consume energy and natural resources. Currently many people are working in jobs that do not produce a good or service someone needs. Those jobs can be found in bureaucracy, management, consultancy, trade and technology. It think with Natural Money people will work 20 hours per week or even less.
No different from inflation, and in fact with international trade it's easier to account for inflation because changes in currency exchange rates don't necessarily require changes in the prices of goods that might affect consumer spending or confidence.
Countries, like China, are generally unlikely to hold foreign reserves in the form of cash (I think). Instead they buy things like government bonds, which is why as mentioned in the other thread real interest rates for inflation-adjusted bonds are negative because it still gives a positive nominal interest rate and is therefore better than holding cash.
The US is contradictory on the China currency issue anyway. If China saves money the US threatens to accuse it of currency manipulation; if China were to dump its US bond holdings the US woud probably accuse China of encouraging financial instability or something.
True, but in the short term it creates jobs for those countries and builds industries which, particularly for China (Japan already had its property bubble etc.) prepares it to switch to 'domestic consumption' without the corruption/waste which would result if it were the Chinese government making purchasing/allocation decisions instead of US consumers.
I agree, and in fact when I initially proposed the US adopt work conservation (over a year ago) I simultaneously suggested a tax on gasoline, similar to Iran's system where people can buy a certain amount at a lower cost.
Thank you.
Not without work conservation. Remember, in the 'example' of the scrip money in 1930's Germany, the result was full employment due to increased spending by the government and people. As described in this post ("Alternative 1: shorter work week."), working less is not 'stable' with the overtime system which is why the economy needs to reverse it and use work conservation instead.
Natural Money means that many responsibilities are brought to the local level as there are mostly local currencies.
Consequently if some people are doing overtime and other people do not have jobs as a consequence, then there should be benefits to be paid for by people that are working long hours.
It is assumed that there is democracy and that most people are reasonable.
It is difficult to maintain this assumption in the current social, political and economic environment. http://occupywallst.org/forum/prelude-to-war-need-confirmation-from-ows/
As local currencies, maybe it would work... after all you do have the example of Germany where it was beginning to spread to other towns before it was banned by the central government. (A 'feature', not bug, would be if outside entities didn't accept the currency so people couldn't use it to buy luxury/brand goods produced elsewhere.)
I think it still may have depended on the general spirit of goodwill of the community that adopted it which partly resulted from a clear goal (rebuilding Germany's industry and national prestige).
I think the way to improve our economy is by creating a new type of economy. For instance, crowd funding could be used to start local cooperatives. This would work fine in the context of small scale manufacturing, retail, internet companies, food, local services, healthcare, music, etc.
Ideally, we'd be able to push for and accomplish more favorable treatment for cooperatives and employee owned companies under our legal system, maybe even things like an SBA loan program, and it's also important to focus on local banking (e.g. credit unions & community banks).
Otherwise, the conventional Keynesian stimulus can augment economic growth. We need alternative energy (coupled with a new electrical grid), many of our airports and air traffic control systems need upgrades, our water treatment and sewage systems need to be modernized, we have thousands of bridges that need to be repaired or replaced, we need new school facilities, expansion of our state university systems, etc.
As for work conservation, this has been tried (e.g. mandating reduced hours for workers), notably by France, without much success in terms of generating economic growth. The idea may have merit from a quality of life perspective, but it's doubtful this sort of scheme could induce robust economic growth.
what is economic growth ?
In my view, it means reduced unemployment, reduced poverty, higher wage growth among the lowest quintile of the income distribution, higher rates of economic participation, and more economic democracy.
"National banks" are a good example of the 'brands' that people buy. Recently there was news focus on the fees added by many banks, which even lead to the cancellation of the fee (for Bank of American I think it was?) but this could also be solved simply by switching to another bank as you mention.
Possibly, but it depends on whether there is actual improvement that can be expected. Not everything has seen significant technological improvements in the past 100 years. A broom is still a broom.
Work conservation is completely different than a reduction in the work week before overtime applies. From http://jobcreationplan.blogspot.com/2012/03/why-you-should-help.html,
Alternative 1: shorter work week.
