It's about guilding, not helping
Posted by aogTuesday, 03 November 2009 at 10:57 TrackBack Ping URL

Don Surber lays out the economic effects of raising the minimum wage back in 2007. By August of this year, teen age unemployment had hit 25.9%, the highest in 62 years. Certainly, a big part of that is the bad economy directly, but also the worse the economy, the worse the impact of a minimum wage. But we wouldn’t want reacting to reality to get in the way of squeezing out union competitors.

Comments — Formatting by Textile
Hey Skipper Tuesday, 03 November 2009 at 16:08

France trod this path at least ten years ago.

Is there something in the Federal Register that requires Democrats to deeply retarded on all matters economic?

Annoying Old Guy Tuesday, 03 November 2009 at 16:14

Depends on your goals, doesn’t it? If you want to be the guiding vanguard, dispensing largess to your plantation servants, then it’s a smart move.

Hey Skipper Tuesday, 03 November 2009 at 22:09

With regard to the minimum wage, I don’t think that is their goal. For if it was, then while disagreeable, it at least would not be mystifying.

Rather, I think at some level, Democrats have economical notions that are little removed from fairy dust; feelings trump reality.

Brian Wednesday, 04 November 2009 at 12:31

I think the Dems push this just because it plays well emotionally politically, even though it doesn’t really benefit them or their constituents at all. The middle class hears calls for increased minimum wage and thinks it sounds nice and they hear oppostion and think that sounds mean, and wouldn’t we all rather be nice than mean? Besides, if it hurts teenagers that’s not a big political deal because neither party has any reason to care about that group.

I recall an NPR story a few years back where they went to FL (which had apparently recently increased their state minimum wage) and were unable to find anyone actually making minimum wage, even when they asked a local hotel-worker union. It was actually pretty hilarious.

AVeryRoughRoadAhead Wednesday, 04 November 2009 at 12:35

Minimum wages are supported by a huge percentage of the voting public, so it’s not solely a “Dem” issue. In part it’s just giving the masses what they want.

Which is not the same thing as giving the masses what they need, but few pols are skilled enough to survive long selling broccoli to the voters.

erp Wednesday, 04 November 2009 at 14:58

It’s a matter of supply and demand. Some years back during a boom time, fast food joints on the Cape (Cod) were offering $15/hr (about four times minimum wage then) to high school kids for part time work.

A large part of the problem is that people seem to think there’s nothing wrong with pols selling broccoli or anything else to voters.

Setting wages isn’t the job of the government.

Harry Eagar Tuesday, 10 November 2009 at 19:30

So, it isn’t a matter that the employers could not pay more and stay profitable. They just don’t want to.

I understand, but it knocks the argument that minimum wage destroys jobs into a cocked hat, doesn’t it?

Annoying Old Guy Tuesday, 10 November 2009 at 20:06

Are the jobs there or not? Are the people employed or not? I understand they are not, which knocks the argument that minimum wages don’t destroy jobs in to a cocked hat, doesn’t it?

There’s also the fact that erp’s cite is of a very specific situtation in a very specific time and place, which you naturally generalize to all employers in all situations in all times, which seems a bit lacking in justification.

We could also talk about the totalitarian implications of your view, that if people respond to their environment in a way that doesn’t involve them sacrificing themselves for the benefit of government policy, the wrongness is in those people, not the policies.

erp Tuesday, 10 November 2009 at 20:40

Harry, My point is markets are fluid. During boom times, workers are in demand — wages go up; during down times, fewer workers are needed — wages go down. Forcing an arbitrary minimum wage on employers no matter the condition of the economy only adds to the woes of both workers and employers.

Harry Eagar Wednesday, 11 November 2009 at 14:01

Let’s separate the issues. The argument against a minimum wage seems to be that employers cannot afford it.

This is clearly not the case. They can afford it but prefer not to pay so much.

It is exactly the same argument that says ignore national sovereignty and allow in wetbacks, because purchasers of labor will be able to buy more labor for the same amount of money.

I am not arguing whether a minimum wage is a good policy or not. I am merely agreeing with erp that employers are not unable to pay it.

Annoying Old Guy Wednesday, 11 November 2009 at 14:14

The argument against a minimum wage seems to be that employers cannot afford it.

No, you’re off the rails already. The argument is that raising the minimum wage will lead to less employment.

You’re also still universalizing way too much. Some employers could afford, and some can’t. Do you ever hang out with actual small business owners? I do and the margins for many of them are extremely thin and increasing labor costs could easily put them under. Other businesses are better off and can afford it. It also varies with time and the overall state of the economy. Erp’s example is during a boom when things are easy for businesses. Those same businesses might have a very different outcome during a bust as we are in today.

The very concept, that a business can afford it, therefore it’s a reasonable to extract that wealth, is Marxism and not only an economic failure but a moral failure as well.

erp Wednesday, 11 November 2009 at 14:54

Harry, aog’s got it again.

Brian Thursday, 12 November 2009 at 12:27

Well, let’s take Harry’s post and turn it around: The argument FOR the minimum wage seems to be that there are all these workers out there (single moms are usually heavily featured in the stories) that are toiling away at minimum wage, which obviously isn’t enough to raise a family on, so their salary should be increased. It’s my impression that there basically are no such people (since NPR couldn’t find them in an industry that is often held up as an example of abusive employers and downtrodden powerless employees). And it seems that the data of the last few years, with teen unemployment much higher than before, indicates that minimum wage earners are in fact almost always part-time and/or seasonal workers, NOT adults or family breadwinners who only get paid the bare minimum.

AVeryRoughRoadAhead Friday, 13 November 2009 at 01:07

The very concept, that a business can afford it, therefore it’s reasonable to extract that wealth, is Marxism and not only an economic failure but a moral failure as well.

Actually, that’s capitalism in its most basic form, red in tooth and claw. The inputs of capitalism are raw materials, capital, and labor. The owner of each component will naturally try to maximize their share of any surplus value created by combining the trio. Thus, if a business CAN afford to pay more for labor, it well behooves the firm’s labor force to demand a higher share of the profits.

Marxists, by contrast, would assert that all surplus value results from the action of labor on raw materials, and with or in capital-provided facilities. Therefore, the role of capital is to loan money to labor, to create the means of production, and to receive only capital-rent (interest), not equity. Labor ought to own the means of production.

Which, in fact, American labor could easily have done, if they weren’t so captured by the zeitgeist of owning pseudo-luxuries, instead. Whether or not that mindset and social dynamic was an intentional plot by the elites, a class-warfare strategy, I cannot say, but I do note that it couldn’t have turned out better for the elites if it had been a conspiracy.

On the other hand Aristotle wrote some time ago that:

For that some should rule and others be ruled is a thing not only necessary, but expedient; from the hour of their birth, some are marked out for subjection, others for rule. […]

It is clear, then, that some men are by nature free, and others slaves, and that for these latter slavery is both expedient and right.

Which, if we interpret that to mean that some people, by nature or nurture, are born leaders, (or at least iconoclasts or freethinkers), whereas most are content or even happiest when they are traveling with the herd, or otherwise have somebody to rely upon to tell them what to do, it becomes clear that no plot is necessary: Today’s proles aren’t the sturdy yeomen of yesteryear, they’re simply very rich slaves.

It’s my impression that there basically are no [workers out there (single moms, usually) that are toiling away at minimum wage] (since NPR couldn’t find them…)

Which is simply evidence that NPR is incompetent. I know a half-dozen people like that. I imagine that Harry Eagar could have pointed NPR to hundreds.

Now, it’s true that the people that I know that are supporting their families on some combination of minimum-wage work and social subsidy are generally people who have taken some wrong turns in life, and unfortunately some of them seem very likely to continue to make poor choices until their dying day, but nonetheless they exist.

But going forward, foolishness isn’t the only route to minimum-wage familial support. Over the past two years there are approximately five million formerly middle-class people who have lost jobs THAT ARE NEVER COMING BACK, so regardless of competency, credentials, experience or wisdom, most of these former hard-chargers are going to be eking out an existence via part-time and/or minimum-wage jobs, plus social subsidy. It can and is happening to people who never, ever, in their worst nightmares, considered that after spending up to a decade in higher education, plus a decade or more in their various industries, they would find themselves competing against a hundred other people for ONE available position.

It makes my ne’er-do-well past seem like a reasonable choice, more’s the pity.

Hey Skipper Friday, 13 November 2009 at 02:28

Let’s separate the issues. The argument against a minimum wage seems to be that employers cannot afford it.

This is clearly not the case. They can afford it but prefer not to pay so much.

Okay, let’s make the minimum wage $40/hour.

Annoying Old Guy Friday, 13 November 2009 at 16:33

Actually, that’s capitalism in its most basic form, red in tooth and claw.

No, capitalism / free markets is the offer to trade. Extraction by force is the opposite of it.

