Endorse a Drama-Free Solution to High Unemployment

[EdwardBaiamonte]

how this money tends to circulate among the rich instead of trickling down as it is expected to.

the liberals thought a luxury tax on yachts was foolproof. The rich stopped buying yachts and the poor and middle class who build and maintained them lost their jobs. The Democrats had to repeal their own fool proof tax.

 

[Misaki]

the liberals thought a luxury tax on yachts was foolproof. The rich stopped buying yachts and the poor and middle class who build and maintained them lost their jobs. The Democrats had to repeal their own fool proof tax.

From the NYtimes article linked in the petition:

“This group is key because the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”
...
In 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, it is a $2,495 pair of suede boots that are thigh-high. Crème de la Mer, the facial cream, cost $1,350 for 16 ounces at Bergdorf Goodman in 2008; it now costs $1,650.

“I think that she’s willing to pay whatever price the manufacturer and the retailer deem appropriate, if she sees that there’s intrinsic value in it,” Ms. Katz said.

Part of the demand is also driven by the snob factor: at luxury stores, higher prices are often considered a mark of quality.

 

[EdwardBaiamonte]

the liberals thought a luxury tax on yachts was foolproof. The rich stopped buying yachts and the poor and middle class who build and maintained them lost their jobs. The Democrats had to repeal their own fool proof tax.

From the NYtimes article linked in the petition:

“This group is key because the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”
...
In 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, it is a $2,495 pair of suede boots that are thigh-high. Crème de la Mer, the facial cream, cost $1,350 for 16 ounces at Bergdorf Goodman in 2008; it now costs $1,650.

“I think that she’s willing to pay whatever price the manufacturer and the retailer deem appropriate, if she sees that there’s intrinsic value in it,” Ms. Katz said.

Part of the demand is also driven by the snob factor: at luxury stores, higher prices are often considered a mark of quality.

are you liberal or conservative and do you think wealth stays at top or trickles down?

 

[Misaki]

are you liberal or conservative and do you think wealth stays at top or trickles down?

Liberals and conservatives are both sheep.
Psych Your Mind: Don't be a sheep...or a donkey or an elephant

Given the amount that the rich spend, it is evident that money does not trickle down, it just goes back to other rich people (including financial sector workers who often make $200k+ per year. Average salary for security workers in NYC is $360k).

 

[EdwardBaiamonte]

Liberals and conservatives are both sheep.

please explain why conservatives are sheep or admit that as a liberal you lack the IQ to do so. Thanks

 

[EdwardBaiamonte]

Given the amount that the rich spend, it is evident that money does not trickle down

if it doesn't trickle down why are the poor so rich? How can we afford to give them trillions in free housing, health care, education and other welfare entitlements each year???

 

[Misaki]

Liberals and conservatives are both sheep.

please explain why conservatives are sheep or admit that as a liberal you lack the IQ to do so. Thanks

What is surprising, is that when participants received information about how other members of their party voted, the content of the policy mattered very little. Republicans far preferred a very generous welfare policy, when they thought other Republicans did so too. Democrats far preferred a very stringent welfare policy, when they though other Democrats preferred it. It seems that in light of new social information, individuals’ attitudes changed enough to vote counter to the overall philosophy of their party.

Given the amount that the rich spend, it is evident that money does not trickle down

if it doesn't trickle down why are the poor so rich? How can we afford to give them trillions in free housing, health care, education and other welfare entitlements each year???

The top 10% of the population owns 83% of net financial assets and 75% of wealth, while getting 47% of income.

And the US can afford to spend trillions on the poor (mostly in programs that people worked for, like Medicare and Social Security) because it has trillions, GDP of the US is $15 trillion.

Money from health care, in particular, doesn't go to the poor; it goes to pharmaceutical companies and doctors: Pay For U.S. Doctors Is Tops : Shots - Health Blog : NPR

 

[Widdekind]

If more businesses were reinvesting their profits maybe the argument to keep profits high would be more convincing, but as a group corporations are not finding anything useful to spend their money on

First, businesses do not "owe" their money, to anybody, for anything. If others have such "good" ideas, for what to do with those businesses' money; then they could put together a proposal; and woo funding for their entrepreneurial innovation. "Hey man, they've got lots of money" amounts to casing, and robbing, a bank. "Plundering" others' earnings is not productive, nor a sustainable long-term solution. Until somebody innovates another "good idea", should businesses waste their money, on known-to-be 'bad ideas" ?

