I was hanging with some friends this weekend who just don’t get why their ideology is doomed. One was the usual “He’s a Muslim because his dad was a Muslim and so …” where so is never filled in. More detailed was an exec friend who was bummed because his entry-level employees are unmotivated to try for a bonus he devised because “They’re all moochers who worry they won’t qualify for WIC or food stamps if they make any more money”. The bonus was an extra fifty cents to a dollar on top of the nine dollars an hour they make. Now, he’s a got a point: if only there were no food stamps or WIC he would have even more power over his employees miserable lives because they would have even fewer options on how they manage their bleak, endless poverty.
htrn.news America’s productivity (income) has been on a gradual rise beginning in 1947 and continuing to today. However, the take home pay of the middle class has stopped paralleling that rise beginning around 1975. This has caused a concentration of income at the top, where there is little demand for goods and services as there would be if there was a more equitable distribution of this nation’s income. Jobs are not being created because the consumer, the real job creators, do not have adequate take-home pay.
There it is, but rather than try to explain that I just asked him when was the last time he tried to survive, much less raise a family, on a single income of nine dollars an hour. At which point the elitist entitled truth came out; they’re losers and he’s not because he works hard. He works hard for the $115,000 plus lavish bonus he makes every year and he can’t figure out why ‘his people’ won’t work just as hard as he thinks he does for a tenth of that. Even if it means losing benefits that pay more than the pitiful extra shekels he’s willing to shell out!
.:Shrug:. Yeah, he literally does not get that.
Conservatives don’t get this, i.e., the pay inequity that already existed has been amplified many times because of the Great Recession to the point that frugal, qualified, experienced people like me simply cannot survive on the wages available, and I don’t think they ever will get it. It’s just baked into their DNA to not understand and blame others, especially the poorest, least powerful people involved. How conventient.
I suppose in a way that’s a big fat judo move waiting to fall: if your ideology and political strategy is built around keeping the con up where enough people vote against their own economic interests, to the point of going hungry, that you can win elections consistently, your ideology is built on a massive delusion that’s going to crash and burn.
This is so true. There is a local, very wealthy, alpaca rancher in my area who is quite indignant that the local people do not support her store, after “all she’s done for them”. Hey. The locals are trying to make a living raising a few cattle off their land. They don’t really NEED, nor can they afford, luxurious alpaca fur coats, alpaca sweaters, or expensive and gorgeous alpaca yarn. Don’t get me wrong – that stuff is awesome. The locals are not going to buy it though because they are trying to simply survive and do not have the cash for stuff like that. If she sold salt blocks and feed she might do better.
I pointed this out to her one day, and she told me how wrong I was. She had been offereing Barbie coloring books for $1.00 and they STILL wouldn’t come to her store, she said huffily. Then she got on a plane and flew to her other house in Palm Springs. **SIGH**
The fundamental error that seems to be made here is laid bare in your quote from htrnews. Aggregate demand for goods & services, not mythical reliance on job creators (which, now that I come to think of it, seems to be about as dangerous as mythical reliance on government handouts), is what creates the conditions for good employment.
We should probably not underestimate how well the “moocher” meme resonates with some poeple though. In their addled minds they’re all “carrying us” moochers.
They don’t get it, and ‘business people’ are some of the dimmest bulbs I’ve ever known. They think they are all separate, independent little islands in the economy, and pay cuts for their workers can do nothing but increase their profits. What can you say to that, but “LOL”?
A few years back I worked at a Chevy/Cadillac dealership, run by one of the dumbest motherfuckers on the planet. For a little background, dealership service departments do two separate kinds of work: warranty work, where the price per hour and number of hours for each operation are fixed by GM and generally non-negotiable; and customer pay work, where the poor sod with a car that’s out of warranty gets taken to the cleaners. So the shop wasn’t bringing in enough customers or enough money. Cust pay labor rate was $55/hr. Dumbshit owner guy decided the way to fix it was to jack the labor rate to $75/hr. Guess what? Customers called to get estimates, and said “Fuck that!” and went somewhere else. By some cruel twist of fate, this did not bring in more money! So of course, that was a clear indication that the system needed another little tweak: raise labor rate to $95/hr. He was utterly baffled as to why this still didn’t work. Layoffs and a loss of the Cadillac franchise ensued.
