Armchair Economists, Unite!

[FaustWolf]

When I walked into my first PoliSci class back when I was still a wee undergrad, the syllabus started out with a sentence to the following effect: "Every person on this campus, whether they major in PoliSci or not, is a political scientist."

Similarly, I happen to believe that each and every person here has profound insight into economics by virtue of simply participating in the international economy. Ben Bernanke has a high position and a swanky PhD, but he doesn't participate in the rat race that is the rock-bottom level of capitalism; I suspect that most of you, like myself, do. There's an advantage to experiencing something at the ground level that birds-eye-view folks just can't get, or maybe forget once they've climbed that ladder through sheer fortune.  

Anyway, I'm interested in everyone's ideas for improving the international economy, or your own country's economy if you like.

To give you an idea where I'm personally coming from, I have a firm belief that free trade, as it has been conducted since the mid 1990s, opened a floodgate that cannot feasibly be closed, and that flood will smash the capitalist system utterly. It's already happening; while the media would have us believe that the most recent economic crisis can be pinned on Wall Street's ridiculously blind trust in mortgage backed securities, the fact remains that underlying economic trends rendered US citizens unable to afford mortgages. Mortgages were previously heavily borrowed against to fund consumption, possibly due to an overall halt in wage growth. No wage growth, no mortgages, no consumption, no production, etc, etc. It's the heat death of the Economic Universe as far as the US, and probably the West, and possibly the current developed world, is concerned.

Perhaps I'll be proven wrong; I can only hope. If I am wrong, then it could ironically be due to a miraculous episode of Keynesian economic policy applied by the Obama Administration, something formal Chicago School-style economic training teaches students to write off nowadays. Otherwise, where else is the spending driving the recovery coming from? A sudden surge in private employment? The unemployment rate is 15.6% where I am now, and 9.7% nationally in the United States.


Anyway, consider this thread a free-for-all for everyone's personal treatise on economic reform, because I'm curious what ideas and observations generated from personal experience are out there; theory-heavy textbooks get boring sometimes. To jumpstart the discussion, I'd recommend taking a look at what this commentator had to say back in 2003:

http://marshallbrain.com/robotic-freedom.htm

It's actually a commentary on how the US economy would need to change to handle the widespread introduction of robotic workers. That's, perhaps, a bit of a ways off. Maybe. But regardless of the current state of robotics, I think one could very easily replace the word "robots" in the author's article with "outsourcing" and "illegal immigrants," and his suggestions for economic reform would be equally thought-provoking.

What does everyone think about the author's economic proposals, like just handing out money literally "backed" by private advertisement? Workable? Not so much? I find such out-of-left-field ideas intriguing. There's an economic theory according to which money can't cause inflation as long as it's backed by something that grows along with the money supply (like physical capital), but I need to dig out that book and double-check it. If it does, I wonder if we couldn't grow the money supply by backing it with human capital.

[Lakonthegreat]

I honestly think that the best way to stimulate any economy is by injecting REAL capital into the private sector.

This doesn't mean printing up trillions of pieces of paper that mean nothing. I mean dismantling the Federal Reserve and putting the control of the currency back into the hands of the citizens. A lot of people don't realize how our currency works. We have all of this paper that represents debt to someone else. Right now, it's mostly debt to China. But that's a story for another day.

The best way to save the United States economy is by doing away with the Federal Reserve and actually holding the higher-ups accountable for every bit of spending that crosses their desks, and every tax that they owe on that spending or receiving.

Just my opinion.

[Lord J Esq]

I think you're right that our current economic model, as has developed since the Reagan years, is unsustainable. The reason it is unsustainable is twofold: First, we're continuing to burn through the world's natural resource supplies. Our mines and wells, as a whole, are going to become less productive and more expensive. Our ecosystems will reach the limit and even the ones that don't collapse will reach output and tolerance maxima. Third-world labor will become more expensive as the demand for it rises.

Second, most of the growth in our economy has gone to the richest Americans only. In fact it's worse than that; they've stolen wealth from the rest of us. They make higher profits on more goods produced at less expense, while we suffer from wage stagnation, rising insurance costs, weakening healthcare benefits, charges and fees galore for services we are made to treat as mandatory, and enormous hidden costs in the form of environmental degradation from our lifestyles.

As a result of this, debt in this country continues to soar. Eventually, that's going to change the way we do things in this country, because eventually we won't be able to continue to accumulate it. Whether or not that changes the way we live in America depends on how much we can grow the economy, whether we can find ways to maintain our current lifestyles less expensively.

The are two most important things we need to undertake to begin to get things under control. The first is to reverse the flow of wealth redistribution. We can do that by increasing the income tax rate on the upper brackets, including back up above 80 percent for the highest income bracket, and by increasing corporate tax rates comparably on the richest and largest corporations. Trillions of dollars of what is basically stolen money has to come back from the ultra-rich, in whose possession it has very little interaction with the larger economy, back into the hands of people who originally created it and who are far more likely to use it. In addition to these major tax increases, we can close tax loopholes, simplify the tax code to put the squeeze on evaders, and institute new taxes on overly profitable corporations.