Which is simply evidence that NPR is incompetent

OK, that I find easy to believe. It’s actually a running theme of mine here, how journalists who are putatively skilled frequently seem to manage to either fail to find examples of the downtrodden, or find examples that make readers feel justified in screwing them over.

Brian Friday, 13 November 2009 at 16:58

lost jobs THAT ARE NEVER COMING BACK

As ever it was. Oh those poor textile workers from 100 years ago! Their jobs are gone AND ARE NEVER COMING BACK! I believe that chicagoboyz did some good posts a while ago about the bassackwardness of thinking of jobs as something that get “lost” as if they are cattle that just sort of wander away for some reason. Jobs are of course something that get created by some guy who thinks of something that someone else can do to help him make money. The question then becomes how do we get that guy to do his thing in my city/state/country, and not somewhere else? Think of the job creator rather than the job and the chances that you’ll find an answer that actually works. But what do I know? Unlike our president, I haven’t saved or created eleventy billion jobs in the past ten months…

regardless of competency, credentials, experience or wisdom

I realize that this probably at least party hyperbole on your part, but even if there’s 1% of seriousness to it, it’s really too silly to be allowed to just sit there festering without being pointed out as complete and utter absurdity.

As for NPR’s incompetence, I refuse to defend them in any way, but I’ll reiterate that their source was a Florida hotel-worker union, and they’re the ones would couldn’t find anyone making minimum wage.

And by way of personal anecdote, I waited tables in college, on campus, where all I wanted was a few bucks spending money, and had no leverage at all, and I made minimum wage for only about a month or two.

Harry Eagar Saturday, 14 November 2009 at 01:02

I imagine that Harry Eagar could have pointed NPR to hundreds.

Yes, I could have.

I have no idea what the answer to the question is, but what is the percentage of unemployment now and what was it in 2007 at various pay levels in the financial services business?

Few, if any, were making minimum wage there in 2007.


regardless of competency, credentials, experience or wisdom

I had a drinking friend back in the early ‘70s who had gone to college, partied, flunked out, been drafted, went back to college, had a miserable time as a grind in order to get his grade average up and to graduate, which he did with a degree in nuclear operations (basically, Homer Simpson’s job).

He had competence, credentials, experience and a bit more wisdom than the average fresh grad, but what he didn’t have was a job, as he graduated just after Three-mile Island. He eventually got hired as a helper on a moving van by claiming that he was a high school dropout.

He was one bitter proletarian.

AVeryRoughRoadAhead Saturday, 14 November 2009 at 13:04
regardless of competency, credentials, experience or wisdom
I realize that this probably at least party hyperbole on your part, but even if there’s 1% of seriousness to it, it’s really too silly to be allowed to just sit there festering without being pointed out as complete and utter absurdity.

“Hear now this, O foolish people, and without understanding; which have eyes, and see not; which have ears, and hear not…”

How Being The Slightest Bit Overqualified Can Cost You A Job; PhD’s In Distress

Harry Eagar Saturday, 14 November 2009 at 15:26

I had a related experience. There was a job I was qualified for and that I wanted (and that my wife really wanted me to have, because she wanted to be near her family). It paid about 10 or 15% less than I was making at the job I had, but that was not material to me.

It was to the employer. He told me his experience was that hiring people to make less — even if they said they didn’t mind — never worked, that they sooner or later became resentful.

I took his word for it.

Brian Monday, 16 November 2009 at 11:43

Mr. AVRRA, I actually have a PhD, so I am 100% aware that it can make you less desirable to employers (although I have never personally had to endure a prolonged unsuccessful job search). That being said, it doesn’t support your point at all. Not one iota. If I have the “competency, credentials, experience or wisdom” that an employer wants, I will be able to get a job. If my PhD does NOT provide the “competency, credentials, experience or wisdom” that an employer wants, I won’t. Period. If they don’t care about my extra education or my experience in some other field, OF COURSE they’re not going to give me a job. Seriously, what’s your point exactly? That a PhD entitles you to a job or something?

erp Monday, 16 November 2009 at 13:24

Brian, as you probably already know, not all PhD’s are equal.

In recent times institutions of higher education have been bestowing advanced degrees in dubious, at best, fields like education and related studies with resulting research gobbledygook that is incomprehensible.

These people make up a large part of the liberal electorate. That’s why the left likes to brag that their supporters are smarter than us dummies on the right.

AVeryRoughRoadAhead Monday, 16 November 2009 at 14:25

Brian:

Wow. What a target-rich environment. I hardly know where to begin.

In the first place, you didn’t check out the links, or you would have known that there are TWO links, not one, (as one keen of eye could have discerned from the non-hyperlinked “;” alone), and so therefore “How Being The Slightest Bit Overqualified Can Cost You A Job” and “PhD’s In Distress” are two separate concepts (although related).

You failed to verify your presumptions before speaking. Is that what your “Piled higher and Deeper” is in, “The Social and Professional Effect of Never Doing Any Research Before Expounding, Even if it Would be Really, Really Easy, as Measured Solipsistically Through the Lifetime of One Individual”?

If so, then “although I have never personally had to endure a prolonged unsuccessful job search” makes complete sense; otherwise, it’s an error of logic known as a Sweeping (or Hasty) Generalization Fallacy.

If I have the “competency, credentials, experience or wisdom” that an employer wants, I will be able to get a job.

In general, my point is: What if 100 people have the “competency, credentials, experience or wisdom” that an employer wants, but there’s only one job available? Will you be able to get a job then?

No? Well, about five million other people won’t either, people who are well-used to gainful employment, people who previously “never personally had to endure a prolonged unsuccessful job search”.

One could read the linked articles if one wanted to learn something.

Brian Monday, 16 November 2009 at 14:39

Mr. AVRRA: Give me a break. Talk about a target-rich and brain-free environment

First, you are a complete and total prick. Sorry. No two ways about it.

Second, I know damn well you gave two links. I read them both. They were both “woe is me, I’m so great but I can’t get a job” nonsense adding NOTHING to the subject at hand. The PhD one was particularly pathetic.

So YOU are the one who “failed to verify your presumptions before speaking” you pathetic j@ck@ss.

Life is tough. If 100 people want a job and YOU are unable to separate yourself from the other 99, you ain’t gonna get the job. Tough. If 2 people want a job and YOU are unable to separate yourself from the other 1, you ain’t gonna get the job. If I ever end up in that situation, which is of course always possible, I sure as hell won’t sit around whining about how unfair it all is. As if my family and friends would let me. If only your friend you mentioned above had better friends than you maybe he’d have ended up better.

My only apology is to our host if he must spend time editing this post. Given that your level of “discourse” is tolerated I can’t imagine I’ve gone over the line.

Brian Monday, 16 November 2009 at 14:50

Sigh. It horrifies me to no end that I misremembered the author of the “my poor bitter friend” post from above. It was actually Harry Eagar, not Mr. AVRRA, so I must extend an apology for throwing the particular crack about that in my post. Given that Mr. AVRRA had already resorted to name-calling in multiple posts above, I apologize for none of the rest of the rhetoric.

Harry Eagar Monday, 16 November 2009 at 15:00

Brian, you remind me exactly of the dumbass rednecks I grew up with, who, whenever someone brought up the idea of, say, a labor union, would announce that they didn’t need no union because THEY would go man-to-man with the boss and get what they were durned well worth.

100% of them ended up working at the lumberyard for peanuts.

AVeryRoughRoadAhead Monday, 16 November 2009 at 15:52

I read them both. They were both “woe is me, I’m so great but I can’t get a job” nonsense…

LOL. I defy you to pick out even ONE SENTENCE from the “How Being The Slightest Bit Overqualified Can Cost You A Job” piece that would support such an interpretation.

Given that Mr. AVRRA had already resorted to name-calling in multiple posts above…

But you must admit, my name-calling was of a much more sophisticated and erudite variety than a pedestrian “prick” or “pathetic jackass”. (Speaking of which, why would you use alternative symbolization for “j@ck@ss”, but not for “prick”? Perhaps it’s just me, but I find the latter far more offensive.) I do credit you with integrity for correcting an honest error in your post.

But now that we’ve covered reading incomprehension, vulgarity, your upstanding nature and my shocking brain-free condition, perhaps we could get back on track:

If 100 people want a job and YOU are unable to separate yourself from the other 99, you ain’t gonna get the job. Tough. […] I sure as hell [wouldn’t] sit around whining about how unfair it all is.

Nor is anybody else. They’re out trying to find jobs, or taking part-time ones that lead slowly to bankruptcy. But they ain’t no jobs to be had.