France has tried this with a 35-hour work week, although it's slightly more complicated than that since it's based off the entire year as well. The problem with this solution is simple: if you want an intermediate level of income, somewhere between full-time work and doing nothing, the most efficient way to get it is to work as hard as possible for a while so you can get as much overtime pay as you can, and then to quit working. On a shorter timescale this is difficult because you lose work skills if you take a few months off from work, so people have the idea of spending several years working as hard as possible and then going into retirement.
But not only do you not know if that the day when you can retire will ever come, the government actively makes it more difficult with its policies meant to lead to full employment without sufficient taxation to avoid inflation. People are forced to entrust their money with specialists in the financial markets, which can lead to drastic losses from pension funds when these specialists incorrectly evaluate risks such as the recent financial crisis. Reducing the work week would just make these problems worse.
That goes without saying. There needs to be some kind of change for an improvement to occur.
I wrote about this months ago, but was met with laughter. There's nothing that's stopping OWS from starting co-ops. They can do their anarcho-syndicalist based companies right now! Why wait! On top of that, we need the proof that it will work!!! Right now, OWS just wants to make a war with the cops with such things as the disobedience school. I say screw that, let's build co-ops instead. Really strong ones.
Here's the post I wrote 4 months ago: http://occupywallst.org/forum/why-and-how-ows-must-change-or-onto-anarcho-syndic/
I'm not so sure. There is a working group that focuses on cooperatives (and alternative economics), there's an alternative banking group, and so on. So occupiers are thinking about this stuff. I've also had some level of frustration with the progress of this movement, but all of a sudden I'm starting to see all sorts of little movements cropping up around the country, all inspired by occupy.
This is diversity of tactics.
In fact, it's starting to occur to me that (perhaps) by remaining largely a protest movement, it will inspire others to generate and implement new ideas -- whereas if the expectation is that OWS will generate all the new ideas, and basically do everything, then others around the country may become complacent (and get the idea that we're taking care of everything).
So in a weird way, by staying the course (e.g. the original occupy movement keeping its focus on aggressive protesting), we wind up with more people taking the initiative and trying these sorts of projects, then we would if we tried to do it all ourselves (which is probably impossible anyway).
Yes, I do agree completely. 4 months ago, when I wrote the piece I linked above I thought OWS needed to provide solutions. But, nowadays I believe it must remain a protest because that is the only thing we can all agree on. As soon as OWS becomes a solution machine, then the various ideologies in the movement will clash.
Don't give up on this site. There are not many good people around. You are a diamond in the rough. There are a lot of trolls around these days.
Thanks, and I do get down to NYC fairly frequently, and participate in protests (I've also done some other stuff to help out as well), but I do like this site, and while it's not perfect, I think it is productive.
How so? Do any of the ideas discussed here make it anywhere else, like a GA where they can affect real change? I thought this site was mostly for fun.
It keeps people connected (the trolls notwithstanding, but at this point, the trolls no longer have much of an impact on the dialogue, we've pretty much acclimated to their bullshit); and keeping people connected is important. I live about 90 minutes north of NYC, and while I do go down to the city for protests, and I do participate in other stuff as much as possible, I obviously can't be as connected as someone who lives in NYC (so this forum provides people like me with at least some regular contact, news, cool videos, information about what's happening, and most importantly, a schedule of events).
I thought most protesters stayed connected using reedit. The discussions there seem a bit more serious. But, ya, if you can ignore the trolls, this site isn't too bad. Maybe I'll see you in NYC soon. I should be there next week.
Hmm...this post ignores empirical evidence that spending grows the economy by using a theoretical argument, obviously based on ideology. And the flow is a bit sloppy.
" The United States of America were formed around the idea that what is best for the individual is best for society, given the interactions of competing goals that result in a civilized framework."
It may make sense during tough times to "save up" because the economy is down and who knows what will happen. But everyone doing this at once depresses the economy, which affects everyone. Clearly there can be a contradiction between what makes sense for a single individual and what makes sense for society as a whole.
The justification for this post appears, again, to be ideological. That's fine, but it's no substitute for empirical data.
Spending more may increase GDP in the short term. But if the money just goes to the rich, they are limited in the rate they spend it and employment will go down.
The Congressional Budget Office and Moody's Analytics also agree that the decisions made during spending are important.
What they do not analyze is whether "working more" leads to higher unemployment in the rest of the population, because the purpose of those analyses was to determine the effects of government spending, not to determine whether to adopt work conservation.
