Economic Populist Commentary

Economic commentary by a pro-capitalist, economic populist. Demand-Side Economic theory. Consists of author's economic views. Questions & comments appreciated. Dissenting views are VERY welcome and encouraged. Main "agenda" is crafting and advocacy of a "populist" economic agenda. A secondary goal is prevention of an economic Armageddon. Encouraging open discussion of US economy.

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Location: Southern California, California, United States

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

Tuesday, July 19, 2005






WAGE DECLINE & CORPORATE SELF-DESTRUCTION

Until recently, American corporations had been unable to destroy their own consumer market, because they were forced to maintain wages at a certain level. This was due to the limited supply of workers in their native country. The labor force supply-and-demand effect created upward pressure on wages. This prevented American industry from reducing wages below a certain level. In turn, this maintained aggregate labor/consumer income at a high enough level to purchase American products. With global labor competition, wages can be reduced drastically. With this reduction, however, comes reduction in the consumer income that purchases American products. This drastic reduction in aggregate consumer income will lead to a drastic reduction in consumer demand. If the average American worker is making $4/day, due to glogal labor competition, who will buy American products? CEOs? Congress? Bill Gates? Martians? Can the super rich really buy enough computers and SUVs to maintain American consumer spending and demand? If not, then where will the profits come from with drastically reduced sales? Can profits be made without selling any goods? Can labor costs be reduced enough to make profits without any sales?

Corporate America fails to understand that maintaining worker wages is to their advantage. It's not only to their advantage, it's a necessity. American labor "costs" actually provide the income to buy American products. (Labor costs = consumer income. Labor cost reduction = consumer income reduction. In reality, it's worse than this. Consumer income reduction is > than labor cost reduction.) To restate this, as corporations lower labor costs, they lower consumer income as well. Corporations decrease the size of their own market by reducing aggregate consumer income. If they continue to increase profit margins by reducing labor income, they'll eventually be unable to sell their products. There won't be enough income to purchase America's production. Remember slavery? Slaves never bought any products. They didn't have any income. If we all become slaves, we won't have any income either. And corporate America won't be able to sell their products to anyone. Corporate America will have destroyed itself, due to its own greed.

Henry Ford said that he paid his workers well so they could buy his cars. Corporate America should take heed of this. The most productive economies we've ever had were when worker wages were at their highest inflation-adjusted level. There are 2 economic principles that are being ignored by Corporate America. Consumer spending is 2/3 of economic activity. They also ignore the fact that consumer spending is the biggest part of the GDP equation. (GDP=Consumer_spending+investment+government_spending+trade_balance) In reality, investment spending will be self-limited if consumer spending isn't maintained. Production facilities will not be built if no one buys products. In addition, government spending is financed by taxes on consumer income. Thus, it is also very dependent on consumer income. Exports depend on foreign labor income, which creates foreign consumer markets. Since average foreign worker income is miniscule, this will never be a very large number. Imports will continue to subtract from GDP, as long as slave-labor wages are encouraged by "free" trade/slave labor agreements. Since consumer spending is strongly related to labor/consumer income, a reduction in consumer income will also reduce GDP. We're not "growing" our economy by reducing labor costs. We're shrinking it.

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13 Comments:

Anonymous Ryan said...

So explain why most workers have cost of living adjustment, hence wages have increased to maintain the same purchasing power. But lets suppose the average american is making $4/per day (which is below federal minimum wage and almost half of many states minimum wages). You also assume wages are the only form of income, again not true, many gain income from the ownership of stock.

If Americans start losing purchasing power, i.e. decrease demand for goods, eventually firms will increase wages. You are right firms are driven by profit. When profits falls, they will change their prices to get people purchasing more goods.

Unfortunately, wages are not $4/day. Corporations are smarter than you, and they realize workers are also consumers. Slavery is not an arguement here, we have extremely high minimum wage laws that prevent this. Most states have adapted cost of living adjustments to maintain the same purchasing power. Coming from the west coast you should know this. I'm not sure about California, but Washington, Oregon, and Alaska all have minimum wages well over $7.00/hour.

Lets stop exagerating the facts. Americans will never make $4/DAY again. At least lets hope your patients don't because than you won't be able to live in the high life.

11:51 AM  
Blogger unlawflcombatnt said...

Ryan,

Thank you for visiting my blog.

You're completely wrong stating
"most workers have cost of living adjustment." This is simply untrue. This is only true with government workers.