If two people want a job and there’s only one available, then yes, it’s tough for the person who doesn’t get the job. If 100 people want a job and there’s only one available, then it’s tough for all of society, since our current societal debt levels CANNOT BE SUPPORTED with 17.5% un- and underemployment (U.S. Bureau of Labor Statistics alternative measures of labor underutilization U-6). This means that housing foreclosures will continue to climb, which will mean that banks will continue to be impaired in lending, which will continue to drag down economic activity - which will mean more jobs lost… A vicious cycle.

But the biggest problem is that THERE IS ABSOLUTELY NO WAY WHATSOEVER that the Boomers can be supported in retirement without a robust, full-employment jobs situation. (Maybe not with such, either, but that’s moot.)

It was my understanding that you objected to the “complete and utter absurdity” of asserting that people with formerly-superior “competency, credentials, experience or wisdom” won’t be finding jobs that are in any way comparable to their previous positions - if, in fact, they’re ever employed again.

$13 an Hour? 500 Sign Up, 1 Wins a Job By MICHAEL LUO October 22, 2009 The New York Times - no doubt 500 lazy, woe-is-me slackers with bad families and friends.

FED Chairman Ben S. Bernanke At the Economic Club of New York, New York, New York November 16, 2009

On the Outlook for the Economy

Since December 2007, the U.S. economy has lost, on net, about 8 million private-sector jobs, and the unemployment rate has risen from less than 5 percent to more than 10 percent. Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II.

Besides cutting jobs, many employers have reduced hours for the workers they have retained. For example, the number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions. In addition, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period. These data suggest that the excess supply of labor is even greater than indicated by the unemployment rate alone. […]

The best thing we can say about the labor market right now is that it may be getting worse more slowly. […]

For example, the unemployment rate for men between the ages of 25 and 54 has risen from less than 4 percent in late 2007 to 10.3 percent in October…

Given this weakness in the labor market, a natural question is whether we might be in for a so-called jobless recovery, in which output is growing but employment fails to increase.

Unemployment Projections Through 2020 - It Looks Grim. And this is the best case scenario. The analysis uses historical facts and figures as released by various Federal bureaucracies, so it’s an apples-to-apples model.

Bret Monday, 16 November 2009 at 15:56

Without Harry and AVRRA, this becomes a complete echo chamber so I consider their comments indispensible.

Carry on.

Annoying Old Guy Monday, 16 November 2009 at 16:36

Bret;

You’ve clearly never followed a thread on interstellar travel / colonization here.

I do think that our current political class is engaging in a War on Prosperity, effectively if not purposely finding every segment of remaining prosperity in the nation and ruthlessly crushing it. This makes it tough for everyone, even the over-qualified. We’ll see if the American Street is cool with that in 2010.

P.S. I have a friend in California. He was discussing California’s government and economic woes and his friends were disgusted at it, because “why can’t they just tax people some more and fix it?”. It’s almost enough to make me throw in with AVRRA.

Brian Monday, 16 November 2009 at 17:23

I see that Mr. Eagar is still as classy and self-impressed as he’s ever been. Good to know some things never change.

AVRRA is not even as rhetorically worthwhile to engage as Mr. Eagar, but I’ll just go ahead and add one final clarification and end with a surely pointless restatement of principle: “It was my understanding that you objected to the “complete and utter absurdity” of asserting that people with formerly-superior “competency, credentials, experience or wisdom” won’t be finding jobs that are in any way comparable to their previous positions”

No. My objection was fundamentally tied in with the words BEFORE what you’ve quoted: “REGARDLESS OF”. THAT’S the absurd part. I’m sorry if YOUR reading comprehension was insufficient to fully process the entire quote that I highlighted above.

If you were making $100k last year and somehow your job evaporated for whatever reason, IF you can justify, with “competency, credentials, experience or wisdom” that you are worth $100k to somebody else, you will get that next job. IF you can’t you won’t. My job could quite easily disappear tomorrow. If it did, I’d be in the pile of many millions of people looking for a job, but the fact that there are vast numbers of unemployed construction workers out there would have ZERO impact on my job search (as my unemployment has ZERO impact on theirs) because while we may all be very competent, credentialed, experienced, and wise, our overlap in those areas is ZERO. And it is in fact true that the best available people in my line of work would get that next job, just like the best available people in construction get the jobs that currently open up. Same as it ever was.

Bret Monday, 16 November 2009 at 19:38

You’ve clearly never followed a thread on nterstellar travel / colonization here

OK. Just an echo chamber for political and economic threads.

I do think that our current political class is engaging in a War on Prosperity

Sure. Me too. That’s the echo chamber part.

I have a friend in California.

What? Just one friend? Don’t I count? :-)

It’s almost enough to make me throw in with AVRRA.

How does that follow?

erp Monday, 16 November 2009 at 19:38

Bret, differing points of view can be entertaining and enlightening, but it’s also comforting to come to a place where people make sense — and where discussions don’t descend into the kind of name calling in the comments of some left wing blogs I’ve read.

Annoying Old Guy Monday, 16 November 2009 at 20:00

Bret;

If voters in California, where the effects of that kind of government are most obvious, still think more taxes and government intervention are the solution, I don’t see what hope there is. As far as I can tell, that’s AVRRA’s position (which is a reason I think he and Brian are talking past each other).

AVeryRoughRoadAhead Monday, 16 November 2009 at 21:10

“REGARDLESS OF”. THAT’S the absurd part. […] My job could quite easily disappear tomorrow. If it did, I’d be in the pile of many millions of people looking for a job, but […] it is in fact true that the best available people in my line of work would get that next job…

Yes.

Here is what you don’t seem to be taking on board: The people in the financial, insurance and real estate sectors who’ve lost their jobs are highly unlikely to ever be employed in those fields again, BECAUSE THE DEMAND FOR THOSE JOBS HAS VANISHED. Therefore, “REGARDLESS OF” their qualifications, they’re going to be competing for jobs with people who formerly would have been seen as less-successful than those whose jobs have evaporated.

Millions of people looking for work, and thousands of jobs to fill. After Ms “A-1 best available person in your line of work” gets that next job, THERE ARE NO MORE JOBS TO BE HAD IN YOUR LINE OF WORK. Therefore, people who were formerly well-qualified to do whatever it was they did, will never work in their field again.

Think Russian physicists and mathematicians after the collapse of the Soviet Union.

That ain’t “same as it ever was”, unless you’re 95 years old.

Harry Eagar Tuesday, 17 November 2009 at 12:23

I’ve been mulling over a post for RtO, but I’ll float a trial balloon of it here:

Two economic arrangements: subsistence or modern interrelated economy.

In a subsistence economy, no attention need be paid to employment rates, but the problem is improving output.

In a modern economy, at least one predicated on absolute growth as the only meaningful metric of success, there is no particular reason to want to create jobs, but the problem is excess labor.

And since excess labor in an interdependent economy means people starve, you have, as Rough says, a social problem.

I well remember in the mid-, late ‘80s when Wall St. resounded with hosannas every time unemployment went up, and — although I have not noticed anyone mentioning it in the public prints — the same joyfulness is being expressed again now.

Annoying Old Guy Tuesday, 17 November 2009 at 13:59

Could you point to an example of people starving in a modern economy? Otherwise, you’re starting from a false premise and therefore likely to end up with bogus results.

In a modern economy […] there is no particular reason to want to create jobs

Reason for who? I think your analysis would be better if, instead of have a completely vague implied “They” as an answer to that question, you broke it out in to actual people / positions / factions. Otherwise it’s just “The Man” who’s out there not wanting to create jobs.

erp Tuesday, 17 November 2009 at 14:40

Harry, what is a subsistance economy is today’s America? Are you talking the welfare culture or hardscrabble farmers scratching out a living ala Steinbeck’s Joads

I read the papers in the 80’s and don’t remember anybody on Wall Street or anywhere else resounding hosannas when unemployment went up, but I do remember seeing blaring headlines during the Bush years shouting “unemployment plummeting!”

Harry Eagar Tuesday, 17 November 2009 at 15:34

Why, yes, I could. Sen. Billy Spong’s tour of eastern North Carolina to look for starvation found it. That was in 1966. The news was quickly ignored and Spong was quickly eased out of a safe seat.

A hed on page A5 in today’s Maui News reads: 1 in 7 Americans going hungry

If not actually starving with bloated bellies, it suggests a possible social problem.

Reason for anybody. That’s my point. The goal of an entrepreneur is to make money. If he can do that by canceling jobs, that’s what he does. And gets rewarded for it. In a full-employment economy, no problemo.

My father’s best friend inherited a construction business. Like most contractors, he adjusted his payroll to fit the flow of business. When he was younger, it didn’t bother him to let people go, because they could go back to the farm. Time passed, and there were not so many farms to go back to.

In his later years, he became more and more reluctant to let people go, because he understood what that meant and he was a humane man. He ended up broke.

erp, I suggest you go back and re-read those newspapers. I read hundreds of stories praising takeover artists for closing down operations and firing workers. (Not to mention thousands about offshoring.)

