The future of the North American economy

[bilby]

The budget deficit and the national debt are financed by selling T-Bills. T-Bills are overwhelmingly bought by the rich. So we are granting tax cuts to the rich to increase the amount of money available for investing and then selling T-Bills to finance the resulting deficit and these bonds are bought with money coming out of the money available for investing.

Sure of that? The rich don't need to be that risk adverse.

Oh. In that case it must be poor people who are buying $10,000 T-Bills. I wonder if they are abusing the food stamp program to obtain them?

 

[DrZoidberg]

Or, what happens to workers salaries are dependent on a hell of a lot more than policy, or politics. A lot of these gains are also technological advances.

Yes, of course, technology produces gains in productivity and innovation. These produce an ever growing surplus over the basic human needs for survival.

But economic policies go a long way to determining how the surplus is divided, who gets what.

This is recognized by the proponents of neoliberalism and the sole reason for the existence of neoliberalism is to use public policies to direct as much income as is possible to the 1%. It isn't an attempt to explain the economy that we have. It isn't even an attempt to present a vision of an economic system that we should be creating. The last thing that the 1% would want is for prices to be determined by supply and demand, especially with marginal productivity as the floor for the price, the requirement for a self-regulating free market.

=======================​

I can of course, go on, but I am trying to cut back to observe the Twitter rule of modern attention spans, no one reads more than the first 140 characters of any post. Present company excluded, of course.

Here's a mind-blowing idea. Sometimes neo-liberalism is just what the economy needs. Sometimes it's socialism. Times change. Governments need to adapt their policies depending on what the people at the moment need. One size does not fit all. That's the only reason why we still argue about economic policies without ever getting anywhere. Because everybody can somewhere find evidence that their way of doing it is the best way.

What people need to stop doing is being wed to just one method of doing things. It's like a fundamentalist religion, and that never helped anyone.

 

[Canard DuJour]

I'm not assuming they're all in the same industry.

Disparate industries do not compete for customers.

And? Workers competing for jobs aren't in disparate labour markets. If unskilled workers can be had for $x/hr, profit seeking firms won't pay more.

 

[coloradoatheist]

Yes, of course, technology produces gains in productivity and innovation. These produce an ever growing surplus over the basic human needs for survival.

But economic policies go a long way to determining how the surplus is divided, who gets what.

This is recognized by the proponents of neoliberalism and the sole reason for the existence of neoliberalism is to use public policies to direct as much income as is possible to the 1%. It isn't an attempt to explain the economy that we have. It isn't even an attempt to present a vision of an economic system that we should be creating. The last thing that the 1% would want is for prices to be determined by supply and demand, especially with marginal productivity as the floor for the price, the requirement for a self-regulating free market.

=======================​

I can of course, go on, but I am trying to cut back to observe the Twitter rule of modern attention spans, no one reads more than the first 140 characters of any post. Present company excluded, of course.

Here's a mind-blowing idea. Sometimes neo-liberalism is just what the economy needs. Sometimes it's socialism. Times change. Governments need to adapt their policies depending on what the people at the moment need. One size does not fit all. That's the only reason why we still argue about economic policies without ever getting anywhere. Because everybody can somewhere find evidence that their way of doing it is the best way.

What people need to stop doing is being wed to just one method of doing things. It's like a fundamentalist religion, and that never helped anyone.

Maybe, but the disagreement is over which way to go at this time. The other issue is that the we've become so focused on the day to day economic changes that we should we need to think 30 or 50 years ahead we can't do it.

 

[Horatio Parker]

Sure of that? The rich don't need to be that risk adverse.

Oh. In that case it must be poor people who are buying $10,000 T-Bills. I wonder if they are abusing the food stamp program to obtain them?

There are no T-bills available for under $1000.

Another argument for postal banking: national savings program.

 

[Loren Pechtel]

Sure of that? The rich don't need to be that risk adverse.

Oh. In that case it must be poor people who are buying $10,000 T-Bills. I wonder if they are abusing the food stamp program to obtain them?

Why do you think that the marketplace consists only of rich people and poor people?

Hint: There are also corporate reasons to park money in a safe fashion for a short period.

 

[BH]

Yes, of course, technology produces gains in productivity and innovation. These produce an ever growing surplus over the basic human needs for survival.

But economic policies go a long way to determining how the surplus is divided, who gets what.

This is recognized by the proponents of neoliberalism and the sole reason for the existence of neoliberalism is to use public policies to direct as much income as is possible to the 1%. It isn't an attempt to explain the economy that we have. It isn't even an attempt to present a vision of an economic system that we should be creating. The last thing that the 1% would want is for prices to be determined by supply and demand, especially with marginal productivity as the floor for the price, the requirement for a self-regulating free market.

=======================​

I can of course, go on, but I am trying to cut back to observe the Twitter rule of modern attention spans, no one reads more than the first 140 characters of any post. Present company excluded, of course.

Here's a mind-blowing idea. Sometimes neo-liberalism is just what the economy needs. Sometimes it's socialism. Times change. Governments need to adapt their policies depending on what the people at the moment need. One size does not fit all. That's the only reason why we still argue about economic policies without ever getting anywhere. Because everybody can somewhere find evidence that their way of doing it is the best way.

What people need to stop doing is being wed to just one method of doing things. It's like a fundamentalist religion, and that never helped anyone.

I can agree with this.

 

[J842P]

Yes, of course, technology produces gains in productivity and innovation. These produce an ever growing surplus over the basic human needs for survival.

But economic policies go a long way to determining how the surplus is divided, who gets what.

This is recognized by the proponents of neoliberalism and the sole reason for the existence of neoliberalism is to use public policies to direct as much income as is possible to the 1%. It isn't an attempt to explain the economy that we have. It isn't even an attempt to present a vision of an economic system that we should be creating. The last thing that the 1% would want is for prices to be determined by supply and demand, especially with marginal productivity as the floor for the price, the requirement for a self-regulating free market.

=======================​

I can of course, go on, but I am trying to cut back to observe the Twitter rule of modern attention spans, no one reads more than the first 140 characters of any post. Present company excluded, of course.

Here's a mind-blowing idea. Sometimes neo-liberalism is just what the economy needs. Sometimes it's socialism. Times change. Governments need to adapt their policies depending on what the people at the moment need. One size does not fit all. That's the only reason why we still argue about economic policies without ever getting anywhere. Because everybody can somewhere find evidence that their way of doing it is the best way.

What people need to stop doing is being wed to just one method of doing things. It's like a fundamentalist religion, and that never helped anyone.

I think SimpleDon is using the term Neoliberalism in a more specific sense than "private sector control of economic factors." Indeed, he is very much a proponant of that form of neoliberalism. Rather, I think he is specifically referring to certain Chicago-School derived economic theories.

 

[SimpleDon]

Subject: Does income inequality damage the economy?

It is definite that these changes did damage the economy, they increased income inequality. This is what we are discussing. You can have too little income inequality, you need income inequality to provide the incentives to innovate and to improve productivity, but you can have too much, which is where we are now. The rich prefer a high level of income inequality, so anytime you have politics controlled by the rich you will have high levels of income inequality. There is no limit to the amount of income inequality that the rich want.

You said that the income inequality came from the market forces, not the intention on their part to increase the income inequality in the country, to increase the funds available for investment and thereby increase the amount of business investment and economic growth.

The part in italics were lost between my text editor and the post.

I'm not so sure they damaged the economy.

You are not sure if high income inequality harms the economy?

Here are some of the ways it does.

It increases the amount of friction in society, primarily from the people who know that their wages have stagnated but they don't know why or who to blame.

It increases the number of people who have to live in poverty.

It increases crime, 90% of all street crimes are committed by those below the poverty line.

Poverty breeds poverty, the children of the poor are much more likely to be poor themselves.

Poverty results in shorter lives and unhealthier lives.

The excessive amount of financial capital due to the high income inequality destabilizes the financial markets as the holders of it chase ever more elusive and risker returns.

The excessive financial capital searching for returns finds its way into the real estate market, running up housing prices and burdening homeowners with high costs.

There can be no better example of these last two than the Great Financial Crisis and Recession of 2008 triggered by the malfeasance in the handling of sub-prime mortgage backed securities, which were rock solid unless housing prices went down. And then they went down.

Increased crime and unethical behavior by the upper class, trying to get their hands on part the excessive profits.

Reducing aggregate demand in the economy that depends primarily on wages.

Demand is the driver of the economy, no investment is made unless the demand exists for an established product or unless there is a certainty of demand for a new product, usually determined by product testing and surveys.

High income inequality produces extremely high private debt, since 1980 private debt has climbed from 60% of the national income to over 300% of it recently.

If it wasn't for the high private debt there would not have been any growth in the economy in many of the years since 1980, about half of them.

American households borrow heavily in the face of stagnating wages to prop up their consumption, to send their children to college and to buy homes, things that their parents did without the high levels of debt.

High levels of private debt makes recessions more frequent, more severe and longer lasting.

High private debt is very destabilizing for the economy.

