The General Economics Thread

Some news—that I hope someone more learned can interpret—about the current US economy...

US productivity rose a modest 0.9 pct. rate in spring

We've hit a plateau. The economy is growing for those with lots of investments, its stagnant for those who depend on wages (with the exception of the highest paid). Productivity is slowing because no one is investing in low paid workers and their equipment or skills. For example, most retail businesses still use the same cash register software that was in use 10 years ago. Thats keeping wages low.

The other way to grow the economy is through immigration, and we all know where that is going. In general, isolationist policies preserve some jobs for those who already have them, but undermine the creation of new jobs.

We are stuck due to a combination of current corporate investment strategy and populist politics.

Slate article tells us what we already know: Part of what's killing job growth is that employers are perversely not raising wages even though they cannot find anyone who will take the wages that they're offering, leading to crops rotting in the fields for no one to pick them and a lot of retailers and bed-and-breakfasts reducing the time open because they can't hours anyone. So workers are (to quote Slate) "going Galt" and opting out of the workforce.

(Note: Not linking to the article to protest excessively clickbaity title. Slate, you can do better than this.)

So. Employers, what the fuck is in your kool-aid these days? Is the current aversion to giving workers anything filtering up to the people in high business who should really know better?

Personally, my bet is that the crapping on is being done by "small business owners" and franchisers who are penny-wise, pound-foolish, and closer to the increasingly-memetic ideology that fair wages are communist propaganda. High finance and big business doing this makes no sense - Wal-Mart and other idiotically-run business aside, most managers-in-suits are plain amoral rather than For the Evulz, and they ought to understand the concept that investing in decent employees is profitable.

edited 11th Aug '17 7:05:49 PM by Ramidel

Employers would sooner die than harm their short term profits.

If so, they have an odd way of showing it. This is not like a Dilbertian situation where you can downsize for a short-term profit boost and then exercise your golden parachute before the bill comes due - that would make sense from a Wall Street point of view. These are companies that are turning away customers and cutting back hours because they'd rather make less money than offer a living wage to their employees.

That isn't market forces and moral hazard leading to an undesirable outcome, that's swimming against the demands of the market just to prove you're an asshole.

edited 11th Aug '17 7:14:37 PM by Ramidel

The thing is, as far as they see it, they'd be making less money if they did pay a living wage than if they didn't. I know there was a restaurant in a city where the MW was raised to $15.00 an hour that had to operate on shorter hours and buy less meat because they had to use some of the money they usually used to keep the store open longer and buy their food towards giving all of their employees a raise, and were ecstatic when the MW was lowered again some months later. I'm not saying they were in the right, but some employers genuinely believe that they cannot efficiently operate without keeping a certain amount of money to themselves and away from their employee's pockets.

Though that's not even accounting for some employers who believe that certain jobs should only pay so much as a matter of principle. In most places, a server isn't going to make the same amount as a janitor for example, because they're two different kinds of jobs with different priorities and workloads, yet under a minimum wage, they both might get paid the same as one another. And some employers aren't too keen on that fact.

edited 11th Aug '17 7:48:32 PM by kkhohoho

TBH the first one I can kinda see, at least operating under the assumption that there is a "budget" which creates an opportunity cost between the salary and efficiency, but I presume this line of thinking is caused by greed and some level of mismanagement (which causes leftover money to go into the pockets of the employers instead of carrying over to the next cycle to cover other costs), yes?

edited 11th Aug '17 7:48:19 PM by MorningStar1337

Depends. For larger businesses that could probably afford to loosen their pockets a little, it's a good bet, but smaller ones like that restaurant might not be able to stay in business depending on how much they pay their employees. If I'm a small single-location business, then I can't really afford to pay my employees that much, because I don't even earn that much to begin with. Mind you, if they can't make enough to pay their employees a living wage, then maybe they shouldn't be in business in the first place, but it's still something to think about.

edited 11th Aug '17 8:05:09 PM by kkhohoho

If a small business cannot afford to pay its own employees a living wage, that is a sign of a shitty business owner.

Probally. If we're going with that, then they're not even shitty just in the moral sense; they're also just shitty at business if their funds are that low. If you're good at business, then you should be able to pay your employees a living wage, but if you can't do that, then you're probably not that good at business.

