The future of the North American economy

[Canard DuJour]

The problem that we have is that we decided that all of the rewards of the productivity gains should go to profits and none to wages. Before we divided the productivity gains equally between profits and wages.

No. We have not "decided" this, it's a simple reaction to the market forces--the productivity gains are going to those who enabled the productivity gains: the companies that invested in the automation.

Then we must regulate markets so that they don't destroy themselves.

 

[Horatio Parker]

No. We have not "decided" this, it's a simple reaction to the market forces--the productivity gains are going to those who enabled the productivity gains: the companies that invested in the automation.

Then we must regulate markets so that they don't destroy themselves.

Without regulation, there is no market.

 

[skepticalbip]

Then we must regulate markets so that they don't destroy themselves.

Without regulation, there is no market.

But who regulates the regulators?

Centrally controlled economies have proven to be failures even though ideologues continue to dream.

 

[Horatio Parker]

Without regulation, there is no market.

But who regulates the regulators?

Centrally controlled economies have proven to be failures even though ideologues continue to dream.

I give up, who?

 

[Loren Pechtel]

If I am reading this correctly, this sounds like you are not talking about a minimum wage but a set wage for everyone with no variance for skill, training, experience, or value to society of their contribution.

But then many people are not wage slaves but do contribute to the GDP. Much of my earnings for what I do is based on how many people want what I produce enough to pay me for it.

I think he's simply using that as an upper bound calculation.

Done for real it's a very bad thing. China came close to trying it, not good. The result was you were expected to give gifts to those in the high status jobs that were underpaid due to the system.

 

[SimpleDon]

You said that the change in who gains from productivity shifted because of market forces due to the high cost of automation equipment (which makes little sense as I explain later.) I say that they shifted because of changes in policy.

The policies did change to ones that intentionally created income inequality according to the proponents of the so-called supply side economics. Thus if you are correct that market forces created the inequality you must believe that the supply side economics policies were largely ineffective.

I'm objecting to the word "intentionally".

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.

What we are seeing is that after WWII we were the only nation on the planet with an intact industrial plant. This let us dictate prices and it let unions control entire industries. They could dictate high wages, the companies could pass it on to their customers.

However, as other countries rebuilt this "golden" era (more like an era of exploitation) inevitably came to an end. Unionized enterprises were destroyed by non-union enterprises in almost every case where they weren't basically immune to competition.

That's the shift you are calling an intentional shift towards the companies rather than the workers.

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

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.

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 obsure 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.

The discussion is about the neoliberals who intentionally changed our economic policies to intentionally boost profits paid overwhelmingly to the rich by suppressing wages through a number of intentional changes to existing programs and policies that had been intentionally put in place, and to intentionally reduce the taxes paid by the rich so that the rich would have more money. They did this under the mistaken belief that if the rich had more money then they would make more virtuous business investments, the type of investments that build new production facilities that create new jobs.

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.

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.

Oh, I know. It is when you raise an obscuring irrelevant argument about the absolute advantage in foreign trade into a discussion about how the gains from productivity increases are distributed.

At least you accept that my numbers about the split are valid, even if you keep insisting that they are seemingly the results of something like divine intervention, and not the result of human intention.

The mean wage is the wage that 50% of the workers earn less than and 50% of the workers earn more than. This mean wage line follows the same path of little to no growth from 1980 on. The divergence of the average wage and the mean wage shows the growing income inequality over the period. I can provide references to the methodology used in the two graphs if you need to question it.

But here you are actually posting bad data. The problem is that you are looking at hourly wages. These days most good jobs are salaried, not hourly. And most good jobs aren't in manufacturing. Your chart didn't come through but if it's what I think it is it's looking at manufacturing, not the whole economy.

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.

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.

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?

The only theoretical support for non-intervention in the economy, is the neoclassical economics' marginal productivity theory. That supply and demand will drive prices down to equal the cost to produce the marginal product, the last product produced. The theory that is the sole support that the self-regulating, self-organizing free market can exist and can deliver the greatest degree of social justice possible If this is what you rely on for your minimum intervention in the economy we can discuss it. But it is a thoroughly discredited theory.

No. It delivers the most productivity, not the most social justice. As such, it is imperfect.

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.