The man I work for right now was directing one of those operations at the time. He was closed down after a takeover even though his business unit was making a 25% ROIC. Not enough for the new hotshots.

He took a certain grim satisfaction earlier this year when the hotshots’ stock price went to 1 cent and found no takers.

AVeryRoughRoadAhead Tuesday, 17 November 2009 at 15:44

…in the mid-, late ‘80s when Wall St. resounded with hosannas every time unemployment went up…

I dunno why the same joyfulness would be expressed again now. Back then Wall St. cheered layoffs because cutting labor costs into a rising economy likely meant higher company profits. Now layoffs are simply a throwing in of the towel, acknowledging that things are tough and getting tighter.

The reason that the equity markets are rising fast is almost entirely due to the dollar cratering against most other major currencies. Joy-creating in some circles, but not a direct celebration of melting labor forces.

I do remember seeing blaring headlines during the Bush years shouting “unemployment plummeting!”

Yeah. [sigh] Turns out that the increased labor demand was largely a chimera, a symptom of mis- and malinvestment. In a sense we pulled forward demand for labor - today’s high unemployment is, in part, BECAUSE we had low unemployment previously. We’ve stockpiled a decade’s worth of both residential and commercial construction, for instance.

In a modern economy […] there is no particular reason to want to create jobs
Reason for who?

Reason for the system to have a propensity to create jobs. If we accept “absolute growth as the only meaningful metric of success”, then such can be achieved with increased productivity - it’s not necessary to expand employment.

In fact, I recall being attacked a couple of years ago as a “Marxist” for suggesting that, as a society, we ought to favor expanding employment over automation. There is a faction of Free Marketers who regard increasing productivity as society’s chief goal.

Harry Eagar Tuesday, 17 November 2009 at 16:48

Well, you’re right that today, the cheerleaders are not cheering the destruction of employment as such, but they are cheering while employment disappears. From the standpoint of those who have just suffered 100% deflation of their only asset, it amounts to much the same thing.

There is no plumbing the depth of stupidity of Free Marketeers. Those same people rooting for American unemployment also interpreted Reagan deficits as “national savings.” Although they did not use the same words quite so openly while Bush was running up deficits, they took the same stance — move along, folks, nothing to see.

All of a sudden, a Democrat is running up deficits and it’s a catastrophe.

Bret Tuesday, 17 November 2009 at 16:48

Harry,

There’s a bit of a disjoint in your subsistence versus modern economy outlook. My first question, before I can make heads or tails of what you’re trying to say is why do you think everybody’s employed in a subsistence economy?

erp Tuesday, 17 November 2009 at 16:49

Sigh …

Annoying Old Guy Tuesday, 17 November 2009 at 16:58

Sen. Billy Spong’s tour of eastern North Carolina to look for starvation found it. That was in 1966.

So that area was, in 1966, part of the “modern interrelated economy” or the “subsistence economy”? As for the 1 in 7 “hungry” statistics, I think I will go with the NPR defense. Just like the epidemics of homelessness during any GOP Administration, that kind of thing is almost always bogus (e.g., “hungry” means “didn’t get three meals on a single day in the last year”). Especially since just a year or two ago, obesity was stalking the poor.

The goal of an entrepreneur is to make money

Hmmm. I was at a lunch talk this very day with the guy who founded this company and he disagreed with that assertion. Who should I believe, you or him? Especially since your own just following example discredits your claim. Do you think the Obama Administration’s War on Prosperity is a better solution?

The fact is that, left alone, people create businesses and jobs. Nothing else does, certainly not government. The idea that every person who starts a company has as his sole and only goal maximizing his short term profitability is not borne out if you look at actual businesses and the people who run them.

Reason for the system to have a propensity to create jobs. If we accept “absolute growth as the only meaningful metric of success”, then such can be achieved with increased productivity - it’s not necessary to expand employment.

The system doesn’t create jobs, it never has. People create jobs and they do as much of it as the “system” allows.

Sure, it’s not necessary to increase employment to grow, it’s also not necessary to produce glowy memory either, yet there it is. In fact, if things are going well and the system makes it easy to do so then expanding employment can be faster and easier than increasing productivity.

The focus on productivity is that, in the long run, that’s the only way to increase the standard of living for the population as a whole. So if you want a system that makes people better off over time, then you want one that favors increasing productivity.

Annoying Old Guy Tuesday, 17 November 2009 at 17:08

they are cheering while employment disappears

Any actual instances you could cite? Ones that are within, say, the last year?

I remember enormous complaints about the Bush deficits. Here’s one from before the last Presidential election.

On the domestic front, all in all, Bush has been a nightmare. […] And the deficits? No matter how loudly conservatives shouted or how much we complained, he refused to make a serious effort to cut down on Congress’ out-of-control spending.

What about CATO, that bastion of Free Market types? Let’s see what sort of titles they have …

The Grand Old Spending Party: How Republicans Became Big Spenders

Not big fans of the Bush deficits, it appears. The Heritage Foundation? No, they didn’t like it either. What about Reason — they’re hard core free market type. Nope, no love there or even a “nothing to see”.

Are you sure you even know any Free Marketers? You certainly don’t seem to have paid any attention to what they actually say.

Bret Tuesday, 17 November 2009 at 17:11

Harry Eagar wrote: “All of a sudden, a Democrat is running up deficits and it’s a catastrophe.

Do you not think that the magnitude of the deficit could possibly have a bearing on the impact of the deficit? In other words, is there really no difference between 3% and 12% deficits?

AVeryRoughRoadAhead Tuesday, 17 November 2009 at 17:39

The focus on productivity is that, in the long run, that’s the only way to increase the standard of living for the population as a whole. So if you want a system that makes people better off over time, then you want one that favors increasing productivity.

Yep.

Which is why, as Mr. Eagar wrote, “the problem is excess labor.”

If we have a productivity-maximizing economy, then we also need a less-productive-worker-supporting society, which as a practical matter means Big Gov’t.

Which creates its own set of problems and distortions.

Bret Tuesday, 17 November 2009 at 18:23

AVRRA,

You seem to be missing the “what” part of productivity. As in productivity of what. The “what” is people. If no people are working then it doesn’t matter what their productivity is. There’s no reason, with some capital, that low-skilled people can’t be hugely productive.

To maximize GDP per capita, productivity needs to be maximized and unemployment needs to be minimized.

I’ve suspected that Harry might be part Luddite (i.e. no new types of jobs are ever created, only old ones lost). Are you one of those too?

Annoying Old Guy Tuesday, 17 November 2009 at 19:42

Bret, you beat me to it. It’s not a win to keep the same GDP by increasing productivity while reducing employment. You want to do both but the reason productivity is key is because employment is ultimately limited — you hit the frictional limit and that’s it for growth from increased employment.

Harry Eagar Wednesday, 18 November 2009 at 12:14

The cheering is the record increase in the S&P despite the stead increase in unemployment.

See, the geniuses think you CAN make money without labor.

Bret, there isn’t any subsistence economy any more. Sheesh. There hasn’t been for a long time. The end can be dated to the passage in England of the Poor Laws.

‘To maximize GDP per capita, productivity needs to be maximized and unemployment needs to be minimized.’

Why? Consider coal production, where productivity has greatly improved and unemployment has increased. Same with corn farming. You get the same result with any output for which demand is finite.

Annoying Old Guy Wednesday, 18 November 2009 at 13:30

The cheering is the record increase in the S&P despite the stead increase in unemployment.

I wasn’t aware that “Wall Street” included everyone who owns stock in any company on the S&P listing. Quite the inclusive list.

There’s also the slight issue that, as someone already noted in this very thread it’s quite possible that the rise in stock prices is a result of inflation and shifts in currency exchange rates.

And to answer your last question, because GDP is all economic activity, not any particular sector. Is your view that GDP went down once we had fewer corn farmers and coal miners?

What’s even odder that you believe that entrepreneurs have as their only goal wealth creation, yet you think they wouldn’t stoop to taking advantage of cheap labor and thereby increase employment.

Bret Wednesday, 18 November 2009 at 14:12

Harry,

You misinterpreted my question (which I readily admit was poorly worded). Let me try again:

In theory, if a subsistence economy were to exist, do you believe that full employment would be likely in said economy? If so, why?

Bret Wednesday, 18 November 2009 at 14:56

Harry,

Regarding why maximizing GDP (or GDP per capita) requires that “productivity needs to be maximized and unemployment needs to be minimized”.

From http://www.mckinsey.com/mgi/publications/europe/gdp.asp:

“GDP per capita is a familiar proxy for how well a county’s economy is performing. But GDP per capita is actually a product of two factors: employment levels (the percentage of the labor force actively engaged in economic activities and the average working time) and labor productivity (the output produced per unit of labor).”

In other words: GDPperCapita = Employment * LaborProductivity.