In the 20+ years I've worked I have never received a "cost of living" raise. I've worked on over 20 different jobs during that time. I've worked as a service station attendant, stock clerk,
shipfitter, security guard, ironworker, machine operator, and as a doctor. I have never, ever received a "cost of living raise" in my entire life. Many workers do not receive cost-of-living raises.

Your ignorance on this point is critical here. The lack of cost-of-living allowances is one of the major reasons wages have not kept up with productivity.

Your comment that "If Americans start losing purchasing power, i.e. decrease demand for goods, eventually firms will increase wages" is ridiculous. It is typical right-wing economic fantasy.

American firms raise wages only when they must to maintain a sufficient number of workers to provide enough production to meet consumer demand. If consumer
demand goes down due to low wages, the demand for labor declines. This doesn't cause employers to "raise" wages. It causes them to reduce wages, because the demand for labor declines which reduces prices. In this case, those "prices" are worker wages.

Clearly you don't understand supply and demand. You might want to read some articles about supply and demand, and how price interacts. It's not especially complicated. I can provide you with some sources if you can't find any.

Your comment "coming from the West Coast you should know this" is ridiculous. What you
should know is that the Federal minimum wage hasn't been raised since the 90's.

Before you make foolish comments like "Corporations are smarter than you," you might want to read a little bit about economics. And you might want to check your facts, before you make any further
illogical, non-factual statements.

You're comments about my "living the high life" are idiotic. You typify many of the right-wing know-nothings whose illogical babblings dominate today's media.

unlawflcombatnt

1:51 PM  
Anonymous Anonymous said...

Wow, you telling me about economics is me like giving you advice on medicine. You are correct, the Federal Minimum wage has not increased since 1997, but state level minimum wages have increased every year since 2000. Oregon minimum wage of 7.15 and Washington 7.25.

Many people belong to a union that receive annual raises. Most teachers, police, firefighter, and government workers receive such wages. To assume wages will fall to $4/day is absolute ignorant and show you have no clue about economics!

The demand for labor is based off of the marginal product of labor. Which has increased over time, as have real wages. The recent edition of the economist shows wages have increased 2.7% in the past quarter. Far exceed cost of living increases. It may have not kept up with productivity, but they still give workers more purchasine power.

You say firms raise wages to meet production, than counter with lower wages lead to less demand. That is a back asswards argument if I've ever heard one.

To assume I'm right-wing is ludricus. I am an economist, I believe in free markets, small government, and social welfare. All in all I would love to see the abandonment of minimum wage laws all together. The fact is, corporations are people, rather intelligent people at that. Their goal is to maximize profit, this happen??" Let me tell you everyone knew he was ours because they nearly had to tie us to the bench to keep us from floating away and our smiles were shinging brighter than the sun in pride! I looked at Big D and said "ok we can go home now. I am so happy right now win or lose tonight!" Well I wished I could say we won, but we lost 38-8, but no matter Big D and I left there so proud. Not only was Football Star reconized as a captain tonight he also got about 5 tackles and a couple near misses. But our night of surprises wasn't over just yet. Each Thursday 4 freshman players are reconized for their hard work by earning a Varsity Jersey to play (mainly stand on the sidelines). Well here he comes with a jersey and a smile. He looked so good this morning in that Varsity Jersey. We are so proud of him. I guess why we are so proud is because all this did not come easy for him. He has always wanted to play sports but was always too chubby to m

9:49 AM  
Anonymous Ryan said...

You really do show your ignorance. I've spent my entire life reading, learning, and teaching economics to ignorant know it alls like you self. Its time to move off the intro to economics textbooks.

To assume I am right-wing is ludricus, I believe in free markets, social welfare, and small governments. I am moderate as they get.

Please explain how simulateously workers can higher wages and lower wages. Firms higher workers when the marginal products have increased. Recently wages have increased more than 2.7%, plenty to cover cost of living increases. It may not cover productivity, but it is not supposed too.

You are correct in saying Federal Minimum wage laws have not increased since 1997, but many states have minimum wages that exceed the federal level. 15 states have minimum wage laws that are greater than the federal level. Yes many individuals have cost of living adjustments. Anyone under contract, i.e. unions and government workers. This is a lot of workers. You did not earn COLA's because you worked in many low skilled jobs, in which the federal minimum wages were designed to help.