The excessive amount of unattached funds increases pressure to make unwise privatizations of government services and previously non-profit enterprises such as; education, health care, prisons, toll roads, public buildings lease backs, etc.

The high budget deficits required by the neoliberal supply side economics policies, lead to calls to balance the budget by any means possible, except to rollback the income tax cuts for the wealthy, with no appreciation for the irony of the matter by the neoliberals. These hypocritical calls for fiscal responsibility are made under the label of "austerity." Austerity and the need to reign in out of control spending became the cornerstone of the Washington Consensus.

Austerity means that we can't enlarge or maintain our infrastructure. Austerity means that we have to reign in welfare for people and can only continue to provide corporate welfare. Austerity means we have increase the regressive taxes like payroll taxes on the federal level and sales taxes at the state level. Austerity means that we can't maintain Social Security, Medicare and Medicaid at the current levels which are among the lowest in the developed countries. Austerity means that we have had college costs climb 1100% since 1980 nominal while the cost of living have increased 290%.

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There is my list for the harmful effects of income inequality. Since I have presented these before and you are still not sure if income inequality harms the economy, I am sure that you have a list of the advantages of income inequality to the economy, that possibly you have held back for fear of embarrassing me. Please, if this is the case have no fears along these lines, that is what we are doing here, learning from one another.

The only advantage to high income inequality that I could think of is that it reduces inflation and moderates price levels in the economy. This is the reason for the Great Moderation that baffled so many of our leading economists.

But when you look at it the reason for the moderation of inflation it is because the excess financial capital from the high profits doesn't impact the economy, it effectively leaves it.

I am stopping here for now. Next post I will help Loren and the other supply siders by presenting some of the arguments made by mainstream economists against this idea that the high income inequality harms the economy. In short they say that income inequality isn't as bad as all that and we will continue to ignore it.

 

[DrZoidberg]

You are not sure if high income inequality harms the economy?

I think we know the answer to this. The answer is that sometimes inequality is good and sometimes it is bad. In the modern world is is bad. I think universally. But in the pre-industrial world inequality was crucial. Or it would just have led to everybody all dying at once from starvation.

 

[Loren Pechtel]

The part in italics were lost between my text editor and the post.

I'm not so sure they damaged the economy.

You are not sure if high income inequality harms the economy?

Here are some of the ways it does.

It increases the amount of friction in society, primarily from the people who know that their wages have stagnated but they don't know why or who to blame.

Income inequality does not prove income stagnation.

It increases the number of people who have to live in poverty.

Again, no. You can have inequality without having poverty.

It increases crime, 90% of all street crimes are committed by those below the poverty line.

Crime is far more about drugs than income inequality.

Poverty breeds poverty, the children of the poor are much more likely to be poor themselves.

Which can't be solved by throwing money at it.

Poverty results in shorter lives and unhealthier lives.

See above.

The excessive amount of financial capital due to the high income inequality destabilizes the financial markets as the holders of it chase ever more elusive and risker returns.

No. The lack of proper controls on leverage ratios causes instability. 1929 taught us about margin accounts, we failed to apply that lesson to more creative forms of leverage. We failed to learn the lesson of 2008.

The excessive financial capital searching for returns finds its way into the real estate market, running up housing prices and burdening homeowners with high costs.

Disagree, except in areas with housing shortages and high wages.

There can be no better example of these last two than the Great Financial Crisis and Recession of 2008 triggered by the malfeasance in the handling of sub-prime mortgage backed securities, which were rock solid unless housing prices went down. And then they went down.

2008 was a combination of two factors:

1) Throwing sanity out the window in loan underwriting in the name of getting more minority homeowners.

2) A failure to apply the lessons of 2009 to new means of leverage.

Increased crime and unethical behavior by the upper class, trying to get their hands on part the excessive profits.

I see no reason to think this would happen.

Reducing aggregate demand in the economy that depends primarily on wages.

Once again you fail to understand that investment produces demand--just for means of production rather than consumer goods. (Although there is some overlap--for example, businesses use an awful lot of consumer-level computers.)

Demand is the driver of the economy, no investment is made unless the demand exists for an established product or unless there is a certainty of demand for a new product, usually determined by product testing and surveys.

Nobody ever takes a chance?

High income inequality produces extremely high private debt, since 1980 private debt has climbed from 60% of the national income to over 300% of it recently.

Disagree. Note how interest has gone down greatly in that period--debt is cheaper, people get more of it.

If it wasn't for the high private debt there would not have been any growth in the economy in many of the years since 1980, about half of them.

Which has nothing to do with inequality.

American households borrow heavily in the face of stagnating wages to prop up their consumption, to send their children to college and to buy homes, things that their parents did without the high levels of debt.

Those with stagnating wages aren't exactly the ones to be sending their kids to college.

And note that college has become a lot more expensive than it used to be, of course there's more debt. Also, more people from lower incomes are going to college, of course the parents are less able to pay.

Buying homes? How many people paid cash for them back then???

High levels of private debt makes recessions more frequent, more severe and longer lasting.

High private debt is very destabilizing for the economy.

Again, you haven't shown this is a result of inequality.

The excessive amount of unattached funds increases pressure to make unwise privatizations of government services and previously non-profit enterprises such as; education, health care, prisons, toll roads, public buildings lease backs, etc.

Once again, way off target.

Privatization is driven by the Republicans trying to gut government services coupled with the Republicans trying to keep taxes low no matter what the long term cost.

The high budget deficits required by the neoliberal supply side economics policies, lead to calls to balance the budget by any means possible, except to rollback the income tax cuts for the wealthy, with no appreciation for the irony of the matter by the neoliberals. These hypocritical calls for fiscal responsibility are made under the label of "austerity." Austerity and the need to reign in out of control spending became the cornerstone of the Washington Consensus.

No. The deficits are caused by their unwillingness to tax.

Austerity means that we can't enlarge or maintain our infrastructure. Austerity means that we have to reign in welfare for people and can only continue to provide corporate welfare. Austerity means we have increase the regressive taxes like payroll taxes on the federal level and sales taxes at the state level. Austerity means that we can't maintain Social Security, Medicare and Medicaid at the current levels which are among the lowest in the developed countries. Austerity means that we have had college costs climb 1100% since 1980 nominal while the cost of living have increased 290%.

Which has nothing to do with income inequality.

There is my list for the harmful effects of income inequality. Since I have presented these before and you are still not sure if income inequality harms the economy, I am sure that you have a list of the advantages of income inequality to the economy, that possibly you have held back for fear of embarrassing me. Please, if this is the case have no fears along these lines, that is what we are doing here, learning from one another.

And almost none of it is due to inequality.

The only advantage to high income inequality that I could think of is that it reduces inflation and moderates price levels in the economy. This is the reason for the Great Moderation that baffled so many of our leading economists.

The more income inequality the more drive there is to better yourself and raise your income. In a society with perfect income equality there would be almost no reason to do anything but the easiest job.

 

[SimpleDon]

Subject: Mainstream economics says that we can continue to ignore income inequality, but maybe not.

It is definite that these changes did damage the economy, they increased income inequality. This is what we are discussing. You can have too little income inequality, you need income inequality to provide the incentives to innovate and to improve productivity, but you can have too much, which is where we are now. The rich prefer a high level of income inequality, so anytime you have politics controlled by the rich you will have high levels of income inequality. There is no limit to the amount of income inequality that the rich want.

You said that the income inequality came from the market forces, not the intention on their part to increase the income inequality in the country, to increase the funds available for investment and thereby increase the amount of business investment and economic growth.

The part in italics were lost between my text editor and the post..

I'm not so sure they damaged the economy.

So you aren't sure if higher levels of income inequality harm the economy. Does that mean that you have a list of the benefits of high income inequality that you are weighing against these disadvantages? Advantages that I haven't thought of? If so please publish it.

I will help you make that list. Not that there are advantages to income inequality, I was being factious there. Our current orthodox economics teaches, like you believe, that income distribution doesn't matter. They argue,

• That the poor are younger, work fewer hours and get aid in kind like food stamps that isn't included in their incomes.
• That the poor live in smaller households, with only one worker usually. (Most of the data on income is collected for households, not individuals.)
• That over their lifetime the poor see their incomes rising moving many of them out of poverty.
• That comparisons between income groups doesn't take into account the impact of income taxes.
• That over their lifetimes the rich, the upper quintile (20%), are older, work more hours and earned considerably less when they were younger.
• That considering lifetime incomes our current income inequality is not that bad.
• That while the income inequality has grown larger, it isn't that much larger, only 3 to 4% of the total income in the extreme quintiles, the poorest and the richest and fewer for the middle class, the three middle quintiles.
• That it is not a bad assumption to model the spending and savings patterns of all of the country into one aggregate, average, pattern, economics speak for the income distribution and income inequality don't matter to over all economy.

The fallacy of the argument is that people and the economy don't react to a lifetime of earnings, their reactions are based on how things are right now, when they decide to spend it is based on their incomes right now, not what it will be in twenty years.