It’s pretty straightforward math that with an equation of that form, increasing either Employment or LaborProductivity or both will increase GDPperCapita.

Next, it’s extremely unlikely that all coal that would be purchased at any price is produced, even now. But even more importantly, as AOG points out, it’s even less likely that all products and services across the economy are produced that would be in demand at some price. There’s certainly plenty for productive to do.

AVeryRoughRoadAhead Wednesday, 18 November 2009 at 15:51

To maximize GDP per capita, productivity needs to be maximized and unemployment needs to be minimized.

Yes, this is ideal.

The rub comes when max productivity * max employment = output that FAR exceeds demand.

Now, one might say that we should then lower the price of the output until it’s all taken; but then we run into the costs of raw materials and fixed overhead, which is why “it’s extremely unlikely that all coal that would be purchased at any price is produced” is both true and moot. Although production costs can be variable, there is a floor beneath which coal (or any other good or service) just can’t be produced at a profit.

We could just keep lowering people’s wages until we can produce cheaply enough that all output has a bid…

In any case, historically the solution to too much output is to lower the number of workers in any given industry. That’s a problem for society as a whole, and while we might agree that France’s solution to that problem is a bit overboard, I would contend that the current American solution is too poor.

Also, keep in mind that the economic “Golden Era” of the past twenty-five years was both a) an outlier and b) not going to repeat itself over the next twenty-five years, for many, many reasons - demographic, political, financial.

The “new normal” in the U.S. will be a lot more like the American 70s. IF we’re VERY LUCKY.

Bret Wednesday, 18 November 2009 at 16:17

Rough (you don’t mind if I call you Rough for short, do you?) wrote: “The rub comes when max productivity * max employment = output that FAR exceeds demand.

Demand at any price? We’re a long way from that. After I have my own private rocket ship and private house on the moon, etc., I might believe we’re closer. Or are we still talking about Harry’s coal thang? Get those coal miners busy on my rocket ship if it’s cheap enough. Or, at this point, get them busy supporting those who can work on the technology for my rocket ship.

Rough wrote: “We could just keep…

Who the heck is this “We” who’s taking all these actions like lowering people’s wages? I have a hunch this “We” is the much of the problem. Without this “We” there would just be people trading goods, services, labor, etc. with each other and things would take care of themselves.

Annoying Old Guy Wednesday, 18 November 2009 at 16:19

Ah, but productivity gains lower that floor by making the effective costs of raw materials and overhead lower. That’s the definition of productivity.

I think a Silver Era, basically the same as the Bush years, is quite achievable, but not with any policies that are going to emerge from the Pelosi-Obama-Reid gang.

AVeryRoughRoadAhead Thursday, 19 November 2009 at 09:44

Demand at any price?

But again, “any price” isn’t sustainable. If marginal demand falls below the cost of production, then why would anyone continue to produce?

Get those coal miners busy…

There’s the rub, and it’s happening now, in the real world. If you have ANY practical1 idea of what to produce that would put 18,100,000 people to productive work earning at least $4/hr2, then NOW is the time to bring it on. Solve the problem of excess labor in the U.S., and you’d immediately be on the short list for future POTUS.

And if you don’t have any ACTIONABLE ideas about the situation, isn’t that a bit of a problem for your expressed philosophy?

Who the heck is this “We” who’s taking all these actions like lowering people’s wages?

Society, in the case of lowering wages specifically the employer sector of society.

Without this “We” there would just be people trading goods, services, labor, etc. with each other and things would take care of themselves.

But why did society change, in ALL of the advanced nations on Earth, so that there isn’t the laissez-faire labor market that you describe?

People who lived under systems where “things took care of themselves” apparently didn’t like it, not at all.

Ah, but productivity gains lower that floor by making the effective costs of raw materials and overhead lower. That’s the definition of productivity.

But the floor nonetheless exists, until we get self-perpetuating robots. And once we do, we might find that we’ve traded resource choke-points for a Sorcerer’s Apprentice problem.

I think a Silver Era, basically the same as the Bush years, is quite achievable…

Not anytime in the next coupla decades. The debt overhang, along with Boomers worldwide wanting to change from being producers to being supported3, will preclude that. We might achieve a Tinfoil Era, which while in comparison to the recent past would seem quite shoddy, in a historical context would be a time of relative prosperity.

1 I.e., one that could actually find support to implement, whether from the private sector or the gov’t. By all means, put ‘em to work on churning out private spacecraft; good luck getting the Feds to put up the money, although ultimately that’d be a far better use of gov’t-borrowed funds than what we’re doin’ now…

2 Taxes on people making more than $4/hr could make up the shortfall between that wage and spartan living expenses; after all, we’re already supporting those eighteen million and more through various social support programs, ultimately backstopped by the taxpayer. And let’s not forget that if there’s something productive that 18MM people could be doing, there are two billion people around the world who’d be very happy to do it for 25¢/hr, so how will we prevent them from over-saturating that market?

3 Some might argue that many Boomers will be self-supporting, because they’ll live off of their accumulated wealth, but such savings are merely a claim against future production. After all, gold, real estate or stock shares can’t be eaten, and won’t help you with household chores.

Bret Thursday, 19 November 2009 at 10:35

Rough wrote: “If marginal demand falls below the cost of production, then why would anyone continue to produce?

You (and Harry) seemed to be arguing that increased productivity exacerbates “the problem of excess labor”. Increased productivity lowers the cost of production thereby enabling the satisfaction of more marginal demand thereby increasing demand for labor. Productivity has both a negative and positive feedback link to employment, but since the Luddites (and before), the positive feedback increasing employment has dominated. Except for government interference, I strongly believe that would continue to be true.

Rough wrote: “If you have ANY practical idea of what to produce that would put 18,100,000 people to productive work

If you and the government get the hell out of their way, they (with the help of their communities) will do just fine. That’s my easily implementable and practical suggestion. What won’t put them to work is to make it onerous to hire people and idiotic stimulus packages lining politicians pockets. That will only reduce employment.

Rough wrote: “And if you don’t have any ACTIONABLE ideas about the situation, isn’t that a bit of a problem for your expressed philosophy?

I do have an ACTIONABLE idea (see above), but whether or not I do is not even vaguely a problem for my expressed philosophy. That’s because my expressed philosophy is that 18,000,000 people can figure out what’s best for themselves far better than I or the government can, so we should get out of their way and not foist our ACTIONABLE ideas on them. This government’s ACTIONABLE ideas are killing them, if not literally, then in terms of spirit and self-sufficiency.

Rough wrote: “People who lived under systems where “things took care of themselves” apparently didn’t like it, not at all.

There are always looters who aim to restructure the system to their benefit at the huge cost to everybody else. Unfortunately, the looters (i.e. the political/intellectual class) has succeeded, much to everybody’s detriment. According to Mancur Olson, it’s inherent that the looters prevail eventually, and I begrudgingly tend to agree. However, that doesn’t make rationalizing the looters actions with things like the need for ACTIONABLE ideas to put people to work (what is this, slavery?) meaningful.

Annoying Old Guy Thursday, 19 November 2009 at 11:44

AVRRA;

Mostly what Bret wrote, but I have to chime a bit on my own —

Here’s an ACTIONABLE idea in, well, action. Apparently failure after predictable failure does nothing to curb enthusiasm for ever more ACTIONABLE ideas. You demonstrate exactly this by presuming that Bret was suggesting government funding for those private spacecraft, when Bret’s big picture is disputing the benefits of exactly that sort of thing.

It’s like the kid who wants to grow a plant, so he pokes, prods, and dumps chemicals on it once an hour to “help” instead of just letting the plant grow.

But why did society change, in ALL of the advanced nations on Earth, so that there isn’t the laissez-faire labor market that you describe?

Antonio Gramsci laid it out. It’s the result of a long term deliberate effort, engaged in by people who are mostly naively delusional with a hard core of people who expect to be the hands holding the whip at the end.

Yes, the floor still exists but it moves. Your analysis is predicated on a static floor, i.e. that productivity increases only increase supply but don’t decrease the cost of production.

AVeryRoughRoadAhead Thursday, 19 November 2009 at 11:54

Increased productivity lowers the cost of production thereby enabling the satisfaction of more marginal demand thereby increasing demand for labor.

You assume infinite elasticity of demand. That’s not a feature of the real world, as opposed to a theoretical model.

Therefore, often increased productivity increases demand, but not to the limits of the increased capacity, so that firms both SELL MORE, and CUT EMPLOYMENT.

While in a theoretical construct one might say that decreased employment in one more-efficient sector frees up labor for other sectors, in the real world PEOPLE ARE NOT COMPLETELY FUNGIBLE.

AVeryRoughRoadAhead Thursday, 19 November 2009 at 12:20

You demonstrate exactly this by presuming that Bret was suggesting government funding for those private spacecraft…

Bret wasn’t suggesting that, I was, precisely because nobody, but NOBODY, in the private sector would put up the money to enable millions of people to produce spacecraft. Therefore, it would have to be a gov’t program.