Precisely. They're immoral and/or incompetent.

edited 11th Aug '17 8:09:32 PM by M84

That's really a strawman and simplistic view of things.

edited 11th Aug '17 8:17:57 PM by firewriter

Do you just call everything you disagree with a strawman? That's not what that word means.

If you disagree, then provide a damn argument. Don't just dismiss it with "STRAWMAN!".

Employees deserve a living wage more than people deserve to stay in business. That's a cost of doing business and if you can't meet the costs of doing business you shouldn't be in it in the first place.

If you don't believe in paying employees a living wage then you're a pretty shitty person.

Mostly because small businesses do not work like big businesses. Budgets are not magical, and it's not due to greed but the fact you can pay for everything all the time.

In that case, a lot of small businesses would go out because then the ones who would meet those standards are the big corps.

edited 11th Aug '17 8:22:58 PM by firewriter

The only remotely justifiable situation would be if something out of your control and unpredictable fucks things up so badly for you that you have to cut costs somehow to save your business. But employee wages shouldn't be the first thing to be cut even then.

edited 11th Aug '17 8:20:01 PM by M84

Essentially, if you're running a business and can't pay a full-time employee enough to live... something is wrong.

.. Wrong. Just basic disproof by existence: Denmark does not technically have a minimum wage, but the industry wide union-employer settlements are defacto a minimum wage.

Of 20-21 dollars per hour.

And Denmark has an economy with a lot more small businesses (per capita) than the US. "High-wages hurt small buisnesses" is right wing propaganda, not economic fact. Very much in the vein of the constant invocation of family farms to fight inheritance taxes.

High wages hurt Low-Productivity buisnesses. And frankly, those need to die, anyway. If your business cant generate 30 dollars of value per hour of work your employees put in, you are doing it wrong, and need to stop wasting their time so they can go work for someone with a workable buisness plan.

edited 11th Aug '17 10:12:56 PM by Izeinsummer

I've never seen farms brought up to criticise inheritance taxes, only the tendency for houses to have gained value leading to taxes that inheritors can't pay without selling houses. Because property markets are ridiculous.

To be frank I think I should go looking again into whether the alleged low productivity of workers here is, again, tied to the perennial wage suppression that goes on here.

Or to climate change? That overly warm temperatures reduce productivity is well known. In fact, I occasionally wonder if the reason why Silicon Valley is in the San Francisco area is because other places would be too hot.

The research has not resolved this question yet. Given the complexity of the economy, I think its rather unlikely that there is a simple generalization that will apply to all businesses, regardless of context. I have some experience as a former small business owner myself. Providing a "living wage" is subjective to begin with- who are we talking about, young people with middle class extended families, single parents, minorities, college students, nuclear families with young children, elderly couples? What wage you need to live on depends on your expenses, which is a function of the local cost of living, individual circumstances, and the robustness of the local social support infrastructure.

The type of business also matters. I used to own a small, independent bookstore. I simply could never have afforded to hire full time employees with enough wages to support a family and decent health care. The market for books simply isn't there.

Finally, it's somewhat unfair to expect business owners to make up for the deficiencies of conservative government policies. We invented the welfare state for a reason- only government can provide certain services in a cost-effective manner.

That said, it's also true that large employers seem to have collectively decided not to invest in their workforce to the same extent as they have in the past. This likely has to do with chasing profits- right now there is a greater return on investment by buying securities in the financial markets- and shareholders demand investing money where the return is greatest. For large corporations, keeping your extra funds in bank accounts where they earn interest is seen as a safer bet than selling things to consumers. Consumers are skittery right now, and aren't spending like they used to.

I think what we really need right now is targeted stimulus spending, although not everyone agrees. This country needs a massive physical infrastructure building program, and needs it yesterday.

Not to disrupt the existing conversation too much, but I wanted to repost something I wrote in the U.S. Politics topic last year, as a kickstarter for a possible discussion about the fundamental principles upon which sovereign currency issuers operate.

