Filed under: Economics, Freedom, Friends and relations, Newbie Info
Borepatch has a post up on the destruction of the middle class. I’m not even going to quote it here, because pulling quotes out would not do it justice, and you should really RTWT. Go do that. I’ll wait.
So, I’m not saying he’s wrong. But I struggle with the idea that there is anything we can do to stop it.
I would argue a few things. First, there is no such thing as an American corporation. There are corporations that are headquartered in America. There are corporations whose investors are mostly in America. But there is no such think as an American corporation. If Google could make more money tomorrow by closing up shop here, and moving their Mountain View campus to Singapore, they would do it.
A business must constantly innovate or die. If GE and Siemens are both selling light bulbs, but Siemens can do it more cheaply because they have access to third world labor, then GE has two choices: lower their cost of production, or exit the light bulb market. And that’s a good thing. Everyone gets more light bulbs at a cheaper price.
Would preventing the free trade agreements have kept manufacturing jobs here? Or would the companies have just gone out of business? I don’t know the answer…but I think it is a possibility worth considering.
Borepatch and I are both employed in high-tech fields. The skills that I sold when I graduated college for an enormous premium are not valuable in the market today. The skills that I sell today at an enormous premium did not exist at the beginning of the Obama administration. In 10 years, my current skillset will be useless and I will have to find another one. I can continue to innovate, or I can die (economically speaking, of course).
Manufacturing jobs in the US used to be offered at an artificial premium. Now, they have reverted to (global) market price. Is that a good thing? No, not if you were making a living in manufacturing. Yes, if you are consuming the goods they are producing.
One could argue that the “modern” equivalent of manufacturing jobs (relatively easily accessible, semi-skilled labor that pays well and has upward mobility) don’t exist in the modern economy. But I remember reading an article (wish I had the link) about coal mines looking for workers in West Virginia. They were looking for unskilled workers. All you needed to be able to do was show up every day, do your work, and pee clean. Starting salary was in the $40k range. After 6 months they would train you on machine operation. Then you made in the $80k range. Granted, coal mining is not pleasant work. I sure wouldn’t want to do it…that’s part of the reason I spend a bunch of time keeping my tech skills fresh. But it seemed to have a pretty low bar to entry. Even technology, which pays very well, has a pretty low bar to entry. What does it take to get started on a certification? And the job demand is high, and as you have pointed out, only going to grow.
The reality is that each and every one of us is competition for scare resources in this world. There have always been winners and losers. The good news is that all in all, it has worked out pretty well in the main. The average American has a standard of living that would have been the envy of the wealthiest American even 100 years ago.
The key to making sure that greed works for us and not against us is to keep the barriers to entry for new firms as low as possible. That way, every corporation that earns an “unfair” profit will have two or three firms nipping at their heels to do it faster, better, cheaper. That is where the bureaucrats have done enormous damage. Because big corporations have big money, they can buy politicians to write laws to favor them.
One side would argue, “We need to get the money out of politics.” Um…yeah…good luck with that. Think of it this way: Passing a law that says you can only donate X number of dollars to a candidate is essentially a price ceiling on the cost of a politician’s vote. The market reacts to the efforts to “get the money out of politics” the way they do in every other price ceiling. Because the market value of a vote is above the permitted price, we end up with shortages and a black market. Corporations and other monied interests have access to that black market, you do not.
The solution is not to “get the money out of politics” but to make the vote of a politician less valuable. And we do that by taking away their power. If there isn’t much a politician can do for you, then there isn’t much incentive to buy one. And the market price goes down.
Bottom line, if it is a choice between trusting greed and trusting altruism, out me down for greed every time.
So, the US Postal Service is slowly going bankrupt under a crushing load of unfunded pensions and union wages. Fortunately, there is an obvious solution.
What? Re-negotiate the labor contracts to something sustainable? No, no, no. The answer we were looking for was promote brand awareness by starting your own clothing line.
“It will make a contribution, but it’s bigger than that,” Betts said. “It’s really brand reputation, brand awareness, in addition to revenues.
I can totally see how this plays out: “Man, what a cool jacket! I think I’ll go home and send some *correspondence*, yo!”
I personally can’t see how this could possibly fail.
…the somewhat startling reality that “the single mom is better off earning gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.”
The graphic below quite clearly, and very painfully, confirms that there is an earnings vacuum of around $40k in which US workers are perfectly ambivalent toward inputting more effort since it does not result in any additional incremental disposable income.
From Zero Hedge.
Ed Morrissey points out that income inequality prevents equal access to firearms:
Now that the Roberts Court has affirmed that the government has the power to mandate purchases of private goods and services as long as it’s structured as a tax, I propose that we put this new-found authority in the service of an explicit Constitutional right. For far too long, too many Americans have suffered from an inequal distribution of firearms, despite the Second Amendment’s express exhortation to “keep and bear arms,” in large part because income inequality in this nation has kept the poor and working classes from having the proper protection for themselves and their loved ones. We need to end this disparity now by applying the ObamaCare model immediately.
RTWT. Is it bad if I can’t tell if this is satire?
An article on CNBC highlights the difficulties municipalities are going to have with their pension systems.
Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.
The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.
“What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,” said Joshua Rauh of the Kellogg School.
I’ve believed for a while now that the defined-benefit pension system is simply unsustainable. The math tells us that we are beginning a demographic shift in which we are going to have more retirees than workers. The burdens of these pension systems will shift more and more onto the current workers. But the article makes a fundamental error:
Based on his estimates, which use US Treasuries as the benchmark, each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties studied.