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.

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.

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.

You also believe in something like divine intervention in the economy to decide what is taking the thumb off of the scale to intervene and what are the devil's interventions. Or what the "true value" of labor is, that if we pay people more than the "true value" of the labor bad things will happen, even if we don't know what bad things will happen or why.

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

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.

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.

 

[Loren Pechtel]

Once again, these are policies that the supply siders changed to intentionally suppress wages. They effectively lowered the minimum wage by not keeping it up with inflation, they intentionally suppressed the unions to under cut the workers' negotiating power and they passed trade treaties that fully exposed the wages in this country to competition from low wage countries.

I object to the notion of intentionally.

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 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.

I'm not so sure they damaged the economy.

There is no doubt that they failed to increase investment and growth, both declined. But the policies that they changed supported wages in the economy, changing them would lower wages and increase profits. as they knew that they would. Increasing the income inequality wasn't a goal of the program, it wasn't an unintended consequence of the program, it was the only way that the program could work.

We had boom times after WWII because we were pushing the negatives off onto other countries. That could not continue.

Or didn't these things actually happen? Perhaps you slept through the 1980's or you hadn't been born yet and this is all news to you?

Wouldn't the high costs of automation discourage the application of it?

If you are going to discuss these matters you have to understand that you are talking about the whole economy and how it operates and how it reacts. It is different than an individual operates and reacts in the economy. That we are talking about not just you. Or me. Or just your company.

I was simply using it as an illustration of the cost of automation. If you insist in giving the value the automation produces to the workers the companies aren't going to do it in the first place and everyone's standard of living is lower.

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.

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!

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.

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.

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.

 

[Loren Pechtel]

I'm objecting to the word "intentionally".

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.

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.

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 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 obsure 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.

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.

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.

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.

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.

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.

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.)

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.)

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.

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. 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.

And I believe that it is much better for society and for the people in it if we don't pay abled 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!

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.

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.

 

[rousseau]

Since I can't see a victim I can't see how you are arguing that this is unfair.

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.

 

[Canard DuJour]

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.

Then marginal productivity theory is wrong. Not just an approximation; flat wrong. Profits are supposedly maximised by producing until marginal revenue = marginal cost ("profit on the next item would be $0") because, it's assumed, any additional output can be sold at prevailing market price ("price-taking" firms and consumers). Either caveat makes nonsense of the model.

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.)

Not just Apple, but ~90% of real firms which produce well within capacity (i.e. with falling or flat marginal costs) because they don't anticipate being able to sell additional output without having to lower the price of their brand in order to gain market share (ie. neither firms nor consumers are price-takers). The theory misleadingly calls this "monopoly pricing," and under these conditions firms do not maximise profits by producing until mc=mr, or by paying workers their marginal revenue product.

Subsidizing low wage jobs will not make them continue to exist if better jobs show up.

Subsidising low wage jobs will stop better jobs showing up because low wage employers can undercut better employers. Now this wouldn't be so if profits were maximised by producing until marginal costs = marginal revenues, but you've just established that they aren't.

 

[SimpleDon]

==== beginning of my Part 3 and last, continued from Part 2 above ====​

Money paid as wages does circulate in the economy and does boost it. It boosts demand and provides the incentives needed to invest.

Fixed.

You are saying that the money paid as wages doesn't circulate through the economy? In Loren economics.

Read! I'm not saying that money paid as wages doesn't circulate. I'm saying that you shouldn't have put the qualifier--money circulates, whether it's wages or profit.

And you are correct, but only partially. Profits that are reinvested into business capital investments in the economy circulate in the economy. Money spent on capital machinery and production facilities for example. But we have gone from corporate profits being twice the amount of business investment in 1980 to them being over five times the amount of business investment today. This excess doesn't circulate in the economy.

What I am saying is simple, The rich save most of their income and the non-rich spend most of their incomes.

Really, now? The rich have big compartments under their mattresses??

No, the reality is they spend it. Often with many layers in between, but it gets spent on things which will improve productivity.

You are saying that the rich spend all of their incomes. Come on Loren, that is going over the top with your situational statements. Do you you really believe that or are you so conditioned to argue with everything that I write that it is simply a reflex now?

