Labor Economics

I'm not saying everyone is losing money. If you're making zero profit, you're sustaining your expected standard of living and not losing any money. Zero profit is a good thing.

Well, it depends on how you measure it.

And yet, those are deadly words to the average, not-an-economist person.

You're either missing the point incredibly or have a very non-American view of things. The point isn't to sit pretty wherever you started, the point is to go higher. Zero profit is bad because it means you're not going anywhere. You're gunning the engine with your foot on the breaks...

edited 31st Aug '11 4:16:52 PM by USAF713

Zero profit actually means your investment is matching the value of the next best alternative. It means you can't do any better.

Opportunity cost is like that.

Economic Profits =/= Nominal Profits. In order to have positive Economic Profits, your Nominal Profits have to be pretty substantial.

Basically, your gains need to A.) Pay for the value of your time as much as just getting a job and B.) Have at least a profit margin that, dollar per dollar per investment, you are getting a return rate higher than the next best thing. Like T-Bills. You have to pay attention to interest rates. If you spend 100,000 dollars, and you get 150,000 at the end of the year, hooray! But if your time is worth 100,000 dollars a year, you've lost 50,000 dollars, and oh no, turns out that if you had not only spent your time earning 100,000 but also put that 100,000 into T-bills, you'd have 114,000 dollars plus the value of wages, aka 214,000.

In short, by earning 50,000 on 100k of investment + 1yr of time, you just lost 64,000 dollars.

Those numbers are abstract and arbitrary. I don't think any low risk returns currently offer an average of 14% interest. Likewise, in this job market, the value of a person's time is probably more like ... 20,000 or something. So, with 5% average returns, plus 20,000 dollars of lost wages, you're actually getting 150,000 compared to 124,000 dollars. Meaning that that it was actually a really good year.

The specific numbers matter <_<

edited 31st Aug '11 4:22:34 PM by TheyCallMeTomu

That doesn't make any sense...

That's because you probably haven't studied economic theory. It makes perfect sense to me.

I'm a sociology/psychology person, not an economics person. Too many numbers in the midst of the social interaction for my tastes...

edited 31st Aug '11 4:32:01 PM by USAF713

@USAF: I'm going to start the co-op because I can afford to start the co-op.

IT is unique as a business in that it doesn't need any significant starting capital.

An IT company can be started by four guys in a garage. You need a good Internet connection, which runs in the neighborhood of 200 bucks a month, and perhaps ten grand's worth of computer equipment (divide among the Founding Techies). You need to pay the electricity bills, and that's it. Any revenue it makes is pretty much profit for the splittin'.

Other businesses require much more capital investment. Techies can do it unobtrusively, but car industry workers would have to seize the companies they work in to ever get a shot at being self-managed.

edited 31st Aug '11 4:35:51 PM by SavageHeathen

Canada isn't the world's largest economy who has to directly compete with China and India in what is potentially a losing battle economically. The US is.

edited 31st Aug '11 4:33:49 PM by MajorTom

And?

Point is, you're advocating a model. So, go prove the model works. Don't try to force it on people. It seems entirely hypocritical, in light of the other things we're supposed to be advocating here...

Isn't everyone competing with everyone...?

edited 31st Aug '11 4:34:58 PM by USAF713

Tom, that sounds suspiciously like a non-argument to me.

People are trying to compare a tiny economy to the big one and conclude no difference. It's an argument, not a voluminous one but it's still an argument. Never dismiss the notion of scale or size when talking economics of any kind.

Well, Canada isn't exactly a tiny economy, now. It isn't huge like the US, but it's far from tiny.

A worse comparison would be Britain versus the US, not due to economic size, but due to population size and land area. Primarily the second one...

Dude, we're bigger economcially then India.

That's impossible! Y'all got 30 million inhabitants, tops. India surpasses the billion!

Doesn't matter. You can have all the population in the world, but it doesn't do a damn thing for you if none of them can find a job—because they're all taken—or buy anything...

GDP per capita, mate.

And 32 million at least. We'll see after the census.

edited 31st Aug '11 6:07:44 PM by Erock

The way I see it, business (and business owners - capitalists) is entitled to work toward earning a normal rate of profit - that is, opportunity cost + risk premium. I think that's only fair that businesses have a right to earn that much on their endeavors (not to say that they always will, due to overcompetition or inefficient business practices, but that they have the right to pursue as much).