And the part of it I don’t understand is that dumbshit rich guy is still just as rich as before. It seems it’s impossible to fail once you reach a certain height, and impossible to climb up if you start out too low.
And, saying “Your employees are somebody else’s customers, and their employees are your customers, and if everybody pays shit wages none of you will have anybody to sell things to” is the current definition of Socialism, so it’s not even possible to discuss things like that with them. They just raise the defense shields and block it all out.
I have a friend who recently shouted at me about how OBAMAPHONES!!!!!111one were the cause of all our troubles and that’s why he voted for Romney.
I said “Dude, that was started by Ronald Reagan, 1984, the Lifeline program. Look it up.”
“WELL I DON’T CARE WHO STARTED IT THEN, THOSE PEOPLE SHOULDN’T GET SHIT!!!11one”
So, first it was Obama’s fault, then it didn’t matter. I guess it’s both?
(He’s also the one who claims he’s absolutely Not Racist(tm), and simultaneously that the southern slave states before the war were the ultimate pinnacle of human freedom. How do you get through to somebody like that?)
I imagine it would take something like a Louis Winthorpe III experience. So, do you wanna bet a dollar on whether it’s nature or nurture or a combination that determines how successful someone is?
No, they do not.
So the exec friend is not bothered that his company pays so little that people qualify for food stamps. And then he’s bothered that his employees can do math – $150 in food stamps is worth more than $60 in pay. Lazy peons.
Okay, let me preface this by saying that I am extremely liberal, and I completely agree with the central thrust of this post; conservatives that don’t understand that social justice has a major economic component really are just not getting it.
However, this example that you used:
This is actually mistaken. The money that exists at the top does not cause less demand for goods and services. The reason for this is that the money at the top doesn’t just sit there. It goes to banks, and banks do not just sit on it.
When you put money in a bank, it gets lent out to someone else, who spends it on goods and services. This is not immediately apparent, but it’s essentially how it works.
Money being concentrated at the top is not bad per se, at least from the standpoint of economic health; the money is still being spent, which means it does not cause a slackening of demand for goods and services.
Obviously though, an unjust distribution of wealth is bad for other reasons, which are perfectly valid (namely, an unjust distribution of wealth is, well, unjust). But this particular argument is not really accurate.
Dunno about that, in simple terms, a billionaire probably doesn’t buy a thousand times as many cars as a millionaire. Let’s use an extreme example, say all the mnoney wa sin the hands of a single person, while everyone else worked for nothing but basic food and shelter, you wouldn’t have any mass production at all because no one could buy the mass produced items. So it seems on many levels, both intuitive and using analysis, the broader the income distribution, the better off everyone ultimately will be. You follow?
I would never argue that everyone in your extreme example is better off. Of course not. The world would be a terribly unjust place, even more so than it already is, if that were the case.
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And an economy where literally just one person has all the wealth would not function at all, equally obviously (who would this person exchange goods and services WITH? For that matter, how could we say that he holds all the money if there is no one else who values that money? If it’s resources, then how does he maintain and control those resources, all alone? But I digress).
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However, there’s a point you’re missing: That billionaire is not buying 1,000 times as many cars as a millionaire. He is, however, INVESTING 1,000 times as much money. And where does that money go, when it’s invested? It goes to other people, who spend it on various things. Ultimately, having 1 billionaire participate in the economy is precisely equivalent to having 1,000 millionaires participate in the economy.
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Even though the billionaire doesn’t spend most of his money himself, he invests the vast majority of it, which is really just him having other people spend his money for him. The money that a billionaire owns does not sit under a mattress. It still circulates into the economy and is spent on things. Which means, in turn, that it does not cause a shortfall in demand.
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In short, like I said above, having a more equal distribution of wealth is great for many reasons, but it does not, by itself, cause a surge in demand, or automatically increase total spending. It therefore has no effect on jobs, just by itself.
Banks tend to not loan money to people who don’t earn enough to pay it back.
Dee Emarr, you need to at least take economics 101 before professing to be an expert in the field. If the savings rate goes up, the velocity of money goes down, which lowers the economic activity of the country.