Second, since 1980, owners (stock-holders) have often made their companies buy back their stock, at bubble-peak prices. From the article you cited:

At the top of every boom [since 1980], there's been a massive round of stock buybacks, which you could think of as shareholders cashing out their bubble wealth.... when shareholders use businesses as ATMs, those businesses' workers and customers get to share the pain.

Thereby, those owners chose to spend hundreds of billions of dollars, of their businesses' money, to themselves. That is perfectly legal -- they legally owned the business. They could have shut down operations, entirely, and liquidated the entire enterprise. Now, cashing out is not very business-minded. Hundreds of billions of dollars, which could have been used to expand operations, were used instead to pay off owners. That would not help the businesses, or the workers. But it doesn't directly harm workers either -- they still had jobs, and they still earned their pay. The money used, to buy back stock, came only from retained earnings, after payrolls. Wages were not "raided".

Inexpertly, owners would only be able to cash out once. Perhaps they could make their companies buy back half of their stock; and then make the company do a stock split; and repeat the process. Whilst that does not "raid" wages, that does "raid" the businesses' retained earnings. i guess that is legal; such is neither business minded, nor economically competitive. And if domestic or foreign competition used their retain earnings, to grow their businesses, and capture more market share; then such "selfish" owners would eventually be driven from the market. But owners own the business. Can they not dispose of the business' assets, as they see fit? As long as wages were not "raided"; then unless "raiding retained earnings" posed a threat to national security, short-business-sited owners mis-managing their businesses, is legal; does not physically or economically harm workers. It's not good business, but every manager is not a "Bill Gates". And if workers banded together, and bought stock, then they could influence decisions, and could even own the company themselves, after the next buy-back.

money tends to circulate among the rich instead of trickling down as it is expected to. For example, golf courses might look for employees with a college education

Again, no person or business "owes" their money, to anybody else. If others want more of their money, then they can offer some valuable good or service in exchange. If i understand your argument, wealthy persons & businesses have lots of money; but do not perceive any profitable projects to spend on. If so, then the current recession reflects allot of "nobody is offering any valuable good or service". If everybody across the country went on strike, and refused to do anything, for anybody; then the US economy would enter a similar recession. Meanwhile, even as "nobody is offering anything valuable", "everybody is eyeing O.P.M." That is not economically legitimate. Perhaps people perceive that "voting" take over of O.P.M. is easier than "working" for the same?

More profitable, yes... but I don't think it would make them more competitive unless they actually have something to invest that money in. For many businesses, it's just a zero-sum game between employees and stockholders, which is why many people were upset about the Bain Capital thing.

If all wage & salary workers took pay cuts, then their businesses could cut prices, thereby being more economically competitive, against domestic & foreign alternatives. That could boost US exports, keeping jobs at home, instead of losing them abroad.

There is no zero-sum game between workers & owners. Workers earn their pay. Owners built the company, when they bought their shares (at IPO). They hold legal title to the company. That legal title says they get dividends, and voting rights. As long as they do not "raid" wages & salaries, then they own the business, and can dispose of it to their whim & fancy (unless their exists some pressing Public or national security interest in the business). Ideally, US business owners would care about US businesses remaining economically competitive. If not, then Americans are not good business owners, and they won't wind up owning any businesses. That is economics & business. If US workers think they can do better, then they can buy stock, and become owners, and "do things right". Perhaps some may need to.

It is actually usually banks or venture capitalists who make the decisions on what to invest in; the money could just as easily come from the 'middle class' letting banks take care of their money. And if people just hid their money under their mattress instead of lending to banks, the government could easily and instantly create more money for people to use to invest, as it did in the ineffective "Quantitative easing" programs which injected trillions of dollars into the economy.

... The 'eddies' of money that result when rich people spend their money would just be disrupted so it would trickle down as people expect it should.

i may have been confused. Most of the "savings" in the US economy is accumulated by businesses. Even with the huge increase in personal savings after 2008 (perhaps from people forgoing spending, to pay down home & credit-card debt), businesses still account for three-quarters of all savings; and businesses normally account for much more. Inexpertly, businesses are the primary savers, and investors.