But Bret was the one who postulated that a new space program would be a good way to put America’s layabouts to work…

I agree, but am realistic about what that would mean. And that’s gov’t $$$.

An actionable idea is one that can be implemented, as opposed to waving one’s hands and commenting airily “I’m sure that someone will think of something…”

There are a minimum of eighteen million Americans who would like employment. If private industry could put those people to work, then now’s the time. Claiming that the gov’t is somehow preventing that from occurring begs the question of why the heavy hand of gov’t wasn’t preventing those eighteen million people from working three years ago.

Seriously, if neither AOG nor Bret can present any ideas for putting people to work through private action, which includes convincing people with capital that such ideas will be profitable, then that’s a tacit admission that the problem is beyond the scope of laissez-faire fantasies, and real-world proof that aggregate demand for goods and services has a ceiling.

Otherwise we could just set up “cheap widget” factories and stimulate demand by offering widgets, cheap.

But China’s already shown us the limits to that tactic.

Annoying Old Guy Thursday, 19 November 2009 at 12:42

You assume infinite elasticity of demand. That’s not a feature of the real world, as opposed to a theoretical model.

I think history demonstrates that not only is demand infinitely elastic, but it’s an accelerating process in that the more people have, they more they want.

Bret wasn’t suggesting that, I was, precisely because nobody, but NOBODY, in the private sector would put up the money to enable millions of people to produce spacecraft. Therefore, it would have to be a gov’t program.

I don’t think Bret was suggesting that as an activity for all 18 million. You do, however, sound just like someone in 1920 stating that the private sector would never put up the money to have millions of people building aircraft. Yet, there they are. I think the reason we don’t have tens of thousands of people doing that right now is because it was, for all these decades, a government program.

If private industry could put those people to work, then now’s the time. Claiming that the gov’t is somehow preventing that from occurring begs the question of why the heavy hand of gov’t wasn’t preventing those eighteen million people from working three years ago.

There’s been a change of government along with policies, including massive spending, intervention, taxes, and the prospective of even more of the above. That’s why.

Seriously, if neither AOG nor Bret can present any ideas for putting people to work through private action

We have. You just don’t like the policy implications of those ideas, or you immediately transform it in to public action. I also find it more than a bit silly to ask people who don’t believe in central planning what their detailed, centralized plan is.

Harry Eagar Thursday, 19 November 2009 at 13:35

You guys lost me back at the GDP per Capita part. As far as I can tell, there is no necessary link between GDP and labor. The ‘countries’ with the highest GDP have basically no modern economy, just lots of cheaply extractable but valuable oil.

The way I understand it, increases in productivity reduce the requirement for labor, as soon as output in that sector reaches demand. The hunger for coal, to take an example, is inelastic. The hunger for shoes is more elastic, and I suppose it is conceivable that in some economic universe, 90% of the labor force makes shoes and everybody has work.

In the real world, even Imelda Marcos stopped at 3,000 pairs.

The only way demand for labor can keep up with improvements in productivity is if an unending supply of novel wants is produced that require new kinds of labor.

To a considerable extent this is what has happened, or unemployment would be much higher than it is.

Or, you could just produce a bunch of stuff that nobody wants. And that is what we did during the supposedly golden age of Bush.

Rough notes that there are now 18 million people without jobs (but not without abilities). I note that there are also 18 million unoccupied dwellings in the United States.

At some point, if you are going to sell, you have to find someone with an income to buy.

Bret Thursday, 19 November 2009 at 13:59

Rough wrote: “You assume infinite elasticity of demand. That’s not a feature of the real world.

The effectively infinite demand is for all products, current and especially future products. The point is that as employment is cut in one sector of the economy because of rising productivity encountering limited increases in demand (I agree that we can only drink so much milk, for example), labor becomes available for new products and services. Labor may not be able to instantly transition to the new sectors, but by definition labor is able to transition, or else we’d all still be doing agriculture and there would be no other products or services (because labor wouldn’t’ve been able to transition).

I only used the rocket ship and private house on the moon as an example that we’re a far, far, far way from satisfying all demand. And no, I’m not even vaguely interested in the government working towards that. That’ll guarantee that it’ll never happen and will cost the taxpayers ridiculous sums.

I have put forward my “idea” which will, by definition, work, and that’s for you and the government to get out of people’s way so that they can start companies, create new goods and services, create jobs, and increase prosperity.

Bret Thursday, 19 November 2009 at 14:17

Harry Eagar wrote: “…there is no necessary link between GDP and labor.

No link? So, do you think that if there were a country where absolutely nobody worked (domestic or foreign workers), there would be a non-zero GDP? Why do you have a problem with the simple equation (with link) that I provided? Surely as a business journalist, you must’ve encountered it before? Oil doesn’t just jump out of the ground, turn itself into gasoline, and transport itself into your gas tank by itself.

Harry Eagar wrote: “At some point, if you are going to sell, you have to find someone with an income to buy.

There will be. With reasonable central bank liquidity and without government distortions prices will equalize over the next couple of years and those houses will be owned by someone who lives in them (at least part of the time). With the current uncertainty due to government policies it could take considerably longer than that.

AVeryRoughRoadAhead Thursday, 19 November 2009 at 17:57

I have put forward my “idea” which will, by definition, work, and that’s for you and the government to get out of people’s way so that they can start companies…

But in most areas of the nation there is NOTHING STOPPING PEOPLE FROM DOING JUST THAT. There are some high-red-tape locales, but in the places with which I am most familiar, all it takes is to go down to City Hall and buy a business permit. Voila.

If you don’t want an eponymous business name, you’d also have to register your DBA with the state, easy as pie and usually doable online.

Total cost for the above: Maybe $100, certainly under $200. Or, one can generally get away with simply not being licensed or registered while you’re drumming up customers, until you’ve got a coupla dollars in revenues. If you perform personal services like IT or massage, maybe you NEVER get a license.

All it takes in most areas in America is the desire to be in business for yourself. And customers.

But both of those are in short supply.

Annoying Old Guy Thursday, 19 November 2009 at 18:31

But in most areas of the nation there is NOTHING STOPPING PEOPLE FROM DOING JUST THAT. There are some high-red-tape locales, but in the places with which I am most familiar, all it takes is to go down to City Hall and buy a business permit. Voila.

If you wrote that seriously, you clearly have absolutely no clue whatsoever on this subject. I, my father, and two of my brothers, have in real life, started a businesses so I know what is involved and I can tell you there is plenty stopping people right now, almost all of it government created. I do like, however, that your “get away with” solution is highly illegal which demonstrates my point — that suggestion wouldn’t come up if government barriers didn’t exist.

P.S. What state are you in? In Illinois, where I am, you have to register your business with the state and, if you’re unlucky, with the city as well (so glad I am not in Chicago). But those sorts of regulatory issues are really quite trivial in the scheme of starting a business.

Bret Thursday, 19 November 2009 at 21:10

Rough wrote: “But in most areas of the nation there is NOTHING STOPPING PEOPLE FROM DOING JUST THAT.

Most areas of the nation are also uninhabited and have no unemployment.

Where there are people and unemployment, there are looters (government bureaucrats) making the cost of starting companies prohibitive.

I know this is just an anecdote, but I hear stuff like this all of the time here in the very high unemployment state of California:

“Larry Moore, the formerly homeless shoeshine guy, can’t seem to get a break. He’s beat alcoholism, homelessness, and poverty, but there’s no beating City Hall. After shelling more than $400 for a permit for his shoe shine stand - with the help of some heartfelt support from generous San Franciscans - Moore was told last week that he had an outstanding warrant for trespassing and owed another $400. Moore said he was also lectured about the location of his stand — it was 16 inches out of place — and warned that he might have to move it.”

The story starts out that Moore just about saved up enough to rent an apartment when the bureaucrat fined him and kept him homeless for many weeks longer.

And this is a guy who doesn’t have any employees. Imagine becoming an employer like aog or me!!!

And let’s say I want to hire someone to do something with my kids. I have to get employer ids, pay SS, disability, and other taxes, file employment reports with the state, provide workers comp, and on and on. There would be a lot of jobs like this available if it weren’t so onerous to hire people to do them.

Annoying Old Guy Thursday, 19 November 2009 at 21:29

Bret;

If you want a lot more stories like that, check out the Institute for Justice which is a foundation dedicated to fighting laws that grind down the little guy trying to better himself.

Here in my local town someone bought a building and tried to put a restaurant in it. After 6 months of micro-managing and permit run around by City Hall, he gave up (because he was paying rent on the place with no income from it and no clear end to the approval process). Yeah, but there was nothing stopping him … right …

And we haven’t even touched on taxes, deficit spending, and the availability of capital. I want to move to AVRRA’s planet where businesses apparently do not need any capital to start and be a success.