The results of this are seen in that the banks lend out less money and are willing to buy government bonds at almost zero percent interest
Uh. Yes. That is correct.
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What is your point?
Hey, you’re the one claiming rich peoples’ money in the bank is just as beneficial to those at the bottom of the scale as a paycheck, you tell me.
Actually, I am explicitly NOT saying that.
I said emphatically in every post that an unjust distribution of wealth is UNJUST.
What I AM saying is that an unjust distribution of wealth does not, BY ITSELF, cause a slackening of demand, and hence does not contribute to unemployment.
I am a leftist. You are caricaturing me as some Libertarian whacko. You could not be more wrong.
I was criticizing the OP for a technical problem with the example he used. I am not saying that unequal and unjust distributions of wealth are somehow okay just because they don’t happen to generate unemployment.
But I AM saying that they do not, in fact, generate unemployment.
No no, I’m not intending to caricature you as anything, sorry if it came across that way. I just can’t think of examples where your argument holds up.
I’m not very good at capitalism in general (not greedy enough, I guess) and most definitely not an economist, but it seems to me that banks loan to the already relatively well-off, who are the ones squeezing workers with ever lower wages, and keeping an ever larger share for themselves (or, giving more to THEIR bank to loan out to the next sweatshop operator…).
Not all dollars are equal. A 1%’ers dollar spent at a Lamborghini dealership has less carry-on effect in the economy as compared to a dollar of food stamp money spent at a local grocery store.
A race to the bottom can be profitable for a while especially if only a few employers are doing the squeezing, but when they are all doing it they hurt not only the little people, and the economy in general, but also themselves, as they’re eliminating the purchasing power in the larger population that keeps their profitable business afloat and their money rolling in.
Which is, I think as best I understand it, the situation that has been building for the past 30 years. Add on top of that the mortgage fraud bubble and you get the Great Recession.
Actually, Dee, money put into a savings account by definition causes less economic activity then money spent.
The banks can only lend out the deposited money, minus their required reserves. The reserves are very low(1%), but for example, putting $1,000,000 in the bank rather than spending it, means that the bank can now lend out $990,000 to be spent in the economy. This means that $10,000 less economic activity can be produced by the same $1,000,000 than if it were spent.
Another point is, that a lot of wealthy people are putting their money in overseas accounts. That directly takes money out of the American economy.
Crud. If Mr. Andrew would be so kind as to delete both this post and the one I just posted at 6:16, I’d appreciate it. That last one was a misclick.
austinmartin said:
First of all, I would not claim to be an expert in the field. Far from it. On the other hand, I am not purposefully talking about this without knowing anything about it. If I am incorrect, so be it, but I am debating this point in good faith; I am not just blowing hot air.
Second: think about what you’re saying for a second. You’re giving an example of an economy where all the banks are seeing tons of people saving money. This means that lots of money is being held by the banks. And you’re saying that it causes them to suddenly be reluctant to lend? Wouldn’t such an economy make them do the opposite? If there’s tons of money being saved, doesn’t that give them an incentive to make use of it, and lend it out?
Furthermore, the velocity of money is a measurement of ALL of the transactions in an economy over time. When tons of people are saving money, as I said above, this means that banks are going to lend that money out to people. And that means that that money will go on to other transactions.
To reiterate: The money in a bank does not just stand still.
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comfychair says:
No worries; text can be difficult to read the tone of, sometimes. I occasionally run into people who hear one critique of a left-wing economic policy or idea from me, and immediately assume i’m some right-wing nutjob.
Apologies for assuming.
That is certainly true, when you’re talking about local impact and helping your community to weather an economic crisis a little bit better than the average town. However, from the standpoint of the economy as a whole, that difference in where the money is spent does not decrease demand or lead to unemployment.
I certainly agree that a race to the bottom kind of collective action problem is a bad thing, and that kind of problem is a golden example of why the economy NEEDS government intervention to work properly. However, I believe you are incorrect that this is such an example.
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Consider that when a business cuts employee wages, they are then in a position where they have more money to spend elsewhere. So where do they spend it? Well, maybe they spend it on more/better supplies, or on better facilities, or it goes to the business’s owners, who then spend it on something for themselves or deposit it in a bank.