For the record, on that subject, a business that cannot afford to pay its employees a living wage is a business that should not exist if you observe basic market economy principles. That it can exist is only due to the fact that the government subsidizes its wages via welfare payments. So saying that we need to keep the minimum wage low so that private bookstores (or Wal-Mart, for Christ sake) can stay in business is a fundamentally flawed argument from a free-market approach. It is a great argument for a tax-funded MBI, though.

Let's just imagine that I'm a private citizen with a certain amount of price-setting power: say I act as an early transaction broker. Rather than trade in goods, I trade in "I.O.U.s" — slips of paper saying they are redeemable for a certain value of goods that I hold in store for people. This "money" is a debt instrument: a promise that you can give it to me and get something of tangible value.

You don't want to swap your pigs for my carrots, you want instead to have a symbol of the debt that you can trade for someone else's potatoes, and that person can in turn come to me with the debt instrument and get the carrots they want, or even the pigs.

Note that, in this system, I could have a stack of IOUs going up the Moon and, as long as I'm the one holding them, they have zero value. They are worthless because I can't trade them with myself for stuff — well, I can, but it's meaningless. But if someone else gets them, they suddenly represent a debt that I owe, and if I run out of stock with which to back the transactions, then I'm in big trouble.

Good enough, right? But a fiat currency issuer like the U.S. government takes it a step further: there are no tangible goods backing the value of its currency. Rather, the value is maintained through two basic principles: the government requires dollars as payment of taxes, and the government will imprison you if you don't pay them. The government also does act as a primary provider of certain services, such as military, police, education, and whatnot. Through taxing and spending, the government creates both a supply of and a demand for its currency.

Now, the reason the government should balance its books in principle is because of its role as guarantor of the value of the currency. If the supply increases rapidly and without limit, it causes distortions in the market's ability to determine prices. if there isn't enough, on the other hand, people hoard money and don't spend it, causing recessions and depressions. The money has value within the government as well, as a medium of accounting — basically, an analogue of the private market designed to ensure that the prices the government pays for products and labor don't get out of sync with the private economy.

However, as with my IOUs, the idea of money having value when held by the central bank is a myth. If the Federal Reserve has dollars in its possession, those dollars represent a debt owed to itself: net value zero. Semantically, if the Fed takes in dollars, stores them in a vault, then pays them out again; or if the government burns all the dollars it takes in and creates new ones from thin air to pay out, there is zero difference. ^note If the Fed actually did that, the paper and ink suppliers would get a slight windfall, but most money is stored electronically these days, anyway.

Now, as for debt instruments, the central bank sells bonds, in lieu of issuing direct cash, to cover any shortfall in revenue vs. spending (deficits). These debt instruments are payable in dollars, at maturity, by the Federal Reserve. The purpose of these is twofold: to provide a safe savings vehicle for the private economy, and to allow the government to operate at a deficit without inflating the currency (say, by printing new money to cover any shortfall, which while possible in the short term, can have harmful inflationary effects in the long term).

U.S. bonds act as a backstop for the national economy — even the world economy — by setting the benchmark interest rate that all other savings and investment vehicles must compete with.

There is zero danger of a Weimar-style hyperinflation because we still produce goods and services, and all our debts are denominated in our own currency. That kind of disaster can only occur when goods critical to an economy are in such short supply that they cannot be had at any price in the currency issued by the nation's central bank, such that printing money only chases the problem down the street. So, unless our private industrial sector gets swallowed by the Yellowstone supervolcano, we're cool.

To sum up, the fundamental role of a central currency issuer is to ensure that there is enough money in the economy that people feel free to spend it, but not so much that prices rise too rapidly — in other words, its job is to adjust the supply of money to make Say's Law true in practice. To this end, the amount of debt it takes on at any given time is solely a function of the need to fulfill that role. That it has taken on such mythical properties in the public's mind is a real problem.

edited 17th Aug '17 10:04:17 AM by Fighteer

For anyone who may be interested in libertarian economics, or at least the theories behind much of it, I encourage looking up Jeff Miron's lectures and videos on You Tube or some of his books, like Libertarianism from A to Z. He's a senior lecturer at Harvard in their economics department and has a lot to say about economics from a libertarian stance without sounding like a maniac who just wants to get rid of taxes.

That's not making much of an effort to talk about it. At the least, give some idea what these theories are rather than asking us to go do do it for you.