The second thing we need to undertake is a program of environmental sustainability. We have to act like many of this world's critical resources are finite, which they are, and plan for a maximum ceiling of resource availability. This is huge; we'd have to make fundamental changes to our way of life. Honestly, I don't think America is up to the challenge. If you think the right wing is going to make a lot of noise about tax hikes on the rich, it'll sound like a whimper compared to the pandemonium that will erupt if we start regulating and legislating away huge cars, huge roads, huge houses, and our huge volumes of disposable purchases.

But, that's the medicine for the disease: Tax the rich to revitalize the middle class, and impose a sustainable living program on the nation. The only other outcome for us is that America will drown on its debts and fade from world prominence in a prolonged period of economic stagnation—during which you can bet that the conservatives will thump their chests more obnoxiously than ever about how America continues to be the best at everything.

[Truthordeal]

The best way to ensure a stable economy for the future is educating the youth today to get higher paying jobs.

Firstly, let's dismantle that onerous bill "No Child Left Behind." Kill it with fire, even. It's a waste of money and paper, plus it's a pain in the ass over all.

Secondly, and here's the one point where I disagree with President Obama on education reform, instead of investing money in preschool programs for kids, invest more money in grants and scholarships to fund higher education. The high costs of post-secondary school are indeed restrictive. We can live without pre-K, but in order to produce a more educated and wealthier working and professional class, college or tech school is a necessity.

Lakon suggested dismantling the Federal Reserve, but I honestly don't know enough about money supply economics to have an informed opinion on that. I've been hearing a lot of rumbling about dismantling the Federal Reserve though, so I might have to look into it to see if there's any merit in that idea.

On the matter of trade, I'll be honest, I can't say much about that either. I know we're currently getting shafted by Mexico and Canada with NAFTA, and that our trade agreement with China gives Walmart cheap goods at the expense of hard labor, but that's about it.

Our debt needs to be curtailed. Hopefully Obama will prove that SC Rep. wrong and decrease our overall costs with this health care reform.

Here are my thoughts on the robot idea, FW: Robots will mean less manual labor jobs, but it'll mean more jobs to supervise the robots. In other words, we'll need to get more people technically trained, so we need to get education reform passed pronto, particularly higher education.

[FaustWolf]

Hahaha, Truthordeal, I love that response to the robot problem: "Let's hire people to manage them!" That gave me a good laugh, because that's exactly what corporations will do too, I think. I just love this robot stuff, I couldn't stop thinking about it once I started looking it up recently. We're on the verge of the "Model T" phase of a new robotics era, and the economic repercussions could be vast. I'll bet the Internet caught many economists by surprise, so this is something that the field of economics needs to investigate seriously.


J, I wonder if it's more likely that we'll begin extracting resources from outside Earth rather than reduce our level of resource consumption? It's probably wishful thinking on my part though. The way things are going, the environment will most likely turn out to be one of those "I told you so" things, and there will be a huge scramble to innovate before the human race depletes its resource base and simply dies off.

As for taxing the wealthy, I fear it's simply going to be politically infeasible to bump up the highest bracket to the 80%s and 90%s our grandparents saw during World War II era. However, there may be more palatable options. A couple years ago in a Political Economics class I read that in Japan, CEO pay is limited to a legally defined multiple of a given company's average worker salary, but I can't find the proof to back that up online now, so I'm not sure. Still, it's an interesting idea, and something that would go over well with sensible voters -- provided that the pay structure is also somehow linked to the CEO's actual performance, which is something I am finding complaints about with the Japanese corporate system.

One thing that I definitely haven't studied up enough on are complaints regarding the Federal Reserve system; I will venture to point out is that since the Fed has control over the US money supply (which inevitably affects the level of production since money motivates production), it is capable of catastrophic errors. Some very respectable theorists (like Milton Friedman) blame the Great Depression's severity on the Fed itself. Prior to the Depression the Fed severely contracted the money supply, perhaps to curb inflation, but I need to re-check the reasoning for its behavior during that period of time. I'm kind of surprised at how much I agree with Friedman in his claim that the Fed could have ended the depression sooner by pumping money into the economy; sounds curiously like a monetarist version of Keynesianism.

The major pitfall there, of course, is maintaining the stability of the currency's value over time. I'm not necessarily a fan -- as Ron Paul is -- of backing US currency with gold and/or silver (not sure which it was he wanted off hand). I'd rather back the currency with some valuable resource that grows over time, thus justifying the printing of more money as the economy's productive capability expands. That resource could potentially be human capital (education, talent, etc), but I'm just on the fringe of thinking about this sort of thing. For one thing, it's difficult to quantify human capital; if it worked as a backing, it would be on the dollar holder's trust that he or she could go to a bank and buy labor, which is analogous to the typical dollar-for-gold exchange you'd have in a Gold Standard situation.