In every case above, the money is still going SOMEWHERE. Which means that it doesn’t stop moving, which means that it doesn’t lead to a slackening of demand, or from there into generating unemployment.
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austinmartin says:
This is true. A bank cannot lend out ALL of its money. However, as you said, this is a very minimal caveat. It’s about as minimal as the amount of cash that the average person keeps on them in order to conduct routine transactions, as far as slowing down the economy. Which, incidentally, is something you would have to take into account if you were to take $1,000,000 from one person and split it up among 100 different people for them to spend.
One would probably have to actually do some auditing in order to figure out which would be more detrimental to the economy, but both are incredibly minor effects.
So yes, you’re right about that, technically. But it still doesn’t make much of a difference in the aggregate.
The tricky thing here is that different currencies keep different economies isolated from one another. When you trade one country’s currency for another’s, what you’re doing is basically saying, “Here, I would rather you spend the money on goods and services from Country X instead of me, in exchange for the right to spend your money in Country Y.”
The money still gets spent in the economy that it came from.
This is sort of like having a site that allows people to exchange gift cards with one another. No matter now many transactions and trades and whatnot take place, the only way to get rid of that McDonald’s gift card that you don’t want is if someone, somewhere, wants to buy food at McDonald’s.
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Even if you don’t change currencies, but instead deposit your money into banks that deal in your country’s currency, you have not taken money out of your country’s economy, because that money will get lent out to someone who wants to use it to buy your country’s goods and services, which means that your money is still circulating in the economy. Ultimately, SOMEONE is going to spend that money in your country, because if no one wanted your goods, you would not be able to sell your currency.
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I feel like I have to reiterate once again that I am not commenting on whether an economy that has a vastly unequal distribution of wealth is just or not. I certainly do not think it is.
The critique I have is very narrow:
Unequal distributions of wealth do not, by themselves, cause unemployment.
Dee, you misunderstand how Americans store money in tax-haven overseas banks. They do not exchange them for local currency. They put the money there in American denominations.
Second, you’re assumptions on bank lending are not correct. They will not necessarily lend out more money if they have more savings. Especially in an environment where they are trying to increase their reserves for bad loans.
Third, you really need to study the definition of gdp. savings/investment/bonds take money away from gdp. By “default”, they lower growth. Now, that’s not to say that good investment can lead to higher growth down the road, but in a given year, if less people are spending, and more are investing, the gdp is lower. Therefore for every million that is not paid to the lower classes(who typically spend 100% because they’re living paycheck to paycheck), and it is paid to someone who is not planning on spending it, the gdp is lower.
Now in the long run, it could be that the investments made cause the economy to grow larger, but the current environment has a lot of lower interest bonds being bought which most likely will not help out with growth later on.
But but but… bank loans have to be paid back, which takes that money back out of the economy again. If we were talking grants instead of loans, it’d be different, but we’re not. The loaned-out cash does ‘work’ while it’s out there, but the repayments are money that can’t be spent somewhere else. Borrowed money and spent money aren’t even in the same league when it comes to their driving effect of other economic activity farther down the chain.
And while it’s true, in a sense, that money in the economy all counts no matter where it came from or where it’s spent, not all of it counts the same. People at the top don’t spend 100% of their income, and what they do spend, they’re more likely to spend it with others who are similarly high up the scale, who also don’t spend anywhere near 100% of their income, and so on.
But a single mom with two kids and a deadbeat absent father who doesn’t/can’t pay child support, and earning $12,000/year in a shitty job and whatever public benefits she’s not been shamed out of accepting, will spend every single little red penny that comes in, and then some, if she can find it. To not do so would mean they’d go hungry (er, well, hungrier). That mom is likely to spend a great portion of her money at places that employ people not too dissimilar from herself – and they too will spend every single little red cent they can lay hands on, most likely again where it will go to people like themselves. There’s very little idle money the closer you get to the bottom.
If you look at the distribution of government money in terms of food stamps vs. tax cuts, there is a substantial advantage to the GDP for food stamps – even though the cost to the government is the same. The important fact to society is how fast that money moves in the economy. Food stamps or infrastructure repair will mostly go into the hands of those who will immediately spend it on things for day-to-day use while giving money to the rich in the form of tax cuts will have the money stagnate when it is finally spent on some luxury item.