In New York City, San Francisco and Boston the total is more than $30,000 a household and, in Chicago, it tops $40,000.
This is not correct. The households have no obligation whatsoever to anyone. The local governments do. They can pass that obligation onto the households in the form of taxes. But the household has the option to say “Screw you guys, I’m going home” and move to greener – and less taxed – pastures. Technology makes movement even easier. I can do my job from anywhere I can get to an airport and get broadband internet access.
What will happen when cities like New York and Chicago, which are already loosing residents, suddenly find themselves having to pay higher and higher pension obligations with a smaller and smaller tax base? How long can they survive before everyone pulls out?
Ponzi or pyramid schemes are investment scams in which investors are promised abnormally
high profits on their investments. No investment is actually made. Early investors
are paid returns with the investment money received from the later investors. The
system usually collapses. The later investors do not receive dividends and lose
their initial investment.
Hmmm….what does that remind us of?
Peter at Bayou Renaissance Man posted a semi-tongue-in-cheek idea on how to address our economic woes.
Sadly, it won’t work. All it would do is raise prices where only those beneficiaries of economic largess would be able to afford anything. Oh, and any savers would be wiped out. And anyone holding US debt would be wiped out. And some of those folks might get pissed.
I’ve been using an analogy to describe the current condition with Social Security and Medicare. We sitting in a lifeboat. We have a member of our boat that has been grievously wounded. They are going to die. This is very sad, but there is nothing we can do. As a boat, we have two choices. We can expend all of our resources to try to save our crew member, have them die, and then starve to death ourselves, or we can let the crewman die and still have resources for our own survival.
This may sound dire, but I believe that the math bears me out. Social Security and Medicare are not sustainable. They have become giant cancerous tumors that are starving the host. If it isn’t cut out, the host will die. We can do this now, while the host is healthy and the “surgery” has a good chance of success…or we can wait until the tumor is so large, the damage so grave, and the surgery so risky that it has a good chance of killing the patient.
I don’t make this suggestion lightly. I understand that it means that a number of individuals who were counting on their Social Security will probably end up being unable to retire. That’s very sad. But the question that I keep coming back to is this: am I willing to ensure my parent’s standard of living at the expense of my child’s? Am I willing to shackle my daughter with lifelong debt in order to assure the lifestyle of today’s seniors?
No. I’m not.
Lawdog links to a story of insurance companies taking their balls and going home.
I made rather the same point, about what happens when you make companies sell products that they can’t make money on. They take their balls and go home.
Borepatch wrote a great piece…holy crap, three days ago? Man, I need to catch up on my feeds. I hate to try to summarize it, because he does a much better job than I, in a nutshell, he makes a similar point to the one that I did yesterday: government regulation slows down the pace of innovation, and can even stop it all together. RTWT.
BP calls out Sarbanes-Oxley as specifically having destroyed potential value for our country by stifling new company creation. SOX has theoretically reduced our risk of another Enron…but at the cost of billions of dollars in lost upside. Human beings are not very good at understanding risk. We tend to ignore the cost in favor of the benefit.
For example, I might propose a law banning the posession, sale, and use of a common piece of recreational sports equipment. These items are prevalent in the United Sates: over 10 million are privately owned. Unfortunately, they kill almost 4,000 people per year. I am referring, of course, to the backyard swimming pool.
This kind of issue can also bee seen in the current effort to ban Dihydrogen Monoxide.
I was excoriated in my behavioral analysis class for suggesting that Ford might have acted properly in their analysis of the Pinto situation. In a nutshell, in the late 1970s, Ford discovered a design problem with the Pinto which under certain circumstances a collision would make a vehicle fire likely. A $11 part fixed the problem. Ford did the math, decided that it was cheaper to pay out the wrongful death suits that would result from the fires, and declined to make the fix. Mother Jones magazine got wind of the situation, and published an article decrying the Ford company for being the heartless monsters that they obviously are, and hilarity ensues.
But let’s take a look at the numbers, shall we? Ford had made about 2,000,000 Pintos by the time the problem was known. This must have been a pretty serious problem. How many fires did we have with the Pinto? 27. Not a big problem. A rare occurrence.
Second, the Pinto was an entry level car. Basic models started at $1850. An $11 dollar fix on an $1850 car starts to become significant. But suppose it wasn’t $11, suppose it was $100 or $1000 dollars? Should we still make the fix? Where do we draw the line?
“Ah…but, George”, you say, “these are human lives we are dealing with here. Surely, if we can save one human life, it is worth it!” This sounds good. No one wants people to die. But once you acknowledge that there is a point beyond which we ignore the risk because it is too small, and the cost of mitigation too big, then we are only arguing about magnitude. And that is precisely what Ford did. Their error in conducting their cost/benefit analysis was not a flawed methodology, but rather that they failed to consider the impact of what would to their reputation if the memo got out. My buddy Lewis calls this the “CNN moment.”
Which brings us back to SOX. The problem with SOX as a risk mitigator is two fold. First, it takes what in fact a very rare occurrence (massive, intentional fraud by corporate management) and treats it as a mainstream occurrence. This imposes enormous monitoring and bonding costs on our economy that result in lost wealth.
Secondly, it makes the same mistake the the TSA does. The TSA believes that it can prevent future terrorist attacks by looking at what terrorists have done in the past. This is skating to where the puck is rather then skating to where the puck is going to be. The next corporate fraud, like the next terroist attack (and there will be next ones) will occur despite SOX and the TSA. And we will have spent all that money for nothing.