Harry Eagar Friday, 20 November 2009 at 11:36

Well, we can all sympathize with the little guy — in parvum although I don’t see so much for him in aggregate — but it is amusing to see our host, who lives near Chicago, objecting because a low-level bureaucrat COULD NOT be persuaded to look the other way.

Annoying Old Guy Friday, 20 November 2009 at 11:55

I am not objecting to that. I am objecting to

  • a system where low level corruption like that is considered necessary to operate a business
  • people claiming that the existence of such corruption means that the barriers around which the corruption lets one go do not exist.

I fail to see how one can support regulation and the corruption that unenforces that regulation. Would it not be better for everyone to officially unenforce the regulation?

There’s also the fact that I don’t live “near Chicago” in the sense that you mean. Down state Illinois is a very different place. The City Hall here is much more of a set of San Francisco wannabes — academics, their syncophants and posers.

erp Friday, 20 November 2009 at 12:19

aog, I see that even Oprah has had enough of Chicago and is moving out Bret’s way.

Annoying Old Guy Friday, 20 November 2009 at 16:41

It’s probably more to live down the Reverend Wright issue. At least Chicago sort of works (although Illinois, which is mostly Chicago, is the next stop after California on the dysfunctional state express).

Annoying Old Guy Friday, 20 November 2009 at 16:48

Cite: economic activity promoted by spending cuts, not tax increases. There’s an ACTIONABLE item.

Harry Eagar Friday, 20 November 2009 at 17:33

Oh, if you mean Champaign-Urbana, then I will have to bring up sometime the experience of the best boss I ever had with the free market in that city.

I object to petty corruption, too, but in fact, the petty bureaucrat was being uncorrupt.

My uncle, who started several businesses in Chicagoland would never start one in Chicago, because then he would have had to hire black people. There’s usually a reason behind regulations, sometimes a very good one.

Unfortunately, as I am so often reminded, the way the invisible hand works is by selfish behavior. ‘

Annoying Old Guy Friday, 20 November 2009 at 18:12

Urbana or Champaign? It actually makes a lot of difference. The city government of one is business friendly, the other hates free markets even more than you.

I think the petty appartchiks were abusing their authority in order to prevent a business from getting started. Not corrupt, perhaps, but certainly a barrier of the sort AVRRA avers does not exist.

There’s usually a reason behind regulations, sometimes a very good one.

You still don’t understand my point of view at all. Even if that’s true, it doesn’t mean that either the regulation handles the reason, or if it does, that it is not worse than the original reason. Your analysis stops with a justification, it never proceeds on to results and costs, when it’s a government involved. When it’s private you are quite the dedicated tracker. I have always wondered why the difference.

Harry Eagar Saturday, 21 November 2009 at 12:25

It wasn’t gummint that done him in, so it doesn’t matter in which city he operated. In fact, he was in both.

Maybe the apparatchiks have some animus against shoe shine boys, but I don’t have enough imagination to imagine what it would be.

‘it never proceeds on to results and costs’ There oughta be a law! Oh yeah, there is. There’s even a formal review of how proposed regulations affect small businesses. One of my friends was on the state board.

Annoying Old Guy Saturday, 21 November 2009 at 12:54

A review that is always prospective, not retrospective. I would have far less objection to government regulation if they ever got in to the habit of doing the latter.

P.S. But of course, you are once again misrepresenting what I wrote, as I was writing about you, personally.

AVeryRoughRoadAhead Saturday, 21 November 2009 at 17:51
But in most areas of the nation there is NOTHING STOPPING PEOPLE FROM DOING JUST THAT. There are some high-red-tape locales, but in the places with which I am most familiar, all it takes is to go down to City Hall and buy a business permit. Voila.
If you wrote that seriously, you clearly have absolutely no clue whatsoever on this subject.

Really? A descent into ad hominem is the best that you can do?

There’s a reason that I wrote that “there are some high-red-tape locales, but in the places with which I am most familiar…” Those are known as “qualifiers”, precisely because both you and Bret live in high-red-tape locales, and may be unfamiliar with places with more freedom.

In any event, I’ve started three companies myself, and so therefore do possess some clue about the subject. There are places in the U.S. where it’s just as simple as I’ve outlined, believe it or not.

The fact that you appear not to want to believe it detracts from the credibility of your views on the subject of national employment and entrepreneurship, although of course I’m certain that you are an expert on those subjects with regard to your local area.

AVeryRoughRoadAhead Saturday, 21 November 2009 at 18:07

The previous post is possibly too confrontational.

The gist is, if one were interested in whether or not I’m full of baloney, one could look around, instead of simply dismissing me out of hand.

And if nobody cares whether or not it’s actually easy to start a business in most of America, then the whole conversation is pointless.

Rough Saturday, 21 November 2009 at 18:21

Imagine becoming an employer like aog or me!!!

Yes, let’s imagine that I could somehow join that exalted elite…

I have to get employer ids, pay SS, disability, and other taxes, file employment reports with the state, provide workers comp, and on and on. There would be a lot of jobs like this available if it weren’t so onerous to hire people to do them.

Getting an employer ID from the IRS is literally a fifteen-minute process online, so that’s not too onerous. As for the rest, hire a payroll service. It only costs a wee bit more than doing payroll one’s self, and they cross all of the tees & dot the eyes.

Now, one might say that FICA, workers’ comp and unemployment are onerous in and of themselves, but while the administration of such might be better, the concepts of a pension, disability ins., unemployment ins. and health care for people injured on the job are ones with which I agree.

Annoying Old Guy Saturday, 21 November 2009 at 19:56

Getting an employer ID from the IRS is literally a fifteen-minute process online, so that’s not too onerous.

It was very far from that when I got mine. When did you get yours, in order to verify that 15 minute timing?

I also agree with pensions, disability insurance, unemployment insurance, and health care for people. Employees should certainly buy it. I think as mandates on businesses they are onerous in and of themselves.

P.S. I will admit that I was a bit too harsh as well. Bret and I have pointed out specific states and how they are on this subject. I can say that Texas seems about the same, although not quite as bad. In contrast, almost everyone I encounter who can’t name specific instances is simply making it up.

P.P.S. Did you remember to hang your federally mandated employment law posters?

P.P.P.S. As for looking around, I do. As I noted, I regularly attend talks given by people who have started business, attend functions filled with people who have started businesses, have several family members who have done so, and all of them have had experiences similar to mine and not at all like yours.

Annoying Old Guy Saturday, 21 November 2009 at 21:51

Alas, I realize that I got too caught up in this whole argument as the red tape for starting a business is a minor issue, really. The overall burden of regulations, taxes, government generated FUD, mandates, and absorbing too much capital are much bigger barriers.

Bret Sunday, 22 November 2009 at 06:15

Leftist presidential candidate George McGovern had a serious change of heart after starting a small business:

George McGovern laments that after his experience in the bed-and-breakfast business he realizes that laws and regulations pertaining to small business are actually hurting the lower-wage workers whom he had tried to help during his entire political career. With his Stratford Inn in bankruptcy, McGovern now says:
In retrospect, I wish I had known more about the hazards and difficulties of such a business.… I wish that during the years I was in public office I had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better Senator and a more understanding presidential contender… To create job opportunities, we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.”

So it’s harder than at least one well-meaning person thought.

It’s a good thing that starting a business is so easy and rewarding (according to Rough), because as people like me shut down because it’s simply no longer worth it, they’ll need to step in and pick up the slack.

But here’s the thing. Unemployment, especially among young and inexperienced workers is very, very high and rising. If it’s so easy, if regulation, red-tape, taxes, etc., don’t matter, then why aren’t people starting business to hire these people. I know that if I wasn’t hampered by all those things, I could start viable businesses (still with effort and risk) to hire them. But with things the way they are now, especially given the uncertainty of the future, I can’t possibly. Nor can many of my colleagues who are also entrepreneurs.

It’s a good thing you can, Rough. The young unemployed need you. So no need to ask what “We” should do. Go start businesses and hire them. It’s very straightforward and apparently easy too!

Harry Eagar Tuesday, 24 November 2009 at 11:52

‘absorbing too much capital’

You bring a tear to this old newspaperman’s eye. It’s been a full generation since I used to read the daily screeds in the WSJ warning that, unless Reagan were elected, the rising government debt would soak up all the world’s capital and business would grind to a halt.

I didn’t know anybody anywhere still thought like that. It’s like listening to an old cavalryman bemoaning the fact that the Army doesn’t need horses any more.

Annoying Old Guy Tuesday, 24 November 2009 at 19:12

I guess that’s the difference between conservatives who believe in time independent truths about an objective reality, and Logo Realists who think reality is described by whatever the Party Line is this week.