A comment on promotion of higher education: it is extremely romantic and noble to think that educated people automatically land jobs, but in reality our economy is best at generating service sector jobs for which no such education is required; pundits are starting to actively question the "worth" of a degree in today's job market. This represents a horrible misallocation of resources; we could be producing great things with all this human capital, and it's being underemployed at a mind boggling rate.

I think part of the problem is inefficiency in guiding skilled workers toward jobs that are actually geared to their field. Colleges need to have career placement centers that actively match graduating students with jobs, and there needs to be a centralized, up-to-date and reliable repository of job opening information. When an industry is shrinking, the career placement centers need to put the students on alert so that they can switch majors to suit.

The resume and interview process is becoming swiftly outmoded, because the American economy works on a networking basis anymore; if you don't already know the person who's in a position to hire you or put in a very good word on your behalf, forget about it. That's the stark and disturbing message more and more college grads are discovering. The savvy student needs to foster connections through his or her professors and leverage connections made during internships, and yet the official focus is still on erroneously on crafting that perfect resume and doing practice interviews. There are probably industries where these observations don't apply (most likely research industries desperately soaking up every worker they can find), but it seems to be this way in the social sciences from my experience.

[Lord J Esq]

Hahaha, Truthordeal, I love that response to the robot problem: "Let's hire people to manage them!" That gave me a good laugh, because that's exactly what corporations will do too, I think. I just love this robot stuff, I couldn't stop thinking about it once I started looking it up recently. We're on the verge of the "Model T" phase of a new robotics era, and the economic repercussions could be vast. I'll bet the Internet caught many economists by surprise, so this is something that the field of economics needs to investigate seriously.

It is worth mention that automation is already extensive throughout U.S. industry. We've gotten machines to do a lot of our work for us; they're simply not exotic little androids. In industries from steel production to tea production, automated labor far outstrips manual labor. I actually think that we are not on the leading edge of a robotics revolution; I think we've already had the revolution, and many of the jobs that could be automated, already have been. There undoubtedly will be a next great leap forward in this regard, assuming society doesn't collapse, and of course there will always be incremental gains in automation (punctuated by sudden jerks forward), but the next major revolution awaits advances in automated intelligence, not in automated physical labor capacity per se.

J, I wonder if it's more likely that we'll begin extracting resources from outside Earth rather than reduce our level of resource consumption? It's probably wishful thinking on my part though. The way things are going, the environment will most likely turn out to be one of those "I told you so" things, and there will be a huge scramble to innovate before the human race depletes its resource base and simply dies off.

Perhaps asteroid mining would be viable if we'd get off our friggin' butts and get on with the space program, but, as it is, we've barely begun to go down that road and we still have most of the huge capital investments ahead of us...just as we're entering an era where we're going to be less able to spend huge amounts of money on long-term investments. Back when I was more naive, I figured we'd solve the asteroid mining problem long before Earth's native sources began to run out, but now I think that that's totally unrealistic. Thus, we'll have to go through an era of severe resource constraint.

Now, some resources are renewable, like fish and trees, and well-managed fisheries and forests are going to go a long way toward helping ensure that the supplies will keep flowing. As for non-renewable resources, most of those are reusable--especially metals. Already, more lead comes from recycled car batteries than from lead mines. Other commodities will follow suit. That's the good news: None of those materials have disappeared totally. They're out there. The bad news is that a great deal of them are still in use and thus not eligible for recycling, while others have been thrown out and will have to be reclaimed. That won't always be feasible, especially stuff that's been lost to the oceans.

Realistically, though, our lifestyles are on a collision course with resource shortages, and no amount of craftiness will enable us to continue with things as they are. It's a good thing change is a natural part of the social equation, because we're going to need to continue to find totally different ways of doing things, or else we're going to have to accept a serious reduction in our material quality of life, which would be very bad--not least because it would destabilize the globe.

As for taxing the wealthy, I fear it's simply going to be politically infeasible to bump up the highest bracket to the 80%s and 90%s our grandparents saw during World War II era. However, there may be more palatable options. A couple years ago in a Political Economics class I read that in Japan, CEO pay is limited to a legally defined multiple of a given company's average worker salary, but I can't find the proof to back that up online now, so I'm not sure. Still, it's an interesting idea, and something that would go over well with sensible voters -- provided that the pay structure is also somehow linked to the CEO's actual performance, which is something I am finding complaints about with the Japanese corporate system.

I don't know whether it's a law or not, but I can back you up on the fact that Japanese corporate executives are paid much less than their American counterparts.

It's a moot point, however, because the thievery that goes on in corporate America occurs only in small part through direct compensation. The really obscene executive profits come from stocks (that's the big one), bonuses, retirement and severance packages, and other forms of indirect income. In fact, one of the reasons that this is how things work in America is that, years ago, people made exactly the same arguments as the one you just made: Let's cap salaries. We set up a system that discouraged the kinds of salaries that executives would otherwise have awarded one another, but, in so doing, we didn't stop them from taking all that money. They just found other ways to give it to themselves.