And that we know that the income distribution does matter because we know that the rich have a greater propensity to save and a lesser one to spend and that the non-rich have a greater propensity to spend, to consume, than to save. This simple observation of human nature and the human condition leads to the conclusion that the more that the income distribution is tilted to the rich, the more savings there will be and the more that the income distribution is tilted toward the non-rich the more consumption there will be.

Even if you take the ridiculous position that you seem to be taking, that all savings results eventually in consumption or virtuous investment, this simple fact means that the income distribution is very important to the economy.

A great deal of this argument is based on the problems with the data that is after all, collected by economists. If they think that there are problems with the data they should talk to themselves and correct the problems.

The argument about the income tax is correct, as far as it goes. But if you are going to include the effects of the income tax you should include the impact of all of the taxes, not just the income tax. Typically the poor pay a large percentage of their earnings to payroll and sales taxes, to property taxes either directly if they own the residence or through their rent, the landlord has to recover his property taxes from his tenants.

Also the pre-tax income inequality in the US isn't all that bad in comparison to other advanced countries, it is actually lower than Israel's and Sweden's for example. But when you add in the income taxes and the other taxes and the transfer payments including in kind of transfers is when the US goes to the worse income inequality in the first world. Why? Because the US's tax rates for the rich are lower than all of the advanced countries and the transfer payments, unemployment, SS and Medicare, welfare, food stamps, ACA subsidies, etc. are lower than most of the advanced countries, except for Turkey and Israel, (I think).

And looking only at the upper quintile masks the problem. People in the top 1% earned 8% of the nation's income in 1979. They earned 18% of the nation's income in 2015. Even this understates the problem. More than one half of the gains in income of the top 1% of earners was made by the top 0.1% of earners.

There are few papers on the harmful effects of high income inequality from mainstream economists. The IMF released a study on the effects of high income inequality on the economy. They conclude that the largest problem with high income inequality is that it suppresses growth in the economy. It is a fairly recent paper and behind a pay wall so I have not found a copy of it, only news releases and informal citations of it in articles like this one in the Economist Explains blog.

There also is the speech titled Inequality: Facts, Explanations, and Policies (warning link will download a PDF) by Jason Furman, Chairman, Council of Economic Advisers, a mainstream economist who works in the White House.

The arguments from mainstream economics about income inequality came from Economics 11e, by Dr. Roger A. Arnold, 11th edition, 2014, Chapter 12 Income Distribution and Poverty, in whole, pp. 659 to 672, an undergraduate level textbook.

 

[Loren Pechtel]

So you aren't sure if higher levels of income inequality harm the economy. Does that mean that you have a list of the benefits of high income inequality that you are weighing against these disadvantages? Advantages that I haven't thought of? If so please publish it.

I will help you make that list. Not that there are advantages to income inequality, I was being factious there. Our current orthodox economics teaches, like you believe, that income distribution doesn't matter. They argue,

That the poor are younger, work fewer hours and get aid in kind like food stamps that isn't included in their incomes.

Once again you equate high inequality to poverty.

That the poor live in smaller households, with only one worker usually. (Most of the data on income is collected for households, not individuals.)

This certainly is part of the explanation for income inequality. On a quintile basis hours worked is as big a factor as hourly wage.

That over their lifetime the poor see their incomes rising moving many of them out of poverty.

Once again you are trying to equate poverty & income inequality. However, this is also a big factor--another big chunk of income inequality is young vs late in one's career.

That comparisons between income groups doesn't take into account the impact of income taxes.

I don't consider that all that important a factor.

That over their lifetimes the rich, the upper quintile (20%), are older, work more hours and earned considerably less when they were younger.

Repeat.

That considering lifetime incomes our current income inequality is not that bad.

Repeat.

That while the income inequality has grown larger, it isn't that much larger, only 3 to 4% of the total income in the extreme quintiles, the poorest and the richest and fewer for the middle class, the three middle quintiles.

I do not recall the numbers here.

That it is not a bad assumption to model the spending and savings patterns of all of the country into one aggregate, average, pattern, economics speak for the income distribution and income inequality don't matter to over all economy.

For the purposes of the economy this is basically correct.

The fallacy of the argument is that people and the economy don't react to a lifetime of earnings, their reactions are based on how things are right now, when they decide to spend it is based on their incomes right now, not what it will be in twenty years.

And the only way to fix this would be to go against market forces and say experience is worth a lot less than the market says it is. Major-league discrimination against older people. Want that??

And that we know that the income distribution does matter because we know that the rich have a greater propensity to save and a lesser one to spend and that the non-rich have a greater propensity to spend, to consume, than to save. This simple observation of human nature and the human condition leads to the conclusion that the more that the income distribution is tilted to the rich, the more savings there will be and the more that the income distribution is tilted toward the non-rich the more consumption there will be.

Once again repeating your mistake of thinking that savings disappear from the economy.

Even if you take the ridiculous position that you seem to be taking, that all savings results eventually in consumption or virtuous investment, this simple fact means that the income distribution is very important to the economy.

The portion of savings that don't end up back in the economy is minuscule. It's basically limited by the supply of currency which is a drop in the bucket compared to the total money supply.

The argument about the income tax is correct, as far as it goes. But if you are going to include the effects of the income tax you should include the impact of all of the taxes, not just the income tax. Typically the poor pay a large percentage of their earnings to payroll and sales taxes, to property taxes either directly if they own the residence or through their rent, the landlord has to recover his property taxes from his tenants.

And I'm against regressive taxes.

And looking only at the upper quintile masks the problem. People in the top 1% earned 8% of the nation's income in 1979. They earned 18% of the nation's income in 2015. Even this understates the problem. More than one half of the gains in income of the top 1% of earners was made by the top 0.1% of earners.

I don't believe this has any real effect on the fate of the average person. And it's the logical result of the consolidation that has happened over those years, as well as the information revolution. The corporate tree has grown much shorter and fatter because people are more able to do their jobs.

There also is the speech titled Inequality: Facts, Explanations, and Policies (warning link will download a PDF) by Jason Furman, Chairman, Council of Economic Advisers, a mainstream economist who works in the White House.

These days I am very leery about government information on politically sensitive topics.


Anyway, you missed a biggie that I have already pointed out: Income inequality is what drives people to better their position in life.

 

[SimpleDon]

Subject: Do savings boost the economy or do savings slow the economy? The End

There are I believe nine paradoxes of the macroeconomy. Things where the reactions of the macroeconomy are completely different, polar opposites, to the reactions of individual economic actors. The most famous of these is the paradox of thrift, that saving is good for the individual but bad for the economy as a whole because savings reduces spending. Another is the paradox of (the national) debt, that it is also the national private savings and can never be reduced except by reducing private savings, which means that it can never be reduced because it would cause a massive depression that would increase the debt. Another is the paradox of stability that the financial markets are inherently unstable and the more money in the market the more unstable it is. Of course, the opposite is true of individuals.

Here we disagree. I think savings is good for the economy because it ends up in investment. You have this strange notion that savings are removed from the economy rather than invested.

But you do agree that the other paradoxes are valid? That they establish that the whole economy acts differently than you or your company does?

And I don't know any economist or school of economics who believes that savings ends up in investment. Most term savings as delayed consumption, not delayed investment.

I will give you the benefit of the doubt, that you meant to say that we have to have savings before we can have investment, a much more common misunderstanding than that all savings ends up as investment. And by extension, that the more savings we have, the more investment we will have.

This is the error that is the basis of supply side economics, and the reason for its failure to increase investment, growth and jobs as the proponents promised.

These are the important questions for this discussion. The supply siders agree with you, their entire theory is based on the concept that savings drives investment, that the more savings that we have the more investment that we have. And if savings go down, investment goes down.

You have some heavy weights on your side, beyond the supply siders. Paul Krugman pretty much agrees with you. But you and Paul are wrong. It is not hyperbole to say that you and Paul and the supply siders are completely wrong.

I won't bury the lede. Investment is the creator of savings, not the other way around. Without investment there is no savings.

And it isn't a chicken-egg argument of which came first, either. Investment preceded savings by many thousands of years. It is only in a monetary economy that savings is even possible.

First question, where did the money come from that is put into savings?

Did Santa leave it on the mantle? Or did it come from the wages and from profits earned?

Next question, is it possible to have an excessive amount of savings, more than can ever converted into investment in your economics?

It sure seems like that is what we have now. Corporations have more than three trillion dollars in cash in accounts in the US and much more than that in tax havens around the world. Google and Apple combined have more than two trillion dollars in overseas tax havens.

About ten trillion dollars is in T-bills originally issued to finance the budget deficits caused by the supply side tax cuts that were suppose to provide more money available for investment.

This money is savings and wealth for the bondholders but the money in them can never be turned into investment because the government can't run the surpluses required to retire the bonds without reducing the amount of money available for investment.

The money that the government got for the original issue of the bonds came from the money available for investment, but it was spent on consumption by the government, the same consumption that the government would have spent the taxes that were cut on.