However, although business have a higher rate of savings (dollars per year), persons have four times the total net worth (dollars). Businesses earn & save allot more money per year. But businesses soon spend most of those savings, into new capital investments. Meanwhile, persons may have slowly but steadily accumulated more net assets. Foreign dollar holdings are also large. Perhaps banks could offer "pooled CD deposit accounts", wherein many smaller depositors, could combine smaller deposits, as "shares" of larger jumbo CD accounts, which allow banks to lend to businesses (buying their bonds, with the money set aside, in the CD account)? Finding ways, of increasing the supply of loanable funds, to businesses, would reduce interest-rates, increase borrowing, and expand the growth of the private sector.

Taxes and welfare are what is currently used to give the poor money, because the private sector has not created enough jobs. ... If there was no unemployment, there would be no need for unemployment benefits as anyone who lost their job could easily get another one, even if it was just working at a fast food restaurant.

Minimum wage laws prohibit low-pay jobs. Decriminalizing outlawed jobs, by eliminating the minimum wage, could regenerate millions of jobs.

People can't work for $1 per hour the way they do in China because housing is too expensive in the US.

earning some income is better than earning no income. Some is always better than none. Poor people cannot be harmed, by offering them "at least something". Perhaps businesses could hire workers at minimum wage, and pay them for fewer hours, than they actually worked?

there are 18 million empty homes in the US

The US Census Bureau reports "household income" (HI). Evidently, "households" implies home dwellers, 75 million of whom are owners, and 40 million of whom are renters. If so, then perhaps HI excludes apartment renters?

 

[Widdekind]

Corporations are allowed to expense large amounts of revenue income, to "depreciation". Simplistically, "machines wear out & factories fall down", and accountants estimate the damages. Businesses then "pretend to pay for repairs". But the income money remains in the company coffers.

In the national income accounts, "depreciation" is called "Consumption of Fixed Capital". The actual savings (dollars per year) of US businesses is official corporate profits, after tax, after distribution of dividends; plus depreciation (and adjustments). So, businesses have save more money, than official profits alone. Evidently, since the 1980s, in every boom, businesses have been directed, to repurchase so much owner stock, that "share repurchases" exceeded official profits alone, ipso facto dipping into savings officially set aside for depreciation repairs. Simplistically, "factories were falling down all around them, and owners 'raided' the repairs fund anyway".

Now, that is legal. Owners own their businesses, and can legally dispose of them, at their will. Never-the-less, according to US corporate accountants, business income that "should" have been set aside, to repair & maintain US capital equipment, was "raided" by owners, who thereby allowed the US industrial complex to deteriorate. Simplistically, "machines rusted out, factories fell down and overgrew with weeds, as owners cashed out and went to the Bahamas". Indeed, private-sector US capital equipment was not modernized after 1980 (total capital value, accounted at "historical cost", remained near 1980 levels, until the recent recession).

Evidently, cashing out on US businesses, raiding their "repair" funds, for immediate gain, is officially legal. But, in the long-term, US businesses may be becoming decrepit, out-of-date, and uncompetitive. If the US industrial complex is allowed to deteriorate, then national security could be affected, "despite the sunshine & fresh air in the Caymans".

 

[boedicca]

I think the numbers are that about 1/3 of the income of the top 1% is from capital gains, the rest is earned from work..? Not sure exactly how much of those capital gains would be from corporate profit. For example, if someone gets advice from a financial company like Goldman Sachs, buys some stocks for $100k, and then those stocks are bought by another company for $120k... I believe that stock purchase would be included in that company's cost of business and would decrease profit?

This is sorely misguided.

Most stock is purchased on the secondary market. The company is not a party to the transaction. If they were, as in an IPO, the net proceeds from the sale of the stock would be purely a balance sheet set of transactions; profit would not be affected.

The impact that profits have is that they may result in dividend payments, which are taxed at high personal income tax levels as well as not being deductible as a cost of business (double taxation). Profits are also a metric upon which stocks are valued (i.e., PE ratio).


I also note how revealing your inflation graph is. The areas with excessive inflation above wage gains are housing and education, two sectors in which government regulation and meddling is most intense. Consumer prices, which are largely drive by freer market forces, track very closely with wages. So instead of More Government, perhaps workers would be better off with Less.

 

[Widdekind]

This is sorely misguided.

Most stock is purchased on the secondary market.

but not all? Businesses do, and have, buy stock, in other companies, and from their own shareholders. Such repurchases have amounted to hundreds of billions of dollars in some years, even exceeding total country-wide official corporate profits after tax & distributions.