And stocks really are a huge part of the equation. This is a serious problem, because in theory stocks are an ideal form of compensation: If you do a good job, your company will prosper and your stocks will be worth a lot more money. Thus, stocks are an incentive to lead well. In practice, however, stock prices are only loosely connected to the actual quality of a company's performance in business. Instead, stock prices are tied primarily to short-term profitability and to the appearance of maximal monetization and "optimal" (read: maximal) cost-cutting. Indeed, one of the inherent flaws in Corporate America today is that the long-term wellbeing of companies (to say nothing of customers or the nation as a whole) is oftentimes at odds with these companies' own stock prices. It's led me to wonder whether or not we can do better by actually limiting the amount of stock an executive can own in the company they run. I have serious reservations about that, however, which leads me back to my original prescription of tax hikes and tax reform.

Really, everything else is a distraction. Our bloated, arcane financial system is symptomatic of people having more money than they know what to do with. That can be fixed through tougher regulation. The only solution for the underlying flaw in our economy itself, however, is for people to simply not have access to that kind of money without paying enormous taxes on it. It makes sense to me: That money comes from other people. Those who succeed big-time, should pay back the country and the people who gave them their spoils, because the truth of the matter is that nobody can succeed alone.

From the other direction--and I neglected to mention this last time--we're going to have to get serious again about breaking up large companies, and regulating the daylights out of those that can't be broken up (beyond a certain point) due to infrastructural reasons.

A comment on promotion of higher education: it is extremely romantic and noble to think that educated people automatically land jobs, but in reality our economy is best at generating service sector jobs for which no such education is required...

Right you are. There is a serious issue here: Much of the job growth over the past decade has been in the low-paying service industries. Labor unions have declined in power, meaning that many industries are pitted in a race to the bottom in terms of how they will treat their employees. (I have a half-baked theory which states that Republicans in the South are so pissed off about everything because their jobs royally suck and they're venting their frustration by trying to spread their special brand of misery to the rest of us.)

The need for skilled labor is going away with the developments of outsourcing and automation. The greatest gateway to the middle class is vanishing along with these jobs.

Professional jobs are in good shape; if you can get one of those degrees then you're all set--except for the hundred thousand dollars in loans you're likely to accrue in the course of your education. But most people are not professionals; they have an undergraduate degree or no degree at all. They may have a vocational degree, but that's becoming less likely. Becoming more likely is that they'll have a two-year accounting or business degree; those are practically worthless except to the extent companies use them to make hiring decisions.

The bottom line is that fixing the economy is not going to be accomplished by putting more people into college. It's rather the other way around: Fixing the economy will have the effect of putting more people into college. And to fix the economy...you guessed it: tax hikes on the rich. I'm sorry to be so repetitive on that point, but in macroeconomic terms our problem is quite simple: There's a hole in the economy and it leads to the well-to-do.

[Thought]

I've long been a proponent of a world-wide minimum wage law. Such a thing, if enacted properly, would be a win-win situation for everyone involved. The minimum wage would have to be set incredibly low to start off with, and over the course of 50 or more years be brought up to a reasonable level. This encourages the development of a middle class in other countries and, over time, reduces the profitability of out-sourcing manufacturing and services, resulting in duplication. Instead of having one factory in China producing IPods, it becomes more cost- (and resource-) effective to build smaller factories across the world so as to better serve local needs. More factories mean more employees, which means higher employment, which itself means a higher wealth manufacturing capability of a country.

It seems that a lot of Americans (and possibly humans in general) don't properly understand the concept of wealth. Give a person a million dollars and they'll think they are wealthy. Give a person an income of $100,000 a year, and while they'll be probably be quite happy, they won’t perceive it as being as great of a boon as the million, despite that the million was a one-time gift and this yearly income will soon out-distance it. While resources and even money may be finite, wealth itself is nearly infinite, being restricted only by how quickly it can change hands.

A world-wide minimal wage addresses that concept. Increase the income of the world and one increases the max wealth of the world.

There are two problems with that, however. I'll address the easier problem first: resources. Wealth could potentially be nearly infinite, but resources still aren't. However, by localizing production (by eliminating criminally-cheap labor) of goods, even with increased demand for resources, we will be using those resources more effectively -- particularly oil, rubber, and metals. The transportation industry is horribly wasteful, we get rid of that and at least well be better stewards of our resources. That still won’t solve the problem, but oddly enough, exhausting earth's resources under this system will be a good thing. Oil is a perfect example; as supply dwindles humanity will start to get off its butt and actually work on developing alternatives, sustainable alternatives. There are only two activities that from a pragmatic perspective limit our resource capabilities: sending stuff into space, and producing heat/light. If we exhaust mines, that doesn't mean we have any less metal on earth. Rather, it means we'll have to start aggressively recycling products. Exhausting mines might actually create a hilarious industry that mines our own garbage mounds for recyclables.