Business, in some loose respect, makes profit on the back of the worker - it is not unreasonable to say that business revenue comes from paying workers less than the value of their work - they produce (on average) their average revenue product (duh), but only get paid their marginal revenue product (Which, due to decreasing marginal returns, will always be lower than the average product)

The problem is when business starts taking advantage of a bad economy in order to squeeze more profits out of a workforce with 18 million unemployed (and a similar number on top of that either discouraged or underemployed). Business absolutely loves this 9% unemployment number - look up Marx's idea of the Reserve Army of the Unemployed for more on this. At this point, business doesn't even have to pay marginal revenue product to workers, since in a bad economy, the employer holds all the cards, and can threaten employees with termination for the smallest infraction or underperformance (or no real reason at all) - it's all too easy for businesses to replace their workers. When unemployment was 3.8% toward the end of the Clinton era, the reverse did occur to some extent.

The problem is that demand won't pick up until workers get back to work, and workers can't get jobs until demand picks up. Businesses could invest, but when it's so easy to be a manager/executive these days, who has any incentive to get the economy back to full employment? Wall Street and corporations are back to partying like it's 2006, and no one is adjusting the incentives to make them want to hire people back.

tl;dr : If you want businesses to hire, make it too painful for them not to do so. I actually advocate tripling the dividend tax rate from 15% to 45% to disincentivize dividends and toward capital investment.

Investments (where dividends come from) were until recently the second largest sector of US economics and still remain a very large component of GDP. Tripling capital gains tax is like introducing a national sales tax on top of the state sales taxes everywhere. Great for revenue, terrible for economics. Investment creates a hell of a lot more jobs than you think they do.

While I agree with you that businesses shouldn't be able to take advantages of workers, I don't subscribe to the notion that labor has any value in and of itself. It is a product that has value, not labor. Not to say that a product has to be tangible—services are a product, after all—but you can labor all day and not get anything done. Why should I, as a business person, pay you for doing a whole lot of nothing?

Thus, products are a measure of value, not labor...

Again with the stock Austrian talking points. I'm aware of what investments can do to the economy. However, let's clarify a couple of points:

Buying / Selling stocks / bonds / other securities isn't bona fide investing, and let's not treat trading of paper notes with the same legitimacy that true investment (read: capital and human capital investment) should receive. Furthermore, I'd bet that 90% of all stocks are owned by the top 15% of the income ladder, who definitely can afford to lose some of their effectively free money (they're obviously not having to put any effort into letting their paper assets sit around and appreciate).

But the real reason for my policy has to do with those trillions that businesses are sitting on. I believe that by making dividend payments so painful for shareholders, the shareholders will demand that businesses instead use that cash reserve to make the sort of true investment that actually does circulate through the economy and lead to growth.

And who knows. Maybe we can use some of the revenue generated to reduce payroll taxes that businesses have to pay for their workers?

edited 31st Aug '11 6:58:30 PM by DarkConfidant

The capital gaisn tax is alughably low, when it's not 0.

You'd be wrong. The majority of all stock is in the hands of various funding groups. Retirement assets like IRAs, 401ks, pension plans, independent investors (who come from literally all walks of life), mutual funds, venture capitalists, cooperatives, small businesses and much more. The "90% in the hands of 15%" meme ended about 90 years ago with The Roaring '20s.

edited 31st Aug '11 7:04:11 PM by MajorTom

Doesn't the top 10% richest people in the US have something like 55-60 trillion dollars on hand, in either liquid assets or other assorted random shit? That sounds... really bad...

Sure. Discount that argument. Note that you don't have an answer to the rest of my argument, you haven't shown that increasing the dividend tax rate would hurt those people (especially those in tax-advantaged plans like the aforementioned IRA, 401(k), 403(b), etc. that don't pay those taxes, and you haven't shown that the resulting capital gains won't offset decreased dividend income.

^^ Actually that's very good. It means there's significant opportunity if you are willing to work for it. Long gone are the days of "old money". 99% of all rich folks living today made their millions/billions within their lifetimes. Some were lucky, others worked their asses off, almost none of them had it handed to them.

Why we should punish that is truly beyond me.

^ Do you really think hiking taxes on dividends will translate into new jobs? Dividends are not an expense. They are paid for by net accounting revenues after taxes (most of the reason why they are so pitiful in amount).

In English, you're going after chicken feed in the coop when the grain silo was welded shut.

edited 31st Aug '11 7:08:54 PM by MajorTom