I just hope you are a better doctor, than you are an economist, at least for your patients sake. But with a background in that many jobs, I doubt you are real doctor. Yes, I feel into the same trap as you have, making assumption before you know the person. It makes you look like a complete dumbass. Clearly, you don't have a clue about economics, considering you are spewwing economic theory that has been abandoned many years ago. If you want some current articles, published in the highest caliber journal articles I can provide those to you.

Then again you probably can't read the math involved, given your previous posts.

9:55 AM  
Blogger unlawflcombatnt said...

Ryan,

If you're claiming to be an economist, I couldn't care less. That would actually be somewhat surprising. I showed your initial response to my wife, who's a high school English teacher. We both thought your comments had been written by a high school student. Obviously your grasp of facts is severely limited. When you comment on someone looking like a "dumbass," try looking in the mirror first. If economics is your area of "expertise," I hate to think how little you know about everything else.

Let's start with your ignorant quotation of the Right-Wing publication, "The Economist."

Claiming wages have increased 2.7% in the last quarter is not only dishonest, but ridiculous. Those statistics are typical of the Right-Wing propaganda the Economist spews. You might want to consider a more reputable source, such the United States Bureau of Labor Statistics. I'll post the link, since you've obviously never been to the site before: BLS Hourly Wages

When adjusted for inflation, hourly wages measured in 1982 dollars increased from $8.19/hour in March to $8.21/hour in June. That's a 0.02% increase in real wages, not a 2.7% increase as you have so mistakenly stated. Furthermore, July's real hourly wage of $8.20/hour is 1% less than it was in December of 2003. For an economist, you certainly have a poor grasp of facts that relate to your own profession. You're typical of the supply-side economic mythologists that have been guiding the economic policies of this country. If the facts don't mesh with your illogical theory, you just change the facts.

You might try to read what I've written again, since you can't seem to re-state it correctly. I stated that firms raise wages to retain enough workers to maintain sufficient production to meet the production demand of consumers. The only thing "back asswards" is your scramble-brained mistatement of what I wrote.

I have no idea what you're talking about when you ask me to "explain
how simulateously workers can higher wages and lower wages." I suspect you have no idea either. If you can unscramble what you wrote I'll try to answer whatever "question" you were trying to ask. You might consider re-reading what you've written before you post it. Your economic fantasies look even worse when combined with your limited reading and writing skills.

As to your claim that I "am spewing economic theory that has been abandoned many years ago," this is typical of right-wing economists who have demonized Keynes since the early 70's. His theories have been abandoned only by those such as yourself. Many economists subscribe to theories similar to those of Keynes. Maybe you should consider reading some of the works of economist Ravi Batra, instead of your books on supply-side economic mythology.

What I've written has already been vetted through several economists, so I'm not concerned about your "disapproval."


unlawflcombatnt

9:28 PM  
Anonymous bloo000 said...

Gosh! It's so hard to know who to believe here: Unlawfulcombatant, who actually can write readable sentences or Ryan, who writes like this "teaching economics to ignorant know it alls like you self."

Ryan even throws in the George Bush word "simulateously." Good going Ryan! Don't ever let anyone misunderestimate you!

Anyway, good post Unlawfulcombatant! I completely agree with you on the wage issue.

2:30 PM  
Blogger unlawflcombatnt said...

Note to posters:

I delete anything that appears to be an advertisement for a product. Information-type site postings are OK, but postings that are advertisements for consumer products will be deleted.

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12:23 PM  
Anonymous Anonymous said...

Bush goes ballistic about other countries being evil and dangerous, because they have weapons of mass destruction. But, he insists on building up even a more deadly supply of nuclear arms right here in the US. What do you think? Why has bush turned our country from a country of hope and prosperity to a country of belligerence and fear.
If ever there was ever a time in our nation's history that called for a change, this is it!
We have lost friends and influenced no one. No wonder most of the world thinks we suck. Thanks to what george bush has done to our country during the past three years, we do!

1:54 PM  
Anonymous Anonymous said...

Bush goes ballistic about other countries being evil and dangerous, because they have weapons of mass destruction. But, he insists on building up even a more deadly supply of nuclear arms right here in the US. What do you think? How does that work in a democracy again? How does being more threatening make us more likeable?Isn't the country with
the most weapons the biggest threat to the rest of the world? When one country is the biggest threat to the rest of the world, isn't that likely to be the most hated country?
What happened to us, people? When did we become such lemmings?
We have lost friends and influenced no one. No wonder most of the world thinks we suck. Thanks to what george bush has done to our country during the past three years, we do!

9:05 AM  

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