Fundamentally, all interest is because someone puts money to productive use and is willing to pay

The vast majority of deposits in banks are in commercial demand accounts that don't pay interest. Do you believe that this money isn't put to productive use by the bank? That it isn't loaned out?

Do you agree with this?

If you don't I don't know what to think. This proposition is accepted by every school of economics that I am aware of.

You avoided this question. The rich save most of the money that they earn. The non-rich spend most of the money that they earn. Do you agree with this?

This should be an easy "yes." If you are undecided about your answer perhaps these will help.

Fact/Myth: Fact. On average people with more money save more.

On average, people with more money save more, in both the short-term and long-term. This hints that addressing income and wealth inequality stimulates the economy, but the truth is complex.

On average, people with the most money save the most, while those with the least amount of money are more likely to spend most, if not all of their income, especially when including subsidies. They are also more likely to exceed their income limits by using credit. This information can be gleaned by looking at taxes paid in any recent year, and by looking at credit/debt habits. We know when people spend more than they save, on average, it slows the economy, so we can conclude that addressing inequality has a direct effect economic health and growth. ...

The biggest problem is that, while saving money as an individual is good, saving money as a collective slows the economy due to factors like “the velocity of money“. Saving money leads to many complicated and hard to answer questions. ...

The Federal Reserve/Dartmouth/Columbia: Do the Rich Save More? (PDF) Quoted in the article above.

... Using a variety of instruments for lifetime income, we find a strong positive relationship between personal saving rates and lifetime income ...

In sum, our results suggest strongly that the rich do save more; more broadly, we find that saving rates increase across the entire income distribution. In addition, we present evidence suggesting that the marginal propensity to save is greater for higher-income households than for lower-income households. In sum, much remains to be learned about household saving behavior, especially that of elderly households and that of the very top of the income distribution. Still, we believe that our work has established one fact: The rich do, indeed, save more.

Here is an article by one of your capitalist heroes that sums up what I am trying to say. A Wealthy Capitalist on Why Money Doesn't Trickle Down. It is in Yes,! Magazine, which I hadn't heard of before. I found it searching for "the rich have a greater propensity to save."

The fundamental law of capitalism is: When workers have more money, businesses have more customers. Which makes middle-class consumers—not rich businesspeople—the true job creators. A thriving middle class isn’t a consequence of growth—which is what the trickle-down advocates would tell you. A thriving middle class is the source of growth and prosperity in capitalist economies.

Our economy has changed, lest you think that the minimum wage is for teenagers. The average age of a fast-food worker is 28. And minimum wage jobs aren’t confined to a small corner of the economy. By 2040, it is estimated that 48 percent of all American jobs will be low-wage service jobs. We need to reckon with this. What will our economy be like when it’s dominated by low paying service jobs? What proportion of the population do we want to live on food stamps? 50 percent? Does this matter? Should we care?

Businesspeople tell me they cannot afford higher wages. Not true. They can adjust to all sorts of higher costs. The minimum wage is much higher here in Seattle than in Alabama, and McDonald’s thrives in both places. Businesses adjust to higher costs, even when they say they can’t. ...

The oldest and most important conflict in human societies is the battle over the concentration of wealth and power. Those at the top will forever tell those at the bottom that our respective positions are righteous and good for all. Historically we called that divine right. Today we have trickle-down economics.

And it is this proposition that makes the income distribution so important to the economy. Because savings don't circulate in the economy. They sit in bank accounts, in Treasury Bills, in the stock market and in certain bonds.

Just because the analysis gets more complex is no reason to stop it and declare it doesn't happen. That money in the bank account? You think the bank is simply storing it out of the goodness of their hearts? No--they're loaning most of it out, putting it to productive use. T-Bills are the government putting it to use. Bonds are companies putting it to use.

The analysis isn't complex.

The federal government doesn't spend more because it borrows the money from the rich instead of taxing them to get the money. They should spend less ideally. Consumers and corporations don't spend more because they borrow the money instead of saving the money to spend. They spend less when they borrow the money because they have to pay interest on the loan or the bond.

The question whether to borrow or to save to consume or to invest is a temporal one. Since we are concerned here with the entire economy these questions aren't all that important to us. These questions of debt or save average out over the whole economy.

See, nothing complex.