Improved resource reclamation efforts, then, become a necessity, one that at least standard market forces could "naturally" produce.

The other problem, however, is inflation. That single little concept is my bane; inflation occurs only because humans are morons. Companies charge X for a product one year, but increase that to X+1 the next year. In year one they pay employees Y, in year two they pay employees Y, but in year three they have to give the employees a cost of living pay increase, bring them up to Y+1. To make up for that, in year three the company increases the price of their product to X+2. In year four, there is another pay increase to Y+2, and so on, and so forth. It is a lot of work to no real benefit. Inflation only occurs because everyone is trying to screw everyone else over. The obvious solution (fixing prices) doesn't work because there are valid reasons for prices to fluctuate as well. Rather, we must fundamentally alter our perception of business itself.

Let us use Microsoft as an example. Why does it exist? To make the CEO money? I would contest such a claim based on the fact that one could easily remove the entire position (not just the individual in that position) and the company could continue to run indefinitely. Perhaps the company exists to make the shareholders at large money? Again, the company could buy back all its shares, removing the shareholders from the picture, and it will continue to function indefinitely. There are two general groups, however, that Microsoft cannot survive without and so I propose that it exists to serve those two groups. These groups being: the customer and the common employee (which, yes, the CEO counts as, but the CEO is a curiously expendable employee position). A company like Microsoft should, ideally, make the best product possible for the lowest price possible paying the highest wages possible. If every company did so, that would largely (and possible entirely) counteract inflationary tendencies of the market. If a company has a huge profit margin, that means something is wrong. To use a vulgar example, profit is like fat. Having a little on you is fine, but it is quite possible to have too much fat, to the point that it is essentially a death sentence waiting to be carried out.

Companies that exist solely to make a minority of its wards prosperous cannot survive in the long-term. Indeed, they should not exist in the long-term and society, if it wants to survive, must address this problem.

I don't particularly care if the rich are rich. The problem is, the rich are stupid. Throughout history, when the basic level of economies (the common "employee") collapse into great want, the upper levels of the economies fall too. Perhaps not as far, but still, just because a lifestyle isn't crappy in comparison to someone else's doesn't mean it isn't an objectively crappy lifestyle. If the rich want to be rich, and if they want to be richer, their best course of action is actually to make everyone else as rich as possible. A midget on the shoulders of giants can see further than a giant on the shoulders of midgets.

That is the truth, that is what I believe... at least for now.

[Lord J Esq]

The other problem, however, is inflation. That single little concept is my bane; inflation occurs only because humans are morons. Companies charge X for a product one year, but increase that to X+1 the next year.

It's not just that companies arbitrarily raise prices. All else being equal, the economy is usually growing and the population is usually rising. Whenever both of those are true, it's almost a given that inflation will be positive, because you can think of it as more dollars coming into the economy, and more people making transactions.

Companies that exist solely to make a minority of its wards prosperous cannot survive in the long-term. Indeed, they should not exist in the long-term and society, if it wants to survive, must address this problem.

Oh, I wish it were that simple! The unfortunate truth of the matter is that most of Wall Streets biggest companies, and practically every major company in the financial sector, exist on precisely those terms...and most of them have survived just fine. See, when you're a huge company, even if your model is bad and you'd be torn to shreds in a more competitive marketplace, you can spare a few million dollars to lobby the government (federal and state) for favorable legislation--and that's exactly what happens. These big companies get all kinds of exceptions and cushions and loopholes and welfare checks, enabling them to continue putting the screws on any potential competition and thus continuing to dominate the market. As we've seen over the past year, even billions of dollars of giveaways with no enforceable strings attached is not too much for some of these companies to ask.

I read yesterday that the health insurance companies are spending a collective average of $700,000 a day on lobbying the government so that healthcare reform legislation will be profitable to them. I read a figure from another source earlier this year that said they were spending $1.3 million a day. Whatever the true numbers are, you can bet that this is the reason why Congress is being so friendly to the very companies who have made the current system untenable in the first place.

I don't particularly care if the rich are rich. The problem is, the rich are stupid. Throughout history, when the basic level of economies (the common "employee") collapse into great want, the upper levels of the economies fall too.

Aye. If they pay taxes that reflect the magnitude of society's utility to them, I have no problem with the rich being rich. But, as you say, that doesn't happen. The rich steal and horde and plunder, and it undermines the economy which enabled them to become billionaires or mega-millionaires in the first place. In terms of core health, this country is worse off now than it has been in more than my lifetime. Were it not for the advent of computerization, networking, and globalization, I think we would today be in the midst of a decade(s)-long economic decline. As it is, we've merely kicked the can down the road: Computerization and networking were one-time breakthroughs, and globalization is being conducted in a way that simply exports America's problems to other countries, enabling foreigners to undercut our industrial base and extend the limits of our debts.

[Truthordeal]

A comment on promotion of higher education: it is extremely romantic and noble to think that educated people automatically land jobs, but in reality our economy is best at generating service sector jobs for which no such education is required; pundits are starting to actively question the "worth" of a degree in today's job market. This represents a horrible misallocation of resources; we could be producing great things with all this human capital, and it's being underemployed at a mind boggling rate.