The Fed encouraged the housing bubble to lift the US out of the ~2001 recession. This worked, until the bubble popped. People are only "saving" because they are already in debt. The people they are in debt to (the rich) are not spending enough to compensate because they already have much more money than they can reasonably spend, and people keep giving them more by buying brands.
The empirical data is in the CBO and Moody's links. I was not aware of those analyses when I wrote this text last year. I was aware of household expenditure surveys, which clearly show that higher income households spend a lower percentage of their income, but that empirical data would not have fit well into the flow of the argument.
People are only "saving" because they are already in debt. The people they are in debt to (the rich) are not spending enough to compensate because they already have much more money than they can reasonably spend, and people keep giving them more by buying brands.
The rich never spend enough to drive the economy. The consumers who spend and have the biggest impact on the economy are the middle economic class. These are the people who currently are saddled with debt, losing jobs, and not spending.... thus the economic gridlock we are in.
The top 5% of income account for about 37% of consumer spending.
This means that the other 95% making up the rest of consumer spending. The only problem is how they are spending, as described in the first post.
If people changed their spending habits and worked less, money would properly circulate in the US and global economies instead of stagnating after being earned by the rich.
For example, Apple has $100 billion in cash ($34 billion profit last year, 9.8% tax rate). It stores much of this money in offshore tax havens. This is money that is not circulating in the economy to create jobs at current price levels.
Consumers have only themselves and their gullibility to advertising to blame for the recession and unemployment.
If people changed their spending habits and worked less, money would properly circulate in the US and global economies instead of stagnating after being earned by the rich. For example, Apple has $100 billion in cash ($34 billion profit last year, 9.8% tax rate). It stores much of this money in offshore tax havens. This is money that is not circulating in the economy to create jobs at current price levels.
Your example proves my point. It's not private individual savings that is removing cash from circulation, but corporations hoarding cash. The private individual is debt burdened and has very little cash savings by all accounts. Your conclusion that 'Consumers have only themselves and their gullibility to advertising to blame for the recession and unemployment' is unfounded.
There are cheaper products available that would lead to lower profit margins.
Even in this case of mobile phones/electronics, which are sort of a luxury good, Apple is by far more profitable than its competitors, because people accept higher prices. See the (unreadable) second chart here:
http://technologyspectator.com.au/iphone-profit-paradox
If people worked less, they would naturally avoid brands which convert consumer spending into corporate profit.
And work conservation would guarantee that they are not getting a 'raw deal' by working less, since their average wage rate would increase.
In the case of Apple, the products are seen as higher quality and superior. Not everyone wants cheap. People are smarter than that. Buying cheap often means having to replace an inferior product more often, thus costing you more in the long run vs. having bought a higher quality product for a little bit more and having it last, saving money in the long run.
Your theories leave out the psychology of buying.
It's true the cheapest product is not always the best deal. But the same is true of the most expensive product.
Work conservation would allow people to choose how much to work. If someone wants an iPhone and Apple doesn't lower the price, then they could work full-time (some companies might make it easier to adjust schedules than others) to pay for that purchase.
Your system will not work in a global free market economy. When all workers around the world are in competition with each other, regardless of the presence or absence of minimum wage laws or any worker standards at all, reduced hours will simply result in inadequate income for even the most basic subsistence.
Not all jobs can be exported. For examples of jobs that can't: http://www.nytimes.com/2012/04/10/opinion/brooks-the-two-economies.html
(For an example of how unemployment and competition for jobs has lead to difficult jobs here in the US, see http://motherjones.com/print/161491)
So yes, work conservation won't magically create condom factories in the US since people overseas are willing to work for cheaper and condoms can easily be shipped. That is why the US has steadily been turning from a manufacturing economy into a service economy, even before the financial crisis lead to high unemployment.
I think you have the chicken and the egg confused. The reason that the US has been de-industrialized is not because people overseas who were willing to work cheap suddenly appeared out of thin air. They have been around for a long time. What changed is the introduction of neoliberalism, and the abandonment of reasonable trade restrictions that protected the US economy and the US worker throughout most of its' history. In the world today, it is manufacturing that produces real wealth. Not service and not bankster money manipulation.
Most people are not as concerned about de-industrialization as they are about jobs. In fact "de-industrialization" does not even have enough responses for its own category in polls on the most important problem for the US today.