I also note how revealing your inflation graph is. The areas with excessive inflation above wage gains are housing and education, two sectors in which government regulation and meddling is most intense. Consumer prices, which are largely drive by freer market forces, track very closely with wages. So instead of More Government, perhaps workers would be better off with Less.

an astute observation. How, specifically, is Government involved in housing & education? i understand, that Government home-loan agencies (Fannie May, Freddie Mac) can inflate the supply of credit, to home "borrower buyers", thereby inflating economic demand for homes, so inflating prices for homes. Something similar occurs, for student loans ?

 

[Misaki]

An old thread but I thought I should reply.

First, businesses do not "owe" their money, to anybody, for anything.

That's all very well, but the US is still severely lacking in jobs while corporations are rolling in cash.

And of course, it's not even just about the cash that corporations and the rich already have; it is that they continue to take in lots of money, due to spending by other rich people, but this money does not reach the poor or create (more) jobs.

Society pays a price for poverty, whether it is crime, externalities like unpaid emergency room visits, or even the costs of keeping people in prison. Workers ultimately pay these costs, even if their effective tax rate is 0% while their employer captures most of the revenue they produce, so everyone should logically have an interest in creating jobs or providing adequate welfare.

Since you don't seem to like welfare more than the average person, this means we should be creating jobs, and of course this is why people say that unemployment is the #1 priority.

If all wage & salary workers took pay cuts, then their businesses could cut prices, thereby being more economically competitive, against domestic & foreign alternatives. That could boost US exports, keeping jobs at home, instead of losing them abroad.

What do wages have to do with the prices for products? Apple pays its workers a fraction of what its products cost and even after things like management bonuses still took in over $30 billion of profit last year. Lower wages just mean lower wages, they don't mean lower prices except in a competitive market (which iPhones certainly are not).

Perhaps banks could offer "pooled CD deposit accounts", wherein many smaller depositors, could combine smaller deposits, as "shares" of larger jumbo CD accounts, which allow banks to lend to businesses (buying their bonds, with the money set aside, in the CD account)? Finding ways, of increasing the supply of loanable funds, to businesses, would reduce interest-rates, increase borrowing, and expand the growth of the private sector.

In general, I don't think wage costs are nearly as much of a problem to US companies' competitiveness now that we have outsourcing; the main problem is just the danger of not creating enough jobs. If we create jobs and raise wages through the mechanism of people working less, businesses might find it less profitable to base operations in the US but this would be completely not a problem since the hours worked, and currency exchange rates, would automatically adjust to ensure that the economy continues to work correctly even if manufacturing becomes even more based overseas than it currently is.

So companies would still be profitable and able to afford new investment, but the majority of production and even sales for luxury goods might take place in other countries. (Of course we would want non-branded products of equivalent quality but lower price to be imported to the US.)

Minimum wage laws prohibit low-pay jobs. Decriminalizing outlawed jobs, by eliminating the minimum wage, could regenerate millions of jobs.

Singapore has no minimum wage, but it still has unemployment.

People can't work for $1 per hour the way they do in China because housing is too expensive in the US.

earning some income is better than earning no income. Some is always better than none. Poor people cannot be harmed, by offering them "at least something". Perhaps businesses could hire workers at minimum wage, and pay them for fewer hours, than they actually worked?

You seem to be trying to show how we can solve unemployment without government intervention; well, "working less" is a market-based solution that solves unemployment and reduces inequality.

there are 18 million empty homes in the US

The US Census Bureau reports "household income" (HI). Evidently, "households" implies home dwellers, 75 million of whom are owners, and 40 million of whom are renters. If so, then perhaps HI excludes apartment renters?

No idea

 

[Misaki]

Evidently, cashing out on US businesses, raiding their "repair" funds, for immediate gain, is officially legal. But, in the long-term, US businesses may be becoming decrepit, out-of-date, and uncompetitive. If the US industrial complex is allowed to deteriorate, then national security could be affected, "despite the sunshine & fresh air in the Caymans".

Isn't this because of the falling share of manufacturing as jobs shift overseas?

Most stock is purchased on the secondary market. The company is not a party to the transaction. If they were, as in an IPO, the net proceeds from the sale of the stock would be purely a balance sheet set of transactions; profit would not be affected.

It was referring to a company investing on the secondary market.

The impact that profits have is that they may result in dividend payments, which are taxed at high personal income tax levels as well as not being deductible as a cost of business (double taxation). Profits are also a metric upon which stocks are valued (i.e., PE ratio).