The amount of money that a bank loans out isn't determined by the amount of money that it has in deposits. It is limited by the demand for loans from qualified borrowers and the bank's capitalization.

If the demand for loans is low then the money just sits in the bank. If the demand for loans is greater than the amount of deposits in the bank then the miracle of fractional reserve banking kicks in and the bank creates the money that it needs to loan out. If the bank still doesn't have enough deposits to fulfill the reserve requirement, the Fed will loan the bank the amount needed and the loan will be made.

The bank wouldn't turn down making a loan to a qualified borrower up to the limits enforced by regulation of 8 to 10 times its capitalization. (Even if they have loaned out out all of the money that that they can they will still make the loan and sell it to another bank.)

But this will disappear when we grant yours and the banks' wishes to be deregulated. Then anyone can call themselves a bank and loan out however amount of money that they want to. How do we know this? Because of the savings and loan fiasco of the Reagan administration when it happened. Because of the lessons of the Great Depression and the Great Recession, because of the Glided Age and because of Adam Smith's warnings against rentier banks and a thousand other times when when we have been taught that unregulated and poorly regulated banks cause financial instability.

Really the only thing that the amount of deposits impact is how profitable the bank is, not in how much they loan out. And the current reserve amount is effectively zero. They don't need to fulfill the reserve requirements if the deposits are in commercial accounts.

Making a loan creates the amount of money that the loan represents. New Money created out of thin air. The same is true of the government's T-Bills. The borrower has money. The depositor or the owner of the T-Bill has money. If your Uncle Fred loans you 10,000 dollars it creates money if there is someone willing to buy your IOU from Uncle Fred. The amount of money created is how much they are willing to give Fred for your IOU.

The money created by the loan is slowly destroyed as the loan is paid back. The amount of interest that is paid represents an additional amount of money that is destroyed beyond the value of the loan. The money that leaves our nation to buy goods from other nations is money that is no longer circulating in our economy. The money that is lost to interest and to foreign trade has to be replaced to maintain the economic activity.

This has been true for the whole history of man's civilizations. All money circulating in the economy is created by credit. It was true for thousands of years before the invention of coins or even the concept of money. It was true with the gold standard, it is true today.

You can't understand the economy unless you understand this. What it means is that money isn't a scarce resource. The economy's job is to ration scarce resources. There is no need to treat money as a scarce resource. The money supply grows and shrinks with the economic activity. The more activity that we have the more loans are made and the more money there is circulating in the economy. If economic activity drops there is more money paid back for outstanding loans than are written in new loans.

The only one you can make an argument for not being used is stock--and even that argument is flawed. The secondary market in stock provides liquidity that drives the primary market in stock and thus drives the creation of new businesses.

I am not sure what your point is. Yes, the stock market provides liquidity to the stockholders. But it doesn't affect anything to the market or to the economy as money available to invest. For every seller of stock there is a buyer of stock. The money doesn't leave the stock market. If there is any profit it is provided by the buyer to the seller and the amount of the profit decreases the money available to invest to buy the stock and then is paid to the seller to increase the money available to invest. Net effect, zero. Yes, it provides liquidity, but I am sure that it doesn't mean what you think that it means beyond this. It certainly doesn't increase the creation of new businesses.

The stock market has almost zero impact on the creation of new businesses or on business investment. We know this because we track both in the real world.

IPOs, initial public offerings are invariably for private businesses that are already operating successfully who want to go public. Then they are subject to the net effect zero above impact on the funds available for investment. It is almost unheard of today to have an IPO for an idea of a business, a new business.

SEOs don't even register they are so few that years go by between them. SEOs are secondary equity offerings, the secondary market of stocks. If they are new issues of stock then they are dilutive secondary offerings, if they are sales of company held reserve stocks they are called non-dilutive offerings.

Much more common than either are stock buybacks when the company goes to the stock market and buys their own stock to boost its price, usually so that the executives can earn their bonuses each year. It is hard to say that this is out of the secondary market, but I won't object if you do.

There is nothing new here that I haven't told you before. Do you think that this one time you could address what I say and not to just dismiss it with a single sentence having nothing to do with the content of it?

My question for you is what is your solution for the workers who are displaced by automation?

Poverty?