If all the US did was build houses, create movies/software to sell overseas and grow food, and all products that people used were manufactured overseas, the economy would get along just fine if everyone had a job.
Quoting from this post:
"The final alternative to working less is for communities to become more isolated and less open to world trade. Instead of buying the cheapest product that was manufactured overseas, people could be encouraged to buy from local producers either by choice or through raising trade barriers to make locally made products more competitive on price. Economists generally agree that this would lower the gross domestic product for a country and for the world, but on the other hand it would raise employment precisely because of the inefficiency that would result. The primary argument against doing this is that the same standard of living could be obtained by encouraging people to work less so that work, and jobs, are more evenly distributed in the population."
"Appeal to popularity" is the definition of a logical fallacy. What "most people" are concerned with does not change any facts. When you see a quote that starts with; "Economists generally agree..." ,beware. The truth is- economists generally DON'T agree on much of anything. To say; "Most people are not as concerned about de-industrialization as they are about jobs." is about as logical as saying, I'm not concerned with the fact that it's raining, I'm just concerned that I'm getting wet. There are so many errors in this post, it's hard to know where to begin. No, trade barriers do NOT lower the GDP of the country protecting its' economy. Trade deficits DO lower the GDP of a country. The highest standard of living CANNOT be obtained by reducing per person output. The highest standard of living is obtained by full employment and maximum output per person. Whoever came up with this crap is completely unaware of history, economics and the current status of MANUFACTURING/ EXPORTING countries versus service/agricultural economies that import manufactured goods. Manufacturing is the wealth producer. Other endeavors do not measure up. Try reading Keynes. Forgive my directness, but this is pure shit.
And that's why the GDP of the US is so low, right? Because it has high trade deficits.
Unemployed and minimum wage workers have a high standard of living?
Possibly, but the only practical way for society to do that is government spending and either taxes or inflation, both of which people are opposed to.
Isn't it nice for other countries to give the US all their wealth.
Work conservation would fix unemployment. You have not even attempted to counter this statement. If you don't care about the unemployed, just admit it.
@DKAToday
I have previously pointed out how many employers (but not all) could benefit from efficiency increases. But all corporations with high profits could afford to do this, and if as you say people would agree to this if they had a good wage then it's only a matter of putting social pressure on corporations or just making it a law (as I have suggested).
Given the formulation of work conservation (wage rage 1.2x up to 20 hours per week), it shouldn't be that hard to gain popular support.
@notaneoliberal
We had high trade barriers during the Great Depression.
Much lower GDP per capita, nominal and adjusted, than the "high imports" US.
They just used overtime, since overtime is paid more than normal work. With work conservation, working more is paid at a lower rate so you can get an actual reduction in the average work week (including 'overtime').
I am not proposing a shorter work week. Only those people who wan to work less would do so, and they would be paid at a higher average rate (so avoids the "work hard for retirement" idea that makes reducing the work week pointless with higher overtime rates).
No book describes work conservation where higher amounts of work are paid at a lower rate.
The US GDP (actually the current term is GNI) is a false number. It is, so far sustained by the fact that the US holds the worlds reserve currency. Unemployment is the result of offshoring of the manufacturing sector,(more than any other single factor). Manufacturing jobs can and do pay much higher wages minimum wage. In addition to eliminating many formerly good paying jobs, offshorring has placed downward pressure on the pay rates of those remaining. No, the "only practical way" is not government spending or and either taxes or inflation to attain full employment. By the way, we have taxes. If you were to take a peak at history, the period of the 1950s the early 1970s, the US did have a high tax rate on the top tiers, but we had a strong manufacturing base, low inflation, rising wages for working people, and we still had substantial tariffs in place. We were an exporting, trade positive nation. Your statement; "Isn't it nice for other nations to give the US their wealth", is ridiculous. It's not a gift. It has resulted in the greatest transfer of wealth out of this nation than has ever occurred in human history. Universal slavery would fix unemployment too. That doesn't' make it desirable. Let's take a look at the real world. What is the strongest (still growing, or at least not yet shrinking) economy in the world? That would be China. China is a manufacturing, exporting trade surplus nation. What is the strongest nation in Europe? That would be Germany. A manufacturing, exporting, trade surplus nation. Both of those nations employ protectionist strategies. A version of your theory was employed in France. The 35hr work week. France is going down the tubes. Again, before you pretend to know what economists agree on , or believe, try reading a book.