Sometimes. However, if you have two years of tech school studying about auto mechanics then you'll have a better opportunity and wage than the high-school graduate that applies.

I don't simply mean the 4 years of liberal arts type of higher education. There are plenty of technical and vocational schools out there that you have to pay ridiculous amounts of money to be able to go to. Barber school, bartending school, nursing, acting, cooking, mechanics, criminal justice, etc. Try becoming a Lieutenant in your local police bureau without some form of post-secondary education.

Higher class people will end up as white collar guys with contacts, but these programs mainly appeal to middle and lower class people. It encourages them to get some technical training, and make more money than they would have. It'll help bring some of these people out of the poverty-filled futures that they would have been stuck with otherwise. Social mobilization will increase.

I guarantee you if you give it two generations time, you'll have more educated parents with well educated children, higher salaries and wages all around, and everything in America will be gumdrops and ice cream.

[Lord J Esq]

I guarantee you if you give it two generations time, you'll have more educated parents with well educated children, higher salaries and wages all around, and everything in America will be gumdrops and ice cream.

*packages your gumdrops into a derivatives package backed by corporate paper and trades up to the value of the national GDP; gets a bailout from the government for $1 trillion; notices gumdrop shops are going out of business due to sour economy; sneers at stupid Americans who can't manage their finances*

[FaustWolf]

Hey, I'd invest in chicken farmers, if they can be invested in:
http://finance.yahoo.com/family-home/article/107757/chewy-chicken-feet-may-quash-a-trade-war.html

So there is a US product able to be marketed to China! But why, when Chinese people could produce chicken, and probably more cheaply, do they like our chicken? Is the chicken-importing trend stable, or will it collapse once Chinese farmers get the recipe for Grandma's Spicy Chicken Wings?

BTW, the idea of a world minimum wage is great, I never thought of that before. If that were pursued through the UN, seems to me that any country that opposed it would look like Satan.

[Lord J Esq]

A standardized world minimum wage wouldn't work as advertised. It would have to be paid in a common currency, and the simple reality is that a given unit of currency isn't worth the same from place to place. You hear about people who have to live on "less than a dollar a day." That phrasing has strong emotional appeal to us, because how could anyone possibly live on less than a dollar a day? Except that, in these other countries where such a message is technically accurate, that hypothetical dollar (or its native currency equivalent) might well buy you three meals, bus fare, and a shirt, with money left over to apply toward the rent. It's not to say that there aren't dysfunctional places where people can't earn a living wage, or that everyone has access to a living wage, but simply to point out that paying full-time workers in, say, Bangladesh not less than, say, 80 dollars a day (eight hours of work at ten dollars)...would totally wreck their economy.

Solving this turns out to be a much more difficult problem than might be expected. We could, for instance, use cost-of-living data to identify zones of relatively similar currency worth, and set floating minimum wages in those locations. But, if we did that, the outcome even in the best case scenario would be a far cry from our original idea of paying any human being equal money for equal work, because "cost of living" is not something that can be equalized between economies at separate stages of development. In other words, a living wage in Bangladesh wouldn't pay for even the simplest American lifestyle. If America reverted to a Bangladeshi model of what it costs to live, our economy would collapse because most of it would become superfluous. If Bagladesh upgraded to our model, their economy would collapse because of a lack of capacity. If we met in the middle, both America's and Bangladesh's economies would collapse, because the adjustments would still be significant enough that the same problems would apply. Instead, we would have to acknowledge that "living" is not defined the same way in these two countries, or in the hundreds of other countries out there, and, therefore, that the costs of living cannot possibly be standardized at the global level so long as these economic disparities exist. Given our original intention, that's tantamount to an admission of failure. Oh, and I didn't even mention the fact that various governments have differing abilities to perform this kind of administration and to actually implement the policy.

That last bit touches on the proverbial 800-pound gorilla: Many governments (and even entire people!) would sooner go to war than accept global economic orders of such an extensive magnitude. Any attempt to institute the equivalent of equal pay for equal work on a global scale would degrade the concept of national sovereignty and subject the internal affairs of a nation to the authority of outsiders. This may be a good idea in theory, but don't expect people to accept it with open arms. The fitful progress of the Eurozone in our time has provided a demonstration of the difficulties of economic integration even among some of the stablest and most prosperous nations in the world. And it does merit asking: Who would control these executive bodies tasked with managing the global economy?

The best solution is the imperial one: Conquer the world, dispense with the nations, and form a world government. But that's not exactly practical, so the most viable solution is to focus on the dominant factors in these global equations: the rich nations that drive much of the world's economic activity. If we could better discipline the behavior of our own corporations and investors, we could do a lot of good in the foreign countries where they conduct business...and solve some economic problems here at home, as well. But I'm afraid that the global minimum wage would have to be taken off the table. At best, we could hope for minimum wages that are tied to the economies in which they exist, with enough variation to account for discrepancies between urban centers and rural expanses. But under that scenario, we wouldn't be able to look forward to the poorest nations advancing toward our lifestyle anytime soon. It would take a very long time.