The net result of all of this is the same amount is available for investment as before the tax cuts. The bondholders have ten trillion dollars more in wealth, but there will always be ten trillion dollars of T-bills in savings that can never be turned into investments.

Please explain how this has increased the amount of money available for investment.

Money that is saved isn't spent on consumption. This is kind of the point of saving, isn't it?

Consumption is the point of production, if there is no consumption there is no need for production.

If there is no need for production there is no need for investment.

The short term and medium term driver of the economy is the velocity of money. The faster money travels through the economy the more economic activity there is for a fixed quantity of money. This is Irwin Fischer's brilliant insight that is known as the quantity theory of money, no less. That the quantity of money times the velocity of money equals the price for goods and services times the quantity of the goods and services bought and sold. That the Quantity of money times the velocity of money equals the nation's GDP.

But what Fischer and no neoclassical economists ever told you and what Milton Friedman and the neoliberals didn't want you to know is what determines the velocity of money through the economy.

Milton Friedman didn't even use the term "velocity of money." He termed it to be the "unknown" factor. (Actually the inverse of the unknown factor! Why? Who knows.) The factor in Fischer's identity is unit less, a velocity would have units of something over time, like miles per hour.

The neoliberals want you to believe that is a natural function of the economy, that ebbs and flows by some unknown and unknowable natural force. Like your "market forces" that you believe are responsible for the income inequality, that you can't explain, leading us to believe that you must think that they are natural forces independent of any control by mere humans and their puny, ineffective economic policies. Or the "unknown factors" that others here have suggested are the reasons for the failure of supply side economics to increase investments and economic growth.

After all, the neoliberals want you to believe the free market is the natural, perfect, self-winding clockwork economy that would burst forth if only we were wise enough to end all government interference in the economy, right?

But there is nothing unknown or mysterious about what determines this scaling factor, the number of times that a dollar changes hands in a year. It is what we are talking about right now. What Lord Keynes called consumers' "liquidity preference." If consumers decide to spend or to save. (Or in terms of our highly leveraged modern reality if consumers decide to borrow more or to pay down existing debt.) If consumers decide to spend, the economy booms. If the consumers decide to save, the economy contracts. It is this liquidity preference that largely determines what economists call the business cycle.

And why do the neoliberals not want you to be aware of this fact? Because the liquidity preference of consumers, the simple decision whether to spend or to save, is subject to herd mentality and tends to overreact. Consumers and savers adopt optimistic expectations in a good economy and pessimistic ones in bad economy as a group. Consumers and savers tend to hold on to their optimism too far into the boom cycle and to hold on to their pessimism too far into a bust.

Therefore the economy tends to constantly oscillate from too much economic activity and a booming economy to too little activity and a recession. The economy never stays in the full employment, full capacity utilization of the neoliberal's dreams. The so-called general equilibrium. The economy itself doesn't have a counter to dampen this oscillation. The only effective way to dampen the cycle is through the intervention of a third party that does the opposite of what the herd is doing. This required third party is, of course, government.

This is the conclusion that Keynes came to in 1936 and pretty much the conclusion that Adam Smith came to in 1776, although his conclusion was that the government has to intervene in the economy to cut down on the rent that landlords and money lenders impose on the economy.

Of course, the hypocrisy is that the supply siders needed the government's intervention to impose your beloved supply side economic policies. Your completely unintentional lifting of the thumb of government off of the scale, is in truth, the wholly intentional pressing of the government's thumb to tilt the economy to rewarding the rich at the expense of everyone else. The last thing that the rich and the corporations would want would be the self-regulating free market of prices set by simple supply and demand, if it was possible, which it isn't.

The irony is that supply side economic policies are a pretty effective way to dampen the oscillations of the business cycle. This is because the rich save most of their incomes. And savings, as we learned above don't grow or impact the economy. The supply side economy is exactly what we are seeing in our economy today, a low growth, low investment economy that returns high profits and an occasional massive financial sector induced near depression caused by the failure to adequately regulate Wall Street. The rich basically are willing to settle for a larger slice of a smaller economy.

This reduces employment, growth, investment and economic activity. It increases unemployment, private debt, poverty, crime, drug use, financial market instability and the frequency and intensity of recessions caused by financial crises. These things are always bad for the economy and society. The only good that it produces is lower inflation, because the excessive profits from wages don't have any measurable impact on the economy.

Savings increase growth!

How can I argue against such well reasoned, insightful defense of your position. I almost felt that I had a grasp on this subject. But I hadn't counted on the power of bolding to prove me wrong.

But, no, savings don't mean growth. If they did we would have had tremendous growth from record amounts of investment over the last thirty five years of neoliberal economic policies. Instead we have had low investment and low growth. We have instead had high public and private debt and high income inequality.

It is almost as if the reason for supply side economics wasn't to increase investment and growth but to funnel ever increasing amounts of money to the already rich.

It does increase the value of the stock market. The Dow Jones stock index has increased an astonishing 2300% nominal since 1980 compared to 290% for the cost of living and 300% for the median personal wage. This inflation in the prices of stocks we have defined as a good, by casting it as "capital gains." The same is true of home prices, inflation in the housing market is called "capital gains" too and a good too.

Inflation is lower, the ratio of stock price to yield went up.

You are correct. Are you finally thinking or did you just get lucky? Not about the inflation but the other bit is dead on. Stockholders want inflation in their world, they want the price of the stock to go up.

The stock market is a replica market. It is essentially like betting on a continuous horse race, trying to pick which horse will cover the most ground in a time period of the bettor's choice. But it is possible for all of the betters to win, just not the same amount. In a horse race all of the money, the pay out to bettors, the purse and the track's cut all come from the bettors. (Yes, I know about the entry fees. NPA, no perfect analogy.) It is the same in the stock markets.

The more money that enters the market as a whole, the more the prices of the stocks will increase and the more "capital gains," code for inflation in asset markets, there are. The total amount of savings that can enter the market depends on the ability of the bettors to stretch the model. If they believe that the prevailing P/E ratio of 15:1 can stretched to 20:1 then the capitalization of the market will increase by 33%. All with no change in the real value of the corporations whose stock is being traded in the market.

A capitalistic economy in which there isn't intentional redistribution of income from the highest earners to the rest of the people is one in which the income and the wealth is going to be concentrated in progressively fewer hands all of the time. This not sustainable in the long term. We have had to learn this repeatedly over the last two hundred years.

This would happen in a society of immortals. Not in a society of mortals.

This is where your inability to see that the whole economy is different than just how it effects you or your company limits your ability to understand the economy.

The income inequality concentrates income and wealth into the hands of increasingly fewer and fewer hands at the top even if the people at the top die or change over time. Your beloved supply side economic policies will mean a progressively smaller percentage of the wealthiest in America will gain income and wealth, even if the people at the top are different than the ones at the top in the decade before.

The top 1% of the earners more than doubled their incomes and wealth from 1980 to today, even though the top 1% of today are not the same people, families, residents of the same places, in the same occupations, made up of the same proportions of religion, background, education, race, or genders as the top 1% of 1980. But one half of the gains in income and wealth by the top 1% were made by just 10% of the top 1% of earners, the top 0.1% of all earners.

There are three explanations of the same reasons that your objections aren't valid. The rich don't have to be immoral. It doesn't matter if individual fortunes tend to dissipate into progressively more hands over the generations. What matters is that increasing income inequality concentrates more income and wealth into progressively fewer and fewer hands. And the power that comes with the money.

This is dangerous for a nominal democracy like ours. It erodes the shared power of the people and makes the government a tool used by the wealthy to do their bidding, which is to make them even wealthier.

There can be no better proof that we are too far toward over-rewarding capital than the recent election of our proto-fascist president. The workers are restless, they know that they are being screwed. They don't know how or by whom. They made the wrong choice, but honestly neither one would be the savior of the working class. It is just that Trump has promised to continue to screw them more than Clinton did.

That's not even evidence, let alone proof.

So you don't believe that the rise of Trumpism, the 21st century version of fascism, has anything to do with the stagnating wages of the lower 50% of earners?

Do you believe that the lower 50% of earners are happy with their loss of good jobs and wages? That as long as they can buy underwear at the lowest real cost in history that they are willing to accept lower wages, increasing housing and education costs, the impending continued losses of jobs to globalization and automation, the impending attacks on their Social Security and Medicare all so that the rich can get even richer, and this is why Trump nearly won the popular vote and 58,000 people in three states and the constitutional anti-democratic abomination of the electoral college put him in the presidency?

 

[Loren Pechtel]

And I don't know any economist or school of economics who believes that savings ends up in investment. Most term savings as delayed consumption, not delayed investment.

From the consumer perspective! From the economy as a whole it's still consumption--just of means of production rather than consumer goods.

I will give you the benefit of the doubt, that you meant to say that we have to have savings before we can have investment, a much more common misunderstanding than that all savings ends up as investment. And by extension, that the more savings we have, the more investment we will have.

You have certain sinks that absorb some of those sinks but they are not tied to the amount of savings. Beyond that it ends up in investment.

This is the error that is the basis of supply side economics, and the reason for its failure to increase investment, growth and jobs as the proponents promised.