Work conservation - whats that ? two people split a 40 hour/week job and - what get paid 32.00 an hour so they are earning a living? Probably not a popular idea with employers. The people would love it as long as they were ok with a minimum living wage..
I assume that the point is buy more competitive, lower-priced products, while encouraging others to do the same. Additionally, the average person should be less concerned about economic "success," which means they should be willing to spread the available work around.
I see at least two problems inherent in such a straight-forward approach. The first, competitve, lower-priced products are probably all manufactured overseas. That might benefit workers in China, India, Thailand, etc, but I don't see how it would help here, except to increase the profits of already profitable companies that outsource, such as Apple.
Secondly, if the available work is spread around to all, income goes down for many, which means they may not be able to pay the debts to which they are committed.
You're right, economists are not going to fix the economy, neither are the politicians, since they have a vested interest in maintaining the status quo. The answer is probably to change the entire system.
Also see the example of "buying American" from this post:
The logic of "buying American" is more complicated. Suppose you have several choices. You can buy a shirt made overseas that costs $5, of which $4 goes to various workers in the manufacturing and transportation industries who are all poorer than you. Or you can buy a brand-name shirt made overseas that costs $25, of which $10 goes to various workers including people with about the same income as you who live in the United States and designed and marketed the shirt. Or you can buy a brand-name shirt which is advertised as having been made in the United States and costs $30, of which $15 goes to various workers in the US.
In this case it cost $5 more for a US worker to make the shirt instead of someone overseas, because of cost of things like housing and health care in the US. Now suppose that you could buy the $25 shirt and just give the US worker $5; or you could buy the non-brand $5 shirt and give the US worker $25 so they can pay for rent or food. The difference in the first case is that an overseas worker earns $1 for making a shirt and the US worker gets $5 for doing nothing instead of $6 for making a shirt. The difference in the second case is that a minimum-wage American worker gets $25 for doing nothing and other workers, including the overseas worker get a total of $4, with $1 of profit for the business, instead of $15 going to various workers including the one who made the shirt while the other $15 goes to profit.
It might be possible that the owner of the business is also poorer than you, or roughly equal in economic status. But in most cases corporate profits go to people who are already rich. The top 10% in the United States had 75% of net worth and 83% of net financial assets in 2009 [http://www.epi.org/page/-/BriefingPaper292.pdf]. So profit can generally be assumed to go to someone richer than you unless you are also very rich. Evaluating these situations for economic effect, if you buy the $5 shirt then 20% of your spending goes to people richer than you; if you buy the $25 shirt then 60% of your spending goes to people richer than you; and if you buy the $30 shirt that was made in the US then 50% of your spending goes to people richer than you.
Buying the American-made shirt is therefore better for society than the made-overseas, brand-name shirt, but still less useful for the global economy than buying the $5 shirt. The US worker, on the other hand, would probably prefer you buy the $5 shirt and give them the $25 difference.
Since it isn't possible to do this, the next best thing would be to avoid working instead of earning an extra $25, so that the US worker can use their college degree to work for your employer and earn that $25 instead of you.
However, it's also possible that there is a shirt that is not only made in the United States, but also by a company that pays its workers well similar to the high rates offered by Henry Ford in his factory. Maybe $29 goes to labor costs and only $1 to profit. But a "Made in America" tag won't tell you this, so confirming this information will always be difficult and unreliable. The best decision for someone who doesn't care about brands but does care about the economy would be to work less and buy the $5 shirt.
The iPhone is made overseas, but Apple's products are not anything near price-competitive.
Part of the illusion is that people think things cost more to make than they actually do. Example:
http://www.asymco.com/2012/02/22/the-iphone-manufacturing-cost-structure/
An iPhone generates approximately $650 in revenue for Apple. This figure has remained fairly steady over time. Using deduction from overall margins, it’s possible to estimate the gross margin on the product to be around 55%.
That means that the cost of goods sold (COGS) for the iPhone is about $293. Is that a lot? Where does that money go? What else does it tell us about how the company operates?
Labor costs for assembly are estimated to be around $8~15 per unit, which is supposed to include energy costs for the facility, etc. as well. One step of the assembly process for an Apple product processes 3000 units per shift or 6000 per day.