Harry Eagar Wednesday, 25 November 2009 at 11:41

I dunno. I thought the point I was making was that in reality, big deficits didn’t soak up all the necessary capital. It was the monetarist handwringers who imagined a future that never came true.

As far as I am concerned, the No. 1 question of late 20th c. economic theory — not addressed, as far as I know, by any prominent economists — is where the hell did all that capital come from?

I have some notions of my own about it but am not inclined to be very positive that I have got it right. It seems mysterious to me, and — if you adopt the outlook of the Chicago School or the Austrian School — extremely mysterious.

Something important happened, though, when the world went from chronic capital shortage to chronic capital overabundance. Maybe there will be a 25th c. Braudel to reflect, 400 years after the fact, on what it was that did happen. At the time, nobody seemed to notice, or actively denied that what was happening could happen.

Annoying Old Guy Wednesday, 25 November 2009 at 12:28

in reality, big deficits didn’t soak up all the necessary capital.

Clearly not. You brought that claim. You are a tonic for me, because if you were actually right, you would have no need to continual assign fake statements to other people simply to “debunk” them later. I am content to let you roam about your own little bubble universe — my involvement in clearly unnecessary so why introduce it?

The mystery of capital doesn’t seem very mysterious to me. I thought De Soto is one of the better written explanations. It arose out of increased productivity along with legal and social structures reducing transaction costs of dealing with unknown people.

Harry Eagar Thursday, 26 November 2009 at 12:37

Not me. It was the almost daily theme of the Wall St. Journal in the ‘70s. To say that rose out of increased productivity and reduced transaction costs does not tell me much.

Productivity up and transaction costs down have been a feature for a long time. I believe I have cited the redeployment of New York merchant capital following the introduction of packet service by the Black Ball Line before. But capital was still short even after much more than a century of huge productivity gains.

Did we just reach a tipping point in the ‘80s and ‘90s? It doesn’t seem like it, because it seems to have occurred almost overnight.

In fact, it seems even more mysterious to me today than it did two years ago. After wiping out (by one calculation I have seen) $17 trillion of notional global capital (like putting the US economy on the sidelines for 15 months), there still seems to be plenty of capital hungry for places to invest. Or is just that we haven’t had a big war for 60 years?

Hey Skipper Thursday, 26 November 2009 at 20:56

It doesn’t seem so mysterious to me. As I have noted elsewhere, the headline savings rate very likely understates reality.

Just as important, China’s linking of the RMB to the dollar has, by intent, led to the RMB being significantly undervalued. As a consequence, China has accumulated a lot of capital — a factor which at least a couple people here have not noted as contributing to our housing asset bubble.

Oh, and as a general comment, it appears that Harry and AVVR prone to the lump of labor fallacy.

Annoying Old Guy Saturday, 28 November 2009 at 11:23

Not me. It was the almost daily theme of the Wall St. Journal in the ‘70s.

OK, then go bring it up with the WJS of the ‘70s. You brought it up here. And let me be clear that “it” means “big deficits didn’t soak up all the necessary capital” [emphasis added]. I will defend my opinions and the opinions of others I cite, but I feel no need to defend whatever random opinions you dredge up.

Productivity up and transaction costs down have been a feature for a long time.

Define “a long time”. A century? 500 years? 2000 years? I trace the rise of modern capital to the 1700s and joint stock companies along with English common law and contract law.

I find your comment that “capital was still short” amusing, because that’s precisely the thing you rail about with it’s labor that is short. In both cases, it’s not short, it’s simply not available at the price desired.

Did we just reach a tipping point in the ‘80s and ‘90s? It doesn’t seem like it, because it seems to have occurred almost overnight.

What tipping point? I have no idea to what you are referring in this statement. In terms of capital availability I don’t see any fundamental or frankly that significant a change in the 80s or 90s. Come on, share some of your Narrative with us.

After wiping out (by one calculation I have seen) $17 trillion of notional global capital (like putting the US economy on the sidelines for 15 months), there still seems to be plenty of capital hungry for places to invest.

Talk to small businesses and even some larger ones about capital availability. Or talk to VC firms, as I do, quite a lot of whom have stopped funding new ventures and culling current ones.

In addition, keep in mind the point above, that capital doesn’t become available or unavailable, but simply changes price. It’s a smooth function, not a step function.

Harry Eagar Sunday, 29 November 2009 at 13:54

If you think capital is a step function, go read Kindleberger. Maybe most of the time it is, but not always.

Anyhow, today we have the weird situation in which people with paper capital invest in 0 coupon treasuries, while, as you say, productive businesses go short.

Very strange.

See here for brief thoughts about the origins of capitalism. The book is worth reading, and joint stock companies helped but were not in at the beginning.

Productivity gains were huge, but spotty, from the time of the Duke of Bedford’s canal. There were still a lot of people in the United States at near-medieval levels of production when I was born. (In Merle Miller’s biography of Truman, Truman remarks that in the late ‘40s, there were still 2 million mules in Missouri, ‘worth about $90 a piece.’

You can date productivity gains to around 1940 — to Hopkins’ persuading Roosevelt to use WPA funds to buy machinery, to the war and to the extension of high school education to most of the young people. That was the takeoff, as I see it.

If we take the WSJ as the voice of the opinion of American business — and I do so take it — then it was noticeable that complaints about lack of capital just dropped off the pages sometime in the ‘80s.

Annoying Old Guy Sunday, 29 November 2009 at 14:20
It’s a smooth function, not a step function [emphasis added]
If you think capital is a step function
Whatever.

And we’ve moved from “where the hell did all that capital come from?” to capitalism in toto?

I like these two quotes together —

  • “Productivity gains were huge, but spotty, from the time of the Duke of Bedford’s canal”
  • “You can date productivity gains to around 1940”

I am awed that these things were such impressive productivity gains that in comparison the Industrial Revolution is not worth mentioning.

then it was noticeable that complaints about lack of capital just dropped off the pages sometime in the ‘80s.

Yes, completely (*Reagan*) mysterious (*Reagan*). Perhaps someday we (*tax cuts*) will understand it.

P.S. I read the link but as far as I could tell it had nothing whatsoever to do with the origins of capitalism. Further, Carruthers is confused if he thinks party maneuvering in those days had no impact on profit. It’s more amusing that he then, according to your review, discusses at least one mechanism which links the two. Next!

Harry Eagar Sunday, 29 November 2009 at 21:20

There’s a difference between a huge productivity gain for a particular venture and general, widespread productivity gains across an entire economy. That the Duke got rich moving coal had no effect on the output of corn farmers plowing with mules.

I think you ought to read ‘City of Capital,’ because I believe you misapprehend what joint stock companies did in the time of Queen Anne. They accumulated cash and lent it to the government. That’s all. In that function, they were preceded by the Amsterdam bankers, who were not organized as joint stock companies but as partnerships.

The joint stock company was not very important during the British Industrial Revolution as a method of organizing capital. Partnerships were usual, and sole proprietorships were common.

It would be a nice exercise to try to determine whether Reagan’s tax cuts were more stimulative, or his deficits. But I doubt it could be done.

Annoying Old Guy Monday, 30 November 2009 at 15:59

Research says, tax cuts.

I have to say, of the bizarre things you come up with, the idea that the biggest or most significant productivity gains in the USA were because Hopkins got the WPA to buy machinery is near the top, especially given the decade long lack of success before WWII. Things like railroads, steam power, computers, Henry Ford, Dale Carnegie, or Norman Borlaug, clearly pale to insignificance in comparison.

P.S. I suspect that City of Capital is an interesting book, but I still fail to see what it has to do with “the origins of capitalism”. You state that they weren’t the first to perform their function, nor was their form important in the UK for organizing capital.

erp Monday, 30 November 2009 at 16:48

Harry do you mean this Queen Anne?

Harry Eagar Tuesday, 01 December 2009 at 12:07

Yes, that one.

There are different opinions about productivity. Ford might be a pretty bad example to put forward, especially considering his 1300% annual labor turnover. See, for example, here.

Hopkins was important because of the boost WPA gave to mechanization. Boulder Dam and all that. There were other approaches being taken at the time that were different. In Germany, for example. Despite the delusions of some, the New Deal was not an American fascism.

Nobody takes a back seat to me in admiration for Borlaug. I devised the World Food Prize, after all, and proposed him for chairman. But his impact started recently, as these things go. Wallace laid the foundations for commercializing high-yield feed grains (Pioneer Hi-Bred).

Productivity is an interesting subject. Common assumptions about it do not stand up to economic analysis. When it comes to railroads, for example, there was a story (sorry, no link, this was published long before the Internet, back when I was studying economic history) which compared the efficiency of early railroads in moving freight on the US coast and using mules on the Gulf coast of Mexico. It found no difference.

Railroads offered more opportunities for technological development, but they were not in themselves more efficient for early adopters.

Post a comment