These are the important questions for this discussion. The supply siders agree with you, their entire theory is based on the concept that savings drives investment, that the more savings that we have the more investment that we have. And if savings go down, investment goes down.

No, supply side "works"--the problem is the Republicans have insane ideas about the feedback ratio. When you tip the balance more towards investment rather than consumer spending the economy does grow. The notion that this is enough to make tax cuts pay for themselves is ludicrous, though.

I won't bury the lede. Investment is the creator of savings, not the other way around. Without investment there is no savings.

You can have savings without investment. What would you call storing grain?

Next question, is it possible to have an excessive amount of savings, more than can ever converted into investment in your economics?

No. There is a point of diminishing returns but no point where the value drops to zero.

It sure seems like that is what we have now. Corporations have more than three trillion dollars in cash in accounts in the US and much more than that in tax havens around the world. Google and Apple combined have more than two trillion dollars in overseas tax havens.

And the tax havens fuck up the economy.

About ten trillion dollars is in T-bills originally issued to finance the budget deficits caused by the supply side tax cuts that were suppose to provide more money available for investment.

And that vanished? 10T in T-bills is 10T in government spending on something.

This money is savings and wealth for the bondholders but the money in them can never be turned into investment because the government can't run the surpluses required to retire the bonds without reducing the amount of money available for investment.

Which means we have the shitty investment of government spending, not that we have no investment.

Money that is saved isn't spent on consumption. This is kind of the point of saving, isn't it?

Consumption is the point of production, if there is no consumption there is no need for production.

You're treating consumer spending as the whole of the economy.

But there is nothing unknown or mysterious about what determines this scaling factor, the number of times that a dollar changes hands in a year. It is what we are talking about right now. What Lord Keynes called consumers' "liquidity preference." If consumers decide to spend or to save. (Or in terms of our highly leveraged modern reality if consumers decide to borrow more or to pay down existing debt.) If consumers decide to spend, the economy booms. If the consumers decide to save, the economy contracts. It is this liquidity preference that largely determines what economists call the business cycle.

And in an ideal world this would be held on an even keel. In the real world it will fluctuate. What you are missing is that there is such a thing as too much spending--the result is inflation rather than economic growth.

And why do the neoliberals not want you to be aware of this fact? Because the liquidity preference of consumers, the simple decision whether to spend or to save, is subject to herd mentality and tends to overreact. Consumers and savers adopt optimistic expectations in a good economy and pessimistic ones in bad economy as a group. Consumers and savers tend to hold on to their optimism too far into the boom cycle and to hold on to their pessimism too far into a bust.

Therefore the economy tends to constantly oscillate from too much economic activity and a booming economy to too little activity and a recession. The economy never stays in the full employment, full capacity utilization of the neoliberal's dreams. The so-called general equilibrium. The economy itself doesn't have a counter to dampen this oscillation. The only effective way to dampen the cycle is through the intervention of a third party that does the opposite of what the herd is doing. This required third party is, of course, government.

This isn't the only factor--it takes the Fed time to measure the data and time to nudge the economy back towards where it's supposed to be. This will cause oscillations.

This is the conclusion that Keynes came to in 1936 and pretty much the conclusion that Adam Smith came to in 1776, although his conclusion was that the government has to intervene in the economy to cut down on the rent that landlords and money lenders impose on the economy.

Note: Before the Fed.

Of course, the hypocrisy is that the supply siders needed the government's intervention to impose your beloved supply side economic policies. Your completely unintentional lifting of the thumb of government off of the scale, is in truth, the wholly intentional pressing of the government's thumb to tilt the economy to rewarding the rich at the expense of everyone else. The last thing that the rich and the corporations would want would be the self-regulating free market of prices set by simple supply and demand, if it was possible, which it isn't.

The thumb you talk about is unions--which lost their power anyway due to foreign competition. Look at the US today--unions pretty much only exist in industries where the jobs can't go overseas and even then sometimes only with government protection beyond that. (Example: Observe the contortions the local county commission goes through to try to contract bus service out to only union companies.)

But, no, savings don't mean growth. If they did we would have had tremendous growth from record amounts of investment over the last thirty five years of neoliberal economic policies. Instead we have had low investment and low growth. We have instead had high public and private debt and high income inequality.

We don't have growth because of the crashed demand from 2008.

You are correct. Are you finally thinking or did you just get lucky? Not about the inflation but the other bit is dead on. Stockholders want inflation in their world, they want the price of the stock to go up.

No--inflation is bad for stockholders. Sure, their holdings go up--but so do costs. Inflation just causes them a tax bill on phantom income. Besides, you missed the point. For the stock market to compete with bonds and the like the P/E ratio will be around the inverse of the interest rate. Inflation goes down, interest goes down, the stock market rises.

The more money that enters the market as a whole, the more the prices of the stocks will increase and the more "capital gains," code for inflation in asset markets, there are. The total amount of savings that can enter the market depends on the ability of the bettors to stretch the model. If they believe that the prevailing P/E ratio of 15:1 can stretched to 20:1 then the capitalization of the market will increase by 33%. All with no change in the real value of the corporations whose stock is being traded in the market.

As the P/E goes higher the yields drop and stock becomes a less attractive investment.

A capitalistic economy in which there isn't intentional redistribution of income from the highest earners to the rest of the people is one in which the income and the wealth is going to be concentrated in progressively fewer hands all of the time. This not sustainable in the long term. We have had to learn this repeatedly over the last two hundred years.

This would happen in a society of immortals. Not in a society of mortals.

This is where your inability to see that the whole economy is different than just how it effects you or your company limits your ability to understand the economy.

What you are missing is that while the wealth concentrates in the hands of the Bill Gates of the world their offspring aren't so good at it. The wealth usually gets split amongst multiple children and the next generation isn't nearly as good at growing it. It only takes a few generations for even Forbes-list level wealth to be pretty much dissipated.

There can be no better proof that we are too far toward over-rewarding capital than the recent election of our proto-fascist president. The workers are restless, they know that they are being screwed. They don't know how or by whom. They made the wrong choice, but honestly neither one would be the savior of the working class. It is just that Trump has promised to continue to screw them more than Clinton did.

That's not even evidence, let alone proof.

So you don't believe that the rise of Trumpism, the 21st century version of fascism, has anything to do with the stagnating wages of the lower 50% of earners?

Do you believe that the lower 50% of earners are happy with their loss of good jobs and wages? That as long as they can buy underwear at the lowest real cost in history that they are willing to accept lower wages, increasing housing and education costs, the impending continued losses of jobs to globalization and automation, the impending attacks on their Social Security and Medicare all so that the rich can get even richer, and this is why Trump nearly won the popular vote and 58,000 people in three states and the constitutional anti-democratic abomination of the electoral college put him in the presidency?

The election of His Flatulence is due to people being unhappy with politicians being out for #1 rather than the country. He conducted a well-designed disinformation campaign that fooled enough people for long enough.

His promises to help people are almost all hot air. While outsourcing is a convenient scapegoat the jobs are for the most part gone, period.

 

[SimpleDon]

The future of the North American economy Loren 3

You can't possibly believe that the supply side neoliberal economic policies were instituted unintentionally? That they accidentally lowered the top marginal tax rate in half? That they didn't realize that they were signing the NAFTA treaty? Of course, they intended to increase profits and the incomes of the rich.

I don't believe that that was the intent of the changes you are talking about even though it was one effect.

You don't believe that the supply siders meant to increase the incomes of the already rich?

Explain to me exactly what you think that the policies to cut the taxes of the rich and to suppress the wages of the non-rich were suppose to do.

Are you pretending to be so obtuse or do you really believe that this dreck is in anyway an answer to my points?

The problem is that you don't recognize that the time you consider best was a time seriously warped by outside forces that no longer exist.

So you are not pretending? You are that obtuse.

I haven't said that any period is better than today, that is against the nature of progress. I am not a conservative. I am not a Republican. I am not a supporter of Trump. They are the ones promising to take us back to better times and to make us great again.

This is the best of times, today. Tomorrow will be better. Tomorrow could be much better if we would stop running the economy for the sole benefit of the wealthy.

I am telling you, since you don't appear to know, what the supply siders promised if we changed our policies to provide more income to the already rich. They promised higher growth than a period after the war that they considered to be a low growth period because capital was constrained. They didn't promise reduced growth and reduced investment, which is what they delivered.

I assume that they knew about the American post war absolute advantage in foreign trade and they took it into account when they formulated their policies. If there is anyone to point out your prolonged period of American absolute advantage in trade as a reason that they would fail to it is your fellow supply siders.

Once again, the American post war absolute advantage in trade was over in the 1960's. And foreign trade was just a small part of our overall economy. And it is irrelevant to the discussion that we are having about the intentional income inequality produced by the supply side economic policies, that is Reaganomics.