Once there cease to be enough jobs in the economy we will have to implement something akin to a UBI. We aren't there yet, though.

A UBI is intentional redistribution. But I disagree with a UBI. Even though you are going to send a check to Warren Buffet I am certain that he will realize that he is actually paying for it and a whole lot more of them going to other people.

I believe that it is better for all and for the economy if everyone who is able works to earn money that they and their families need and want. This work to live rule should apply to the wealthy too.

Most of the people who are going to receive the UBI are going to work too.

This is why I feel that the best way to do redistribution is to push up the wages of the 90% and to increase the minimum wage and the ability of the workers to negotiate for better wages, i.e. unions and to discourage foreign trade that is not in our favor. I would support going to the system of industry sector wage negotiations, for example, the way that wages are set in Germany.

Let's pretend that you answer obvious questions concerning your positions.

If you support an UBI which is intentional redistribution why do you have so much problem supporting redistribution by intentionally pushing up the wages of the say lower 25% of the workers? And letting the economy do what it does best, adapt to the higher wages to lower profits. Instead of taxing profits and high incomes to redistribute the money through a complex new government program.

Something a little meatier than "this bad for the economy."

 

[SimpleDon]

Fixed for you. That's not to say that automation is not going to be a bigger problem. It's just most of the current super-profits are linked to outsourcing.

No, you don't understand the reality. Far more jobs have been lost to automation than to outsourcing.

This partly true. More jobs have been lost to the gains in productivity than have been lost to outsourcing off shoring.

The main problem with off shoring is that exposes American wages to the low wages in other countries and suppresses American wages throughout the whole economy, not just in the industries that could possibly be off shored.

This is the same reason that the neoliberals pressed so hard to increase to increase immigration, both legal and illegal immigration.

 

[SimpleDon]

No, you don't understand the reality. Far more jobs have been lost to automation than to outsourcing.

Stop saying jobs lost. The value isn't the job. The value is the value. Jobs is just shit we need to do to get the value. An automated job still produces the same value. An automated job is the same value with no work needed. That is a good thing. Nothing has been lost.

Outsourcing is similar. Country A has capital. Country B doesn't. Country A rearranges their work force so that their are less unskilled labor. Country B does that instead. Both are winners.

There is more added value in country A after both outsourcing and automation. Both are only a boon to country A.

Getting rich isn't about working harder. It's about being smart. USA is richer than ever because of both automation and outsourcing.

What USA should do isn't to keep jobs in USA. That's like making yourself poorer on purpose for no reason. What they should do is to figure out how to tax the 1% and distribute that added wealth to everybody.

Reality is reality. You can't fight the market. The market is going to do what it's going to do. We have to adapt.

This is true. If you try to stop progress you have to answer the question when do we do it? What if this had been decided (and it had been possible, far from a certainty) in 1880. Look at all what we would have missed out on. Look at all of the wealth that we wouldn't have today.

I would argue that offshoring counts as progress for the US and adds to our wealth. Unless you are buying into the rather dubious proposition, freely thrown out here but as yet never defended in detail, that the lower prices are sufficient gain for the US to justify offshoring, then I don't see how you can make this claim.

Offshoring increases profits, private debt and financial sector instability. It reduces prices, wages, demand, employment, economic activity and investment in the US. The only positives in the lists are higher profits and lower prices and these are mutually exclusive.

 

[SimpleDon]

If your profit is somebody's loss then it's not a profit. I don't dispute that that these jobs exist for a reason, but that reason is crappy system where people are forced to work meaningless jobs in order to support themselves.

Maybe that's an emergent property of a system that resists some unrealistic perception of 'perfect'.

How do we create business without exploitation? How do we even begin to define what type of business is exploitative or not?

I see one of the advantages of capitalism for the developed countries and one of the disadvantage of capitalism for the underdeveloped countries is that it is so inefficient with manpower and money. There is a tremendous overhead to capitalism. It requires a financial sector, banks, stock markets, insurance companies, etc. Competition dictates that there is only one winner and many losers. The efforts of the losers cost money and employ people with no payback. Creative destruction and bankruptcy burns up capital and manpower. Commercial disputes clog the courts of capitalistic countries burning even more money and manpower. Arguably capitalism requires more regulators to police the economy than socialism requires central planners to run the economy. Etc.