[Thought]

Such concerns are for the most part easily addressed.

To address economic ruin first, as I originally suggested, the minimum wage would have to be set incredibly low at first. I really don't know the data as well as I'd like, but this might be as low as 2 cents an hour (or lower!), for the reasons you stated (twenty buck in Mumbai has a different real-value than twenty buck in New York). Cost of living differences are a red herring in this case because the goal isn’t to make pay between countries equal, just the minimum required pay. America would still how its own minimum wage laws, so while America would agree to pay everyone at least 2 cents an hour, it wouldn't actually affect our economy (directly) since we already do that (perhaps the difference between state and federal minimum wage laws might illustrate my intent better?). In those countries that do agree to this “law” but which do not already have minimum wage laws, the minimum would require that they pay workers more, but not so much more as to be a particularly significant burden. Give it ten years, the general lifestyle in the region improves because people have more money to spend (course, those 2 cents won’t buy as much anymore do to inflation). Increase the minimum wage again and repeat. Slowly, as individuals have more money, they'll spend more money, stimulating the economies in those regions and helping them develop. Instead of exporting everything they can, those countries will develop internal markets and a basic infrastructure will begin to grow. Instead of American companies importing everything they can for sale in the United States, they'll start finding that it is more economical to produce goods here (this would take a very long time for the minimum wage to reach this level).

My original estimation that this process would take 50 years is, in retrospect, very optimistic. A century or more could easily be necessary to slowly increase a minimum wage to a level that is appropriate. Like boiling the proverbial frog, we can’t raise the temperature of the water too fast.

I'm not particularly concerned about paying workers in the Congo $10 an hour; I am concerned about paying them enough so that they can afford sanitary water and sewage systems. As long as significant economic disparities between nations exist, there will always be places were such basics are a luxury.


To move on for a moment to the political side, this proposition, if conducted in the manner which I am advocating, was offered to the various nations of the world, it would be palatable indeed, because it would be "entirely" voluntary. Like the Kyoto Protocols, nations sign up if they want. I would, however, recommend that such protocols have a bit of a sting. Nations signing it would be required to pass into legislation requiring businesses in their nation to conform, to a small degree. If a business imports goods from (or manufactures goods in) a noncompliant nation, either that business itself must comply as if that nation signed on, or a tariff is applied to those goods. Specifically, a tariff large enough to make it more economically efficient for that business to pay the minimum wage, but not large enough to be a great burden so as to ruin the company. If a few first world countries sign on, it forces international businesses to comply and would slowly spread out from those businesses to the intranational businesses in a region. All it would really take is a few powerful nations enforcing the rules to encourage the businesses at large to follow those rules.

This would, ultimately, reduce the lifestyle in the first world countries. We could no longer important goods that were made using slave-like wages, so those goods would be more expensive. But like oil, this is not a sustainable model anyways, and the sooner we get away from it, the better our society will be. However that makes it less likely that a big name like the U.S. or the U.K would sign on. And that is where the real problem with this proposal lies. It necessitates that at least a few powerful nations behave in an ethical, self-sacrificing manner.


Ironically, given my distaste for inflation, world-minimum-wage would cause significant inflation across the world. But if we can establish a basic level of human existence, it should then stabilize a little as well.

[FaustWolf]

I posted this elsewhere on the Internets in a topic entitled: Is the economy turning around? I'm interested in what you all would have to say on that subject. Here's what I said:


Cash for Clunkers did wonders in the short term for some communities; literally 1000 jobs (one full shift) were just recovered in my neighborhood's local General Motors plant thanks to the extra demand for fuel efficient vehicles. The Obama Administration's sudden Keynesian or pseudo-Keynesian ideas haven't been too shabby from the perspective of those they helped directly.

One problem is, injecting money into the economy does little to change its structure: we're still buying goods produced elsewhere for the most part and making little for ourselves, or for export to the nigh inaccessible (yet huge, and probably tempting) markets of high-population developing countries. Even where American companies are able to penetrate the markets of developing countries, they'll most likely just hire workers in said developing countries to keep production costs down. Why hire an American to make a car for a Chinaman?

Imagine where the Cash for Clunkers funds are ultimately going to end up: in the hands of auto workers for sure, but then they'll go to Wal Mart. Yes, part of that will help support Wal Mart jobs, but the bulk of it is going to be spent on products produced in developing countries.

I can see the system staying afloat if the US government reaches an implicit understanding with developing countries: we'll keep feeding money to American citizens, they'll spend it on your goods, and you'll loan the money back to us so we can keep this cycle going. Sounds pretty fair to me, actually -- but we'll have to accept a larger and larger role for the government in this scenario. There's just no way around it. There's nowhere else for the money to come from, because there's no reason for companies to hire American workers over workers they can pay far less. At the same time, it's unclear who's going to retrain members of the work force who have been laid off or who have a college degree but the job pool in their field has dried up.