What you have said here is partially true. Indeed the US did profit for a short time after the war because we had an intact industrial base. But that intact industrial base had to be converted from manufacturing war goods to consumer goods. And none of the war torn countries had any money to buy our products, unless we gave the money to them. But our production of capital machinery and consumer goods went overwhelmingly to the domestic market to convert our industries back to peacetime production and to domestic consumption to satisfy the pent up demand from the war years.

The conversion was tiny compared to what it would take to build the capacity from scratch.

But both are irrelevant to the discussion that we are having.

But this is all irrelevant any way because we are talking not about any of this. We are talking about the split from the productivity gains between increasing wages and increasing profits. What you are trying to obscure the discussion with is points about our trade with other countries, which has nothing much to do with productivity gains or the split between wages and profits from the productivity gains.

You still think it's possible to maintain the economy you envision in face of competition from countries that don't do it that way. Hint: Look at the fate of Detroit. That's where your path leads.

So you couldn't answer the points in the paragraph so you thought that you would try some babbling.

There is nothing in the paragraph about the economy that I envision. When I have repeatedly called your argument irrelevant to the discussion that we are having it is about your argument that the American post war advantage in trade because of the destruction of the war somehow lasted into the 1980's expiring exactly as the supply side economic policies were taking effect. That somehow this is the reason for the poor growth and investment of the supply side regime and not the policies themselves. Even though the percentage of the American economy that was dependent on foreign trade was tiny then.

I can't even guess what you meant babbling about Detroit. I suggest that you try to tie your points into the discussion that we are having. And to stop proving me right by addressing a point about the irrelevance of your argument by introducing yet another irrelevant point.

For example, if you don't believe that the gains from productivity were split 50/50 in before 1980, tell me how you believe that they were split.

The problem here is that you are acting as if there is an intelligent actor controlling this, rather than it simply being a result.

I admit that I don't believe that neoliberals are very intelligent. </sarcasm>

Yes, the 50/50 split was a "result." A result of the various economic policies that were written and instituted by intelligent actors that intentionally redistributed money from the rich to the non-rich, largely through the progressive income tax, and a result of economic policies that instituted a minimum wage, that supported the rights of workers to form unions and economic policies that protected the jobs in the US. All of these policies were intentional, put into place by intelligent actors. None of these policies were put into place by accident or unintentionally. It is a ridiculous idea that they happened by accidents of nature or however you believe that they happened.

While the policies were not accidental I do not believe they were done with any given split ratio as an objective.

Of course, the policies were intentional. Thank you for finally conceding the obvious.

And the policies were meant to redistribute the income from the rich to the not rich. This was their objective. The 50/50 split was a result of these policies.

And the supply side policies were also intentional. And they were intended to redistribute income from the not rich to the rich. To undo the New Deal, the war and the post war policies. These were the objectives of these policies.

The 100/0 profit/wage split of the gains from productivity was a result of these supply side policies. The unstable financial markets were a result of these policies. The loss in growth was a result of these policies. The lower level of investment was a result of these policies. The Great Financial Crisis and Recession was a result of these policies. The increase in poverty is a result of these policies. The wage stagnation is a result of these policies.

I can dig through the BLS data and prove that they were. You can provide whatever proof that your position is correct.

I'm not trying to rebut your numbers. I'm saying they are red herrings.

I am not 100% sure that you know what a red herring is. If only I could find an example of one close at hand.

I'm saying you're focusing on one output as if it was an input.

What output am I considering to be an input?

Do you have a repository of these few arguments canned somewhere that you paste wherever you feel like. I remember this exact same mistaken argument that you used before. Which is why I put the second graph in this post that you cut out, along with the following paragraph that you seemingly didn't read. I added the bolding here.

Keep using the same bad data and I'll keep giving the same response to it.

And this graph of productivity and both the real mean wage and the real average wage for all workers in the US, including salaried employees, CEOs and billion dollar a year hedge fund managers.

Strangely enough, it looks basically the same as the one for manufacturing jobs. The graphs should not look alike. Therefore I think it's mislabeled data.

That is the whole point, that the mean wage and the production wage are nearly identical. Why would you think that they wouldn't be?

It just means that production workers earn about the median wage. Did you read the reference article? Hint: It explains this. It was the reason that the second graph was included, to show that production workers earned about the median wage. That production workers earned about more than one half of all of the workers in the country and less than other half of the workers in the country.

Which intervention do you consider to be more than minimum, when the supply siders intervened in the economy to boost the incomes of the already rich in the 1980's or what I am proposing now to start intentionally boosting the wages of the lower 90%?

The problem is the "intervention" you are talking about is taking their thumb off the scale.

Which they did unintentionally, right?

You sound like the religious right objecting to losing their privileges.

More irrelevance. So you believe that the supply siders didn't intend to lift their thumb off, that it was an accident?

No, they didn't do it by accident. They had to change the prevailing policies using the force of the federal government. They didn't rely on the self-regulating free market, they intentionally forced the government to tilt the scale toward the wealthy.

It is questionable what would be the results of freeing the market of government oversight beyond chaos. The results before it became obvious that governments have to intervene and of taking little steps toward the self-regulating free market recently have proven so disastrous, the Gilded Age, the decades of depression in the late 19th century, The Great Depression and The Great Recession are all examples of this, relying on the free market and not properly regulating it.

Yes, the theory of marginal productivity isn't just imperfect, it is bat shit crazy. Among other problems with it is that in a modern industrial economy like ours with no diminishing returns and large returns to scale as production is increased the marginal productivity theory would eliminate the possibility of any profit. Usually the marginal product, the very last product made in the production run, is the lowest cost product made. Obviously if the price that you receive for all of your production is only equal to the lowest cost for producing the product you are going to lose money. A lot of it.

Except you don't produce to the point where the profit on the next item would be $0. You produce to the point that the profit on the next item would be $0 + your minimum acceptable profit + the risk you consider there to be in engaging in that manufacturing. That's the real world fate of most any commodity product.

Exactly. So you agree that marginal productivity is bat shit crazy and that the self-regulating free market can't exist.

There is hope for you yet.

Also, in a monopoly product you aim to maximize profit per unit * units, not total units. The maximized total profit will occur at a somewhat lower amount than the highest number of units. (For an illustration, consider Apple.)

Of course, the self-regulating free market can only exist under marginal productivity if there is perfect competition. Under perfect competition monopolies can't exist, according to the theory. But perfect competition is also a pipe dream and impossible in the industrial economy that we have today. Would you be willing to take progress back to the agrarian and artisan economy just so we could have a self-regulating free market?



You have debunked the theory of the self-regulating free market yet again. So why do you still believe in it?

And I agree that the statement that they made about the maximum social justice is crazy too. It is yet another reason why the free market can never exist. Because if the self-regulating free market could overcome all of the many other problems with the theory and could exist it would have to guarantee achieving the maximum amount of social justice or we couldn't use it. If it didn't pay the full value of the labor and the full value due to the capital, it would be useless. That least we agree on these points and that the self-regulating free market is an impossibility and that we need government intervention in the economy.

Social justice is the role of government, not the economy. The economy can't do social justice. (If nothing else, consider that a purely maximized economy would have no retirees.)

Exactly. That is why the government must intervene in the economy. Is just me or are you arguing with yourself, you certainly aren't arguing with me.

However, we should recognize that all interventions come at a cost of lowering the average standard of living.

Maybe your accidental, random, unintentional interventions in your fantasy economy do. But in the real world the intentional interventions are required to prevent bad behavior like monopolies and price setting cartels, fraud, excessive pollution, the use of slave and child labor, etc. And support the negotiating power of the workers will raise their wages and lower profits.

The former are legitimate interventions. I do not believe the latter is.

So your idea of social justice is for the government to intentionally direct all of the income gains from increases in productivity, from innovation and from growth to the already wealthy?

Intervene only when it's truly needed, and then in a minimally disruptive way. (Thus, for example, I favor approaches like the EITC over approaches like minimum wage. I believe the former costs the economy less than the latter, it's just the EITC is on the government's books, the cost of the minimum wage is hidden.)

But you believe without any evidence that the minimum wage results in unemployment, and that if it results in a single employee losing their job or the absolutely worse business closing hidden in the statistical noise that this is justification to deny millions of people a higher income.

The inability to locate data amongst huge noise does not prove the value to be zero.

Yes, it does. Look up statistically significant. Oh, hell, I will do it for you.

The first item that the search found.

Statistically significant is the likelihood that a relationship between two or more variables is caused by something other than random chance. Statistical hypothesis testing is used to determine whether the result of a data set is statistically significant. This test provides a p-value, representing the probability that random chance could explain the result; in general, a p-value of 5% or lower is considered to be statistically significant.

Read more: Statistically Significant Definition | Investopedia http://www.investopedia.com/terms/s/statistically_significant.asp#ixzz4TLXBlCFQ
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That noise that you are always talking about is random chance. That your conclusion is only as valid as a random chance that you are right.

Economics clearly says that the minimum wage should cause unemployment (if above the market clearing price. Below it it has zero effect either way.) and that that result should not be visible in the noisy data we have. Thus not finding what we do not expect to be able to find is not evidence, period. The closest thing we have to evidence is the unemployment rate amongst the least desired workers--and that's huge.