 

[Horatio Parker]

Since I can't see a victim I can't see how you are arguing that this is unfair.

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 mainstream wisdom seems to be a form of social Darwinism: you prove your worth to society by prevailing over the system. If you don't prevail, you're not worth saving. Hence the stream of articles about the economy "shedding" jobs. If only society shed members...

The most important thing is to have a productive population. So everyone willing and able to work should work. Even a job with some aspects of make-work to it is better than the cost, to the individual, their families and communities, of an able but unemployed person.

Central planning, to the extent it exists, is subordinated not to the public interest but to extracting the most profit. Profit isn't always in the public interest.

Decades of neoliberal indoctrination has obscured these points.

 

[skepticalbip]

Since I can't see a victim I can't see how you are arguing that this is unfair.

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.

 

[rousseau]

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 mainstream wisdom seems to be a form of social Darwinism: you prove your worth to society by prevailing over the system. If you don't prevail, you're not worth saving. Hence the stream of articles about the economy "shedding" jobs. If only society shed members...

The most important thing is to have a productive population. So everyone willing and able to work should work. Even a job with some aspects of make-work to it is better than the cost, to the individual, their families and communities, of an able but unemployed person.

Central planning, to the extent it exists, is subordinated not to the public interest but to extracting the most profit. Profit isn't always in the public interest.

Decades of neoliberal indoctrination has obscured these points.

At it's core the philosophical underpinnings of democratic communities, and maybe even communities in general, are that people are born into an interdependent, and supportive network and everyone works together for the benefit of the community as a whole. As you mention, this isn't always how it works out in practice, but there are examples of societies that are better at it than the US. At that, the US is probably a good example of how not to accomplish this goal.

I think where the problem lies is that the global economy has become so complex that no one knows how to control it, even economists don't seem to have produced much coherent macro. And even if they did would our political systems be forward enough to do what they needed anyway? Probably not.

But if idealism is our ideal (and I think it is) then the end goal of politics at this point is that all of our citizens live dignified lives, and probably to keep life on earth sustainable. So if too many people start moving toward poverty in a society that's still productive, this is going to need to be rectified politically. The solution probably won't be perfect, but once automation breaks everything I'm confident it will be attempted.

All that said, predicting the future is hard so who knows what will actually happen in the next couple decades to century. Luckily, the problem will resolve itself when we inevitably bite it.

 

[LordKiran]

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.

"Life is not fair" Is not an acceptable answer in a nation where people are deprived of their basic needs despite abundance. It also stinks of social darwinistic undertones.


Also not to get off point here but life is plenty fair. If you're not fast enough you get eaten. If you're not tall enough you can't reach the fruit at the top of the tree. Human society is what is not fair. Only in human society can you be deprived of your basic needs despite having proved your worth to the group.

 

[skepticalbip]

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.

"Life is not fair" Is not an acceptable answer in a nation where people are deprived of their basic needs despite abundance. It also stinks of social darwinistic undertones.


Also not to get off point here but life is plenty fair. If you're not fast enough you get eaten. If you're not tall enough you can't reach the fruit at the top of the tree. Human society is what is not fair. Only in human society can you be deprived of your basic needs despite having proved your worth to the group.

People in the industrial west are not deprived of basic needs. There are safety nets that provide a basic standard of living that the middle class in nations that have gone to centrally controlled economies like Cuba or Venezuela can only dream of. Not that many years ago when Venezuela was under the "yoke of capitalism" the people had one of the highest standards of living in South America, now many try to cross the border into Colombia to get enough food.

 

[rousseau]

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.

I have no disagreement with you there. I don't expect that someone who is unable to contribute to their economy is necessarily going to live a life to the standard of someone who is. My point is only that if you have a member of society who, by definition, is unable to contribute to that society, and only a small number of that society's members are profiting, then you have a moral obligation to help those members who are unable to contribute, because they were born with no alternative.

Automation is going to happen, and it's going to put a lot of people out of work. If you don't move the surplus production value back into their hands, and they're living in poverty, then you are a part of a broken system, or at least not a world that I want to live in.

So there is a victim of automation, unless you're content letting people go hungry.