If profits are only being used to pay dividends, they are less important for the company's market competitiveness and reduced profits due to higher average wage costs nationwide would not be very harmful.

The minimum wage is not an elegant way to raise wages and does not seem to create jobs, but people working less would do both these things.

I also note how revealing your inflation graph is. The areas with excessive inflation above wage gains are housing and education, two sectors in which government regulation and meddling is most intense. Consumer prices, which are largely drive by freer market forces, track very closely with wages. So instead of More Government, perhaps workers would be better off with Less.

Apparently, the cost of going to the dentist has almost exactly tracked the increase in college wages. I think they are just symptoms of inequality. Other countries do not have the same thing because the government controls the cost of things like education and health care.

 

[antagon]

Unless you're in the undersea welding union, you probably aren't close to 'top-earning' if you get paid by the hour.

 

[expat_panama]

...The minimum wage is not an elegant way to raise wages and does not seem to create jobs, but people working less would do both these things...

Those are two popular misconceptions pushed by political faction beliefs.

First, while many think minimum wage laws raise wages, they don't. All they do is outlaw hiring low value employees. The other mistake is thinking anyone can do the work done by high value employees. This error persists even though we all listen to the best songs from the top composers, and we watch the best movies with the best actors. You and I choose to pay a few very talented people much more than others because politics aside, we know that that's how labor markets work.

Forming, owning, and running a corporation that hires people isn't all that hard. If I can do it you can too. The hardest part is simply seeing and dealing with reality.

 

[Misaki]

First, while many think minimum wage laws raise wages, they don't. All they do is outlaw hiring low value employees.

This leads to employers "re-hiring" their current employees at a higher wage rate. (It also leads to a few getting fired.)

The other mistake is thinking anyone can do the work done by high value employees.

Unemployed people would not suddenly be working in corporate management. People would just move half a step up the responsibility ladder, meaning college students get real jobs instead of the minimum-wage retail they're currently working etc.

This applies just as much to CEOs. From an article aimed at CEOs and other C-level workers:

Recovering from information overload - McKinsey Quarterly - Organization - Talent
"...leaders need to become more ruthless than ever about stepping back from all but the areas that they alone must address. There’s some effort involved in choosing which areas to delegate; it takes skill in coaching others to handle tasks effectively and clarity of expectations on both sides. But with those things in place, a more mindful division of labor creates more time for leaders’ focused reflections on the most critical issues and also develops a stronger bench of talent."

Forming, owning, and running a corporation that hires people isn't all that hard. If I can do it you can too. The hardest part is simply seeing and dealing with reality.

Most new businesses fail. If you are a business owner you should know that. This is even more true when demand is low, as it is now, reported by business owners themselves. Macro and Other Market Musings: Is There Really An Aggregate Demand Problem?

 

[expat_panama]

First, while many think minimum wage laws raise wages, they don't. All they do is outlaw hiring low value employees.

This leads to employers "re-hiring" their current employees at a higher wage rate...

That's a popular belief, and at the same time people know they buy and sell things for the market price AKA 'what they're worth'.

MWL's don't really work by making businesses raise wages. What they actually do is make it a crime to continue employing cheap labor. Remember that we're not talking temporary exceptions/rare cases here, we're talking vast-majority typical markets. So imagine running a business, and realize the fact that you are able to hire people only at wages that the employee's efforts can justify. If the employee's work is worth less than the wage, your balance sheet won't let you keep him.

...The other mistake is thinking anyone can do the work done by high value employees...

Unemployed people would not suddenly be working in corporate management. People would just move half a step up...

We can't expect America's employers to do what we'd never do. You and I are not willing to buy a ticket for a ride that almost takes us where we're going. We don't hire a surgeon that will almost save our life. People buy what they need and they pay what they have to.

...If I can do it you can too. The hardest part is simply seeing and dealing with reality.

Most new businesses fail...

--and we're all going to die!

Seriously, for the time being we're alive now, and we can form corp's and hire people now.


Or not.

 

[antagon]

To compromise the argument, the government could Bachmann the minimum wage, entirely, then decrease the work week to 32 hrs before time-and-a-half and xx for double-time. I endorse more flexibility in our labor market, because that can keep us employed over contractions more effectively.

I think if there was more perfect information in the market, a system with no minimum wage could work.