I tend to favor Keynesianism more than any economic model I've studied, but IMO the government should be focused more on fostering structural market efficiency than directly stimulating consumption via simple subsidies: build a one-stop job search system and otherwise step in and link available workers to available private sector jobs; spend funds on researching emerging industries and then retrain citizens to enter those industries; create emerging industries where none exist (though I'd be interested to see some literature on Spain's apparently rocky green jobs experience); create a high speed rail system to increase the job search radius of every worker. I'm not sure whether these measures would be a major part of a solution to the crisis or if it would help only at the margin, but these things are badly needed from my experience, and I'm still waiting for a private sector entity to provide them. No takers yet.

One thing that will be telling is whether we'll have a "double dip" recession as some of the less optimistic economists are predicting. Part of the theory there is that government intervention has been largely responsible for the relative "feel good" time we're entering now (if you can call it that), but when government has to pull back on spending, we'll end up right back in the doldrums. Perhaps this won't pan out; whether the recovered shift at my home town's manufacturing plant is laid off again in 2010 will be one indication.

[Lord J Esq]

"Is the economy turning around?" is probably not the correct question. I would liken this recession to a serious heart attack from which the nation is presently recovering. That recovery is underway and perhaps we could end the discussion with a wipe of our hands, but all of the fundamentals which led to the recession are still in place, save only a few of the most egregious financial abuses and a handful of names, and thus, the American economy is still not on a sustainable course. Workers and business owners alike are still getting squeezed. The lawyers are overrunning society. Industries are still being consolidated into mega-conglomerates. Individuals are still spending too much, and their debt levels are still too high. Healthcare is still bleeding us dry. Gateways of entry to the middle class are still being closed as small businesses are out-competed by large ones, as blue-collar jobs are shipped overseas, and as "career ladders" continue to vanish due to the lack of job security people have at a given company anymore.

At the center of everything, this incredible upward redistribution of wealth is still underway. America has a very strong economic base, but wealth like you wouldn't believe is being continually stolen from the wider economy and shipped up to that top couple of percent of people whose net worth exceeds by many orders of magnitude that of everyone else combined. It comes from both sides, earnings and expenditures. On the earnings side the problem dates back to Reagan, and has been growing worse ever since as businesses and the whole financial sector continue to, for lack of a subtler term, rob us blind. The entire system is set up now to nickel-and-dime us. On the expenditures side, it goes all the way back to the dawn of the last century (when capitalists realized they could boost sales by marketing their products as disposable rather than durable), but especially after World War II (due to the explosive affluence following our industrial expansion), and especially-especially from the 1980s (when the conservatives took over and began reverting to the old robber-baron philosophies of the 1890s). We are encouraged many times on a daily basis to spend all our available money on things we mostly don't need, and to replace these things often. In this way, materialism, perhaps the greatest economic concept in history, has been co-opted by a virulent form of consumerism that has shackled the American individual into a never-ending shopping spree of sheer madness.

The heart attack is over and the nation is recovering from that--a testament to the solidity and resiliency of our economic base--but in the future one of two things is going to happen: We are either going to have to renovate the American economy almost fundamentally, or we are going to lose our global economic power by mid-century and decline, as the UK has, into a nation of secondary importance. To avert that, the federal government is going to have to decide to represent the people again. The American people are going to have to decide how they want to live. And, perhaps most interestingly, the American small business is going to have to reinvent itself to exist and prosper alongside these corporate titans, who don't appear to be going away any time soon and who for decades have devastated small business and thus the heart of the American economic engine.

Blame the plutocrats at the top, as usual, but also blame the modern American conservative. Never in this nation's history have so many people been brainwashed so absolutely into adopting a socioeconomic philosophy so utterly against their own personal interests and the interests of the nation as a whole. It's stupefying how stupid these people are. The best thing we can do in the short term is to press conservatives out of office in the elections. This includes Democrats, too: Unlike the GOP, the Democratic Party still has robust factions across the political spectrum. Because the GOP is entirely conservative at the federal level, this means that we still, today, have more conservatives in Congress than liberals--which is part of why the Democrats are being so timid with their massive majorities; there aren't the votes for a full-blown progressive agenda. If we could thin out the conservative ranks in the Democratic Party, we would hasten the reorganization of the conservative movement and in the meantime give the Democrats some clarity.

For us ordinary citizens, I prescribe a fourfold policy of political and civic engagement:

1) Campaign to replace conservative elected officials with liberal ones. Campaign to embolden liberal elected officials.
2) Don't buy more than you have to from any offending conglomerate. Buy from companies who deserve the money.
3) Keep up with the news and lobby your elected officials on important issues. Donate money, if you can, to the well-behaved.
4) Most importantly, use your money to improve your personal circumstances and grow your wealth. Do what's best for you...not what's best for the people taking your money.