So you introduce yet another fallacy of economics, the pseudo market for labor. The fantasy that there is a labor market just like the market for toilet paper. That if we could just lower wages more that many more people would be hired to work.

And totally neglecting that people are hired not because they are cheap to hire but because the company has work that they needed to do.

And that the only source of customers to buy the products produced by the various enterprises are the wage earners that you want to subject to the race to the bottom of the labor pseudo market setting wages.

The post-Keynesian, Institutionalist, Kaleckian arguments against the existence of a pseudo market for labor.

• The labor market doesn't exist.
• The wage is not just an ordinary price.
• Wages have much more influence in the economy than an ordinary price.
• Wages are the main component of effective demand, the primary driver of the economy.
• Workers are not commodities.
• Societal norms overrule supply and demand setting wages for labor.
• The demand for labor is not a well behaved function,
• Labor can't be stored.
• Labor can't be separated from the provider.
• The skills of the worker erode with non-use and improve with use, the opposite of capital machinery.
• Workers are not things they are human beings.
• The productivity of labor depends to a large degree on the health and the motivation of the workers.
• The labor lost to cyclical unemployment is an economic resource that is wasted.
• Wage rates depend to a large degree on the negotiating strength of the workers and only to a small degree on the value of the labor.
• In contrast to the belief of mainstream economics, work doesn't necessarily carry disutility, work itself can be rewarding.

.

There are is one school of economics that does still believe that there is a pseudo market for labor, the Austrian/Libertarian economics. If this what you are then I can cure you. There is no God. There is no Santa Claus. There is no self-regulating, self-organizing free market possible. These are are all fantasies. Childhood fantasies.

If there was actual evidence of increased wages causing unemployment it would be spread across the mainstream economics journals in an instant because this idea is so popular with the the rich who fund most of the economic research in the US. But no one has done this.

Unquestionably the consensus of option among economists before they really started to study the question in about 1990 was that increases in the minimum wage had to cause unemployment. This is what was taught in schools of economics per your theory of the pseudo labor market.

But starting with the first cross border studies in the early 1990's there was no unemployment found. this was such a surprising result that a lot of studies were undertaken to prove the orthodox teaching was correct. But even they admitted that they could find no unemployment caused by increases in the minimum wage among adult minimum wage workers. Some claimed to have data that showed that teenagers paid the minimum wage did show the minimum amount of statistically significance.

This known as publication bias, a study to be published has to have a correlation between the data of p-value < 5%. So many studies started appearing with p just slightly below 5% that it was given the name "publication bias."

Ignoring the studies with publication bias and the survey meta-studies that include studies that simply stated the orthodox position that they had been taught, there aren't any studies that show losses in employment due to the minimum wage

And I believe that it is much better for society and for the people in it if we don't pay able bodied people for doing nothing. It is best for the economy if people have to work to earn money.

Thus support the EITC that doesn't cause unemployment over the minimum wage that does!

You have proven yourself to be stunningly resistant to evidence from the real world when it conflicts with your simple bigotries and the way that you want the world to be. There is no evidence in the literature that increases in the minimum wage causes unemployment or drives people out of the labor force. You are depending on the highly questionable pseudo labor market theory to say that increases in the minimum wage must cost people their jobs below the level of statistically significance, "in the noise," where the correlation of increases in the minimum wage and unemployment are in the region of random chance.

Beyond this, even if you were right, and a handful of people were laid off because of an increase in the minimum wage, you would be denying millions of people higher wages and a better life all to prevent a few people's unemployment. Meanwhile, you have accepted the unemployment of millions, the loss of millions of homes and untold suffering around the world just in the financial crisis and recession of 2008 caused by your failed political philosophy.

It reeks of fanaticism.

And no matter what you say, finally you are subsidizing low wages. Finally what you will get is ever increasing numbers of low wage jobs.

The wages jobs pay are about supply and demand. Subsidizing low wage jobs will not make them continue to exist if better jobs show up. That's a secondary effect of minimum wage--drive people out of the labor force, thus driving up the demand for labor. Never mind those screwed by it.

What you still seem to still not understand is that the argument over raising wages isn't about concern for a handful of people "in the noise" who might be laid off. It is because raising wages lowers profits. Raising the EITC is a fall back position for those who want to maintain profits and the incomes of the wealthy as high as possible.

Raising the minimum wage will push other wages close to the minimum wage up. It will increase wages as high as twice the minimum wage, with the increase diminishing the higher the wage is.. A 15 dollar an hour increase will impact more than half of the workers in the US.

Raising the EITC doesn't have this "ripple up" effect.

I think that the people driving this discussion believe that they can prevent the increase in the EITC from being funded by a tax increase. That like the Medicare drug benefit it is popular enough that people will be willing to increase the budget deficit to fund it.

But it is also important to reduce profits and the incomes of the rich. The excessive amount of money that is generated destabilizes the financial markets. Coupled with the also dangerous deregulation of the financial markets it makes a highly toxic mix, as we saw in 2008.

We need to increase the wages of the lowest paid workers instead of intentionally raising the wages of the highest paid workers and the idle rich coupon clippers.

Good luck finding those idle rich coupon clippers. The rich generally work quite hard.

The rich generally do work quite hard. But there are also a large contingent of the rich who are coupon clippers. Most of the poor work quite hard, but there is a large contingent of the poor who live on welfare and crime. I want to reward work.

 

[Loren Pechtel]

You don't believe that the supply siders meant to increase the incomes of the already rich?

Explain to me exactly what you think that the policies to cut the taxes of the rich and to suppress the wages of the non-rich were suppose to do.

Once again, wife-beating.

So you are not pretending? You are that obtuse.

I haven't said that any period is better than today, that is against the nature of progress. I am not a conservative. I am not a Republican. I am not a supporter of Trump. They are the ones promising to take us back to better times and to make us great again.

You want to go back to the economics of the era when the unions ruled.

1) That could only exist because of the lack of competition. These days union jobs are on life support except where competition isn't possible.

2) Unions raise worker wages by keeping people out of the labor market. They aren't the panacea you think they are.

I am telling you, since you don't appear to know, what the supply siders promised if we changed our policies to provide more income to the already rich. They promised higher growth than a period after the war that they considered to be a low growth period because capital was constrained. They didn't promise reduced growth and reduced investment, which is what they delivered.

1) The current mess has nothing to do with supply-side policies.

2) While supply-side economics does create growth they do all sorts of other stuff that hurts--because they're not after growth per se, but growth for their big-business supporters. They like stomping on the little guy.

Once again, the American post war absolute advantage in trade was over in the 1960's. And foreign trade was just a small part of our overall economy. And it is irrelevant to the discussion that we are having about the intentional income inequality produced by the supply side economic policies, that is Reaganomics.

It wasn't over in the 60s--there was still little competition for finished products then.

You still think it's possible to maintain the economy you envision in face of competition from countries that don't do it that way. Hint: Look at the fate of Detroit. That's where your path leads.

So you couldn't answer the points in the paragraph so you thought that you would try some babbling.

There is nothing in the paragraph about the economy that I envision. When I have repeatedly called your argument irrelevant to the discussion that we are having it is about your argument that the American post war advantage in trade because of the destruction of the war somehow lasted into the 1980's expiring exactly as the supply side economic policies were taking effect. That somehow this is the reason for the poor growth and investment of the supply side regime and not the policies themselves. Even though the percentage of the American economy that was dependent on foreign trade was tiny then.

It was the 80s before we were seeing major competition from foreign products and even then they often were inferior. Buy a Japanese car in the 80s?? Only if you couldn't afford American. Previously I owned nothing but American cars but the last time I went car hunting no American car made the first cut, I now own a Japanese car.

I can't even guess what you meant babbling about Detroit. I suggest that you try to tie your points into the discussion that we are having. And to stop proving me right by addressing a point about the irrelevance of your argument by introducing yet another irrelevant point.

You're more intelligent than that, don't play ignorant.

I was pointing out the results of sticking to your pro-union policies in the modern world.

And the policies were meant to redistribute the income from the rich to the not rich. This was their objective. The 50/50 split was a result of these policies.

The policies were meant to placate the unions because they wield a lot of voting power and pay big bribes. (Yeah, they're called "campaign contributions". When it's big donors it's a legalized form of bribery.)

The 100/0 profit/wage split of the gains from productivity was a result of these supply side policies. The unstable financial markets were a result of these policies. The loss in growth was a result of these policies. The lower level of investment was a result of these policies. The Great Financial Crisis and Recession was a result of these policies. The increase in poverty is a result of these policies. The wage stagnation is a result of these policies.

1) Your 100:0 split makes no sense. While factory wages have stagnated what a dollar can buy has gone up.

2) You still want to pay the workers for the company investing in automation.

What output am I considering to be an input?

The split ratio.

Strangely enough, it looks basically the same as the one for manufacturing jobs. The graphs should not look alike. Therefore I think it's mislabeled data.

That is the whole point, that the mean wage and the production wage are nearly identical. Why would you think that they wouldn't be?