A comparison of Apple's profits compared to its competitors: http://technologyspectator.com.au/iphone-profit-paradox
(second chart)
So just because work is done overseas does NOT mean it's profitable. Apple's brand allows it to sell much higher than other companies which compete on price (though 'profits' probably include things like corporate executive bonuses for all companies).
Fact: 95% of the top 1% of income work for a living. This doesn't mean they're employees, since they might be independent etc., but the point is that there are a lot of people who could work less and still easily get by.
Another example: http://benbrownmd.wordpress.com/
Some quotes:
The median gross income among internal medicine physicians is $205,441.
The total cost of training including interest, forbeared for three years and paid off over 20 years as explained above is $687,260. (It sounds pretty stupid to me to take so long to pay off a debt with 7% interest if you make $200k per year, but whatever.)
The median net income [after taxes] for an internist who is married with two children living in California is then $140,939.
If they finish residency at 29 years old and retire at 65 years old they will work for 36 years at that median income.
$140k 36 years = *$5.04 million after taxes.
Someone who makes over $4 million in their life after paying off huge debts can easily afford to work less time each week and only make, say, a palty $100k/year (adjusted for whatever inflation is by that time) by working 20~30 hours per week.
But the more important point is the "work conservation as a labor union at the national level" angle: as more people choose to work less, the wages for everyone in the US go up. This means that the prices of services in the US go up, but not as much as wages since corporate profits would be lower, and meanwhile the cost of imported goods does not go up as fast.
I recently read this paper so I can quote from it:
In 2007 (before the housing crash which subtracted about 25% of housing value), the bottom 40% had about $50k of debt and the same in assets. The median wealth (distinct from average) of black households was just $9.6k in 2007 when the economy was doing well, and has shrunk to an estimated $2.2k in 2009. But bankruptcy, etc. is always an option... and anyway, if someone has debts then they would just continue to work full-time. From page 14 of that paper, in 2007, averages (not medians)...
Middle 20% of wealth - $206k assets, $97k debt
Second-highest quintile - $415k assets, $114k debt
Bottom half of top quintile - $790k assets, 125k debt
etc... the top 1% of wealth (not income) has an average net worth of $19 million.
Debt is not really a problem at the national level. People with debts can just continue to work full-time.
Apple is competitive, because most Apple consumers will only buy Apple products for a variety of reasons. That explains why people will wait in lines overnight at Apple stores to buy the newest gadget.
Of course just because a company imports products from overseas does not mean it will be profitable; profit derives from subtracting COGS, expenses, payroll, etc from gross revenue regardless of the origin of the item sold. Many factors affect profit, but the less expensive the base cost of whatever item is sold, the more money is left for all other costs.
Then you point out that 95% of the 1% work for a living, but I seriously doubt those people would be willing to earn less, so that others could earn more. Your example of an internist's earnings is specious. With whom would the doctor share the work? Another internist naturally, who already earns about the same amount of money.
I don't quite buy the notion that more people working less will amount to wage increases for everyone. Your argument reminds me of the great productivity hoax in which American workers were told if they increased productivity their wages would increase proportionately.
Of course just the opposite happened. In 1979, just before Reagan took office, worker productivity was 82.2. By 2003 worker productivity has rocketed to about 120, about a 40% increase. However, during that same time real wages barely rose for all workers, and for the lowest-paid workers real wages actually dropped. http://www.kyklosproductions.com/articles/wages.html
More or less, if recent history gives any indication of the actual results of your proposals. American workers might spread the work around, so all could work, but most likely the corporations and 1% would pocket any profits and leave all workers in even worse condition.
A systematic change is needed so workers reap the profits rather than being considered just another expense. Not surprisingly, such a system already exists. It's called socialism. A mild form, which already works in this country, is the worker-owned business. Some are quite successful. The major thrust should be to force change in that direction.
Mac computers have always been known for being more expensive than competing products. As described in this NYT article, Apple used to have factory in the US and advertise this fact, but eventually moved its operations to Asia due to lower costs.
Another example, from NPR: http://www.npr.org/blogs/health/2012/04/25/151366015/doctor-pay-where-the-specialists-are-all-above-average
Orthopedic surgeons and radiologists top the earnings chart at an average income of $315,000 a year. Right behind them are the cardiologists and anesthesiologists at $314,000 and $309,000, respectively. . . . Who makes the least? After the pediatricians, it's family practitioners and internists at $158,000 and $165,000, respectively. Other doctors who do a lot of talking rather than performing procedures, are on the lower end of the pay scale, such as psychiatrists at $170,000.
