Things I've Tagged ‘Economics’

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Here’s a lesson in economics for OWS. Explain to the “99%” that they are actually in the 5% of richest people on the planet. Then take their wealth and redistribute it to the 95% of the world that is poorer than them.

See how they feel about wealth redistribution then.

Tom H.

Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%.

Galina Hale and Bart Hobijn

Why The Market is Broken

I wish I could say. I’ve been digesting so much reading on the topic that I find it difficult to speculate. At the same time I’ve been thinking about the relationship of labor to management; not of my own accord but in response to the recent discussions going on throughout many state capitols. I’m going to do my best over a series of posts to hash things out for myself.

I want to kick things off with a quote that just about sums up my reactions to the worker/manager relationship:

The workers at the recuperated enterprises in Argentina, forced to learn about managing factories for themselves, learned very quickly that the MBAs’ poor-mouthing about “labor costs” and “competitiveness” was so much horse shit. They found that when they eliminated all the high-salared managers, most of the unit cost problem just evaporated. Since they didn’t have accounting degrees, they also didn’t know anything about ROI and the theology of direct labor hours. So they essentially reinvented, without knowing it, the cash accounting model of Henry Ford: if you have more money at the end of the week than at the beginning, you’ve made a profit.

The above may be a simple understanding of business and accounting, but it provokes an interesting thought; when CEO compensation has grown and worker compensation has stagnated in comparison over the past 40 years, I have to wonder why?

For this bit of self-reflection I want to explore the following:

  1. I’ve come to the conclusion that we do not actively participate in a free-market economy as we might think.
    • Government regulation of the markets have been for the good of corporations rather than the good of consumers.
    • Most licensing requirements hurt competition more than anything else; rather than to protect consumers they’ve created artificial barriers to those seeking to enter the market.
    • Corporate America has a cozy relationship to both major political parties–whether they’ll concede that point is debatable.
  2. Where do workers stand in all of this?
    • What has all of this rent-seeking accomplished in relation to worker compensation?
    • Why have CEO salaries increased, but worker wages stagnated or declined? (CEO as a stand-in for upper-level management.)
    • Are unions necessary? Perhaps–without proper codified protections, anyway.
    • Public worker unions seem to be an excellent example of rent-seeking–though some protections are needed.

That’s a lot to cover, but I’ll try to tackle each in a separate post if possible.

But what of unions in the public sector? There seems to be a clear public choice problem: public unions and elected officials engage in mutually beneficial exchanges—generous compensation packages for political support and campaign finance—while shifting the costs on to the unorganized taxpayers.

Marc Eisner

Some, Uh, Interesting Words About Austerity

I was wholly prepared to link to a certain article, convinced that perhaps Keynsianism was the ticket to our troubles. A certain quote lead me to the story: “the Keynesian prescription works. [However] austerity converts downturns into recessions, recessions into depressions.”1 Boy was I hooked and ready for more. Seriously. I was curious about this; if it were true, then I would need to change my tune.

However, I followed the link, and read this:

The Keynesian policies in the aftermath of the Lehman brothers bankruptcy were a triumph of economic theory. In Europe, the US and Asia, the stimulus packages worked. Those countries that had the largest (relative to the size of their economy) and best-designed packages did best. China, for instance, maintained growth at a rate in excess of 8%, despite a massive decline in exports. In the US the stimulus was both too small and poorly designed – 40% of it went on household tax cuts, which were known not to provide much bang for the buck – and yet unemployment was reduced from what it otherwise would have been – over 12% – to 10%. 1

This last bit in particular got me questioning this op-ed. The salesmen behind the stimulus here in the U.S. were claiming it would hold unemployment below 8%, never that it would keep it around 10%, let alone mentioning a figure of 12%. China’s growth isn’t necessarily growth if you follow their economic story at all. Sure a lot of things are being produced, but it’s over production and over development (so much so that large cities have been planned and built, yet remain completely unoccupied).

This guy talks about aggregate demand as if the only thing keeping the economy down is a lack of demand for goods and services; and if we would only spend a little government money we would see that vaunted multiplier in action, thus increasing aggregate demand, production, and ultimately get people to work.

Doesn’t really work that way though. Yeah, demand is down, but having the government flood the market with dollars isn’t likely to produce the demand necessary to get out of the doldrums. I’ve read that what appears to be taking place, among many factors, is a reduction in debt–people are trying to get their balance sheets in order, leading to less demand as retiring household debt is the focus.

Don’t feed me this stimulus laden crap. It doesn’t work, and hasn’t helped increase demand at all. Bailing out banks may have helped prevent a giant financial disaster, but sending up a package of money that won’t even be spent for several years, not to mention only serves to pay several interest groups, is not a winning deal. What a farce.

But, hey, I’m a web designer. Not an economist.

  1. Stiglitz, Joseph. To choose austerity is to bet it all on the confidence fairy. Accessed 10/20/2010.