It just means that production workers earn about the median wage. Did you read the reference article? Hint: It explains this. It was the reason that the second graph was included, to show that production workers earned about the median wage. That production workers earned about more than one half of all of the workers in the country and less than other half of the workers in the country.

Oh, I see--"median". In this case an example of lying with the truth. What we have seen with the information revolution has been a stretching of the upper part of the income scale. Income growth is almost entirely in the non-routine type jobs, especially the non-routine intellectual jobs. So long as these are less than 50% of the total job market they will have no effect on the median. (Actually, they'll somewhat depress the median because many of the best people are now doing such jobs rather than the routine ones, thus depressing the skill level of the people doing the routine ones.)

You sound like the religious right objecting to losing their privileges.

More irrelevance. So you believe that the supply siders didn't intend to lift their thumb off, that it was an accident?

No, they didn't do it by accident. They had to change the prevailing policies using the force of the federal government. They didn't rely on the self-regulating free market, they intentionally forced the government to tilt the scale toward the wealthy.

I agree it wasn't an accident but that's missing the point. You are defending the thumb on the scale. I don't like thumbs on scales, period.

It is questionable what would be the results of freeing the market of government oversight beyond chaos. The results before it became obvious that governments have to intervene and of taking little steps toward the self-regulating free market recently have proven so disastrous, the Gilded Age, the decades of depression in the late 19th century, The Great Depression and The Great Recession are all examples of this, relying on the free market and not properly regulating it.

I am not one bit in favor of the Republican ideas of scrapping the rules. While I think there's a big need for reform (the rules are highly biased towards how things were done) I'm not in favor of gutting them. (Other than perhaps as changing tactics. For example, I would like to see most worker safety rules scrapped and replaced with a series of fines for hurt workers. Insurance would be mandatory and the insurance company would have the sort of power OSHA has now--on day 1 they would be required to implement the current OSHA code but then they would be free to change things. Business taxes would be reduced by the amount of the anticipated fines. A company that made onerous rules would find it's clients going elsewhere. A company that finds ways to reduce risk at a reasonable cost would find clients flocking to it. So long as the fines are set high enough the result should improve safety.)

Exactly. So you agree that marginal productivity is bat shit crazy and that the self-regulating free market can't exist.

No, I don't agree. I'm saying you're attacking it with a strawman.

Also, in a monopoly product you aim to maximize profit per unit * units, not total units. The maximized total profit will occur at a somewhat lower amount than the highest number of units. (For an illustration, consider Apple.)

Of course, the self-regulating free market can only exist under marginal productivity if there is perfect competition. Under perfect competition monopolies can't exist, according to the theory. But perfect competition is also a pipe dream and impossible in the industrial economy that we have today. Would you be willing to take progress back to the agrarian and artisan economy just so we could have a self-regulating free market?

Monopolies can't self-regulate properly.

I have never asserted that you can have an entirely self-regulating market. I favor a system that intervenes in the cases that fail rather than which applies a heavy hand to the whole market.

Social justice is the role of government, not the economy. The economy can't do social justice. (If nothing else, consider that a purely maximized economy would have no retirees.)

Exactly. That is why the government must intervene in the economy. Is just me or are you arguing with yourself, you certainly aren't arguing with me.

No--you missed my point entirely. I'm saying that social justice should come from the government. You don't make business provide welfare, the government provides it, funded from taxes.

So your idea of social justice is for the government to intentionally direct all of the income gains from increases in productivity, from innovation and from growth to the already wealthy?

You continue to be unable to tell the difference between taking one's thumb off the scale and putting one's thumb on the scale.

The inability to locate data amongst huge noise does not prove the value to be zero.

Yes, it does. Look up statistically significant. Oh, hell, I will do it for you.

Parroting a definition isn't understanding.

Proving that we can't measure <x> above the noise level does not prove that <x> does not exist. If the non-detection were the only data then we would have a working assumption that it did not exist but that is not proof, it can't be used to rebut evidence for it's existence.

So you introduce yet another fallacy of economics, the pseudo market for labor. The fantasy that there is a labor market just like the market for toilet paper. That if we could just lower wages more that many more people would be hired to work.

And totally neglecting that people are hired not because they are cheap to hire but because the company has work that they needed to do.

We have been over this before--there's always work to do. It's just some tasks are deemed uneconomic and are not done. (For example, how often do you clean the floor in the restaurant?)

Raising the minimum wage will push other wages close to the minimum wage up. It will increase wages as high as twice the minimum wage, with the increase diminishing the higher the wage is.. A 15 dollar an hour increase will impact more than half of the workers in the US.

Finally, someone on the left admits the truth behind the minimum wage efforts! It's not about the poor, it's about the middle class. However, all the arguments about it's merits relate to the poor. As far as I'm concerned that's enough to prove it's a bad idea. If you can't actually argue for what you want it's almost certainly crap.

But it is also important to reduce profits and the incomes of the rich. The excessive amount of money that is generated destabilizes the financial markets. Coupled with the also dangerous deregulation of the financial markets it makes a highly toxic mix, as we saw in 2008.

Once again you show your true motives.

2008 was the result of financial deregulation and actual financial malfeasance on the part of the government (relaxing the lending standards in order to get more minorities into homes and then sitting back and fiddling while the economy blew up.)

The rich generally do work quite hard. But there are also a large contingent of the rich who are coupon clippers. Most of the poor work quite hard, but there is a large contingent of the poor who live on welfare and crime. I want to reward work.

The minimum wage isn't about rewarding work.

 

[SimpleDon]

Small point here.

It's not unfair for a business to automate, but it is unfair for a person born dependent on an economy to not have any opportunities afforded to them.

Modern capitalist economies make it necessary for people to earn wages, dependent on a business owner. If a society has made it possible for business owners to thrive, but not individuals, then there is an imbalance that needs to be fixed.

I would argue that it's government which needs to rectify the problem, not business, but there is still a victim involved.

The problem is that life is not fair. The best solution for any real or perceived unfairness will still not be fair. This leaves trying to find a system that provides the least suffering not an idealized but impossible system that eliminates all "unfairness". The world currently has many different government/economic systems and has had many others in the past. None have been "fair" to everyone. The question should be which has the least suffering for the poorest and the most opportunity for individuals. It should be recognized that the poor in the industrial/capitalistic western nations have a higher standard of living than the middle class in nations that have tried centrally controlled economies.

A pertinent point, if anyone here was suggesting a centrally planned economy. But no one is.

What I am saying is that there is no reason to listen to the supply siders, they have had thirty five years to prove their theory that the economy is supply side driven and that the way to widespread prosperity is to increase income inequality to increase the incomes of the already rich so that they would have more money to invest. Thirty five years of this and we have had lower investment and lower growth.

And there was never any reason to listen to the free market enthusiasts. Their theory to support the existence of the self-regulating free market is beyond laughable, marginal productivity. That supply and demand will drive prices down to the costs of producing the very last product that any producer can produce. Among other problems with this is that in a modern industrial economy the last product produced usually least costly product produced. Driving the price of every product that is produced down to the cost of the marginal product will guarantee bankruptcy for the company.

In addition, there are other flaws in the theories of the self-regulating free market. Outside of commodities, most products aren't priced by supply and and demand, but are priced under oligopolistic control where prices are administered, based on average costs of production plus profit. Price wars are avoided and competition is to make the highest profit and is based on improved productivity and product innovations. All much more worthy goals for the economy than lower prices for goods and services.

Prices and wages are sticky, they are resistant to change, especially to going down. There is no labor pseudo market setting wages based on the supply and the demand for labor. The number of people employed is determined by the demand for labor, but what drives the demand for it is the amount of work that needs to be done, not the wage rate. Our modern credit money with floating exchange rates solves the multiple problems with the gold standard, fixed exchange rate money of the past, the major problem being deflation, which is toxic to capitalism.

All of these things in the economy are the way that they are because the various economic actors have freely chosen them and the choices have proven over time to be beneficial and because of thousands of years of evolution, trying out things, discarding those that don't work and keeping those that do. The role of government is intergal to this process and to the economy itself, primarily to police the economy to punish bad behavior, just like government's role in policing the broader society by writing and enforcing criminal law.

Both central planning with collective ownership and the equally extreme, but from the opposite ends of the spectrum, self-regulating free market, are both in their own ways idealistic, back to nature fantasies that can't meet the challenge of time because they require changes in basic human nature and abandonment of innovation, the driver that has produced our modern economy.

By failing, supply side economics proved the following:

• that the economy isn't supply side driven, it is demand side driven.
• that the economic policies of the government determine to a large degree the income distribution in a capitalistic economy
• that the income distribution has a large impact on the economy
• that the economy is resilient enough to adapt to a changing income distribution
• that decreasing wages increases profits, so that it is reasonable to assume that increasing wages will decrease profits.

These point the way to what we should do in the future, to adapt to the loss of highly paid manufacturing jobs to improved productivity and to globalization. We need to intentionally increase wages and to decrease profits by reversing the supply side economic policies that did the opposite.