Kaiser Health News points to other groups' findings on doctors' pay with slightly different results. A Medical Group Management Association report based on 2010 data, found the median compensation for radiologists was $471,253 and $192,148 for pediatricians.
Average debt getting out of medical school is something like $150k though (much higher than it was a generation ago, in line with other types of inflation like dentists and college) but for those who are willing to go into debt (and for physicians, can get one of a limited number of residency slots) it does pay well. So if physicians wanted to work less we would just need to support more residency slots which shouldn't be difficult. In 1998 (and residency slots have been increasing only slowly), "16,000 graduating medical students and another 19,000 candidates (former graduates of U.S. medical schools, graduates of foreign medical schools, students in U.S. Osteopathic schools, and students in Canadian medical schools) competed for 23,000 positions" in residency programs.
I do not see the similarity.
What about the rest of the population? The top 50%, as it were. In a 2010 poll, "Most employees, about 76 percent, said they are willing to take a pay cut . . . And among those who are out of work, 88 percent said they would take less in salary in order to land a job."
The former chief economic advisor to the vice president of the US disagrees.
The first change would be for people to stop spending all their money on brands, I would think.... unless they want to fight their employer/organize in a union for more money, which people are already able to do yet for some reason most people don't seem to feel it's necessary to do so.
That Mac computers have always been more expensive has nothing to do with Apple's current competitiveness. Apple has succeeded in branding itself as the most wanted gadget.
You use professionals, whether medical or not, as examples; same difference as the internists.
You don't see the similarity between workers doing more and getting no more, and the likelihood that if they did less they would get even less. I suppose I could make a somewhat elaborate syllogism to elucidate, but I don't believe that's necessary.
The top 50% might (in a poll) be willing to take a pay cut, but probably only if it meant taking a pay cut or losing their jobs. Naturally, most of those those currently out of work would take less than they previously earned to land a job, no earthshaking revelation there.
Economic advisors have been notoriously wrong, which is one of the reasons we're in the economic mess we are in now. The majority of those economic advisors favored the bank bailouts and the automotive bailouts.
I don't believe that buying generic items would bring about the required systematic changes.
"Quality of labor" is not a problem right now. Most companies could easily hire more people in case people decided to work less.
In the second part you seem to be suggesting they would be paid at a lower wage rate if they chose to work less. The whole point of work conservation is to ensure that people get paid at a higher rate if they choose to work less. There might be a "non-conformist discrimination/bias" if only a few people did it, but that's why work conservation is proposed as a solution at the national level with the full understanding that it would reduce unemployment and inequality.
This transfers the "wage premium for helping society" from full-time workers to part-time workers.
You don't think people would take a pay cut if it allowed a business to retain more workers instead of firing them?
It only works if people buy generic items and then use the savings to work less.
If someone saves $400 by not buying an iPhone, but then just uses that $400 in some other way that causes money to go to corporate profits (by paying for more expensive housing that costs the same to construct, or unnecessary credit card fees or something), then unemployment would not change.
Google: [ richard koo economics ]
Then take some time reading. Macroeconomics is beyond the education of this writer, same as it eludes the ideologues of war and religion who now head the Republican Party.
Dr. Koo advanced macroeconomics by building a database of all of the balance sheets of the large corporations in Japan during their "Lost Decade" period. He then traced economic performance of the economy against government spending with measurable impact calculations on those (microeconomic) financial statements.
Ignorance drives all manner of bad thinking. This posting is a clear example.
And btw: Friedman said "we are all Keynesians" with the same aim to a conclusion that Dr. Koo was able to quantify in detail with his own work in the 00s. Friedman's monetarism is also supported for normal times -- away from the big systemic collapses.
Friedman and Koo, as well, do not address at all the vulnerability of capitalism to large-scale criminality. Shame on them both for that.
If you cannot summarize the arguments yourself, it suggests you lack comprehension of them.
Work conservation would have fixed Japan's economy as well. The biggest problem in Japan after the property bubble crash was that young people, especially recent college graduates, could not find employment... just like now.
The eventual result was a rise in the number of temporary workers, who now make up a large percentage of Japan's work force.
Do you have anything to say about the topic of this thread?