The Economics Thread

[Ikki]

When I am referring to work worth their labour, I am referring to what the market is willing to pay them for that kind of labour and expertise. Footballers were being paid 20k in the 70s IIRC, they're paid millions now. Unless you're arguing that owners/shareholders are being duped out of money because of what the company is willing to pay its CEO the distinction is irrelevant IMO. It's a private entity and can pay whatever it wants to such an employee. They will determine their worth, knowingly, and pay that cost.

The Card-Krueger study was undertaken in some locales in some fast food restaurants - arguments over their methodology aside - in 1992. Why the unemployment rate is 4-5% in 2007 probably has very little to do with it and it can't be assumed to have anything to do with it directly. There's a very weak correlation and argument there I feel.

I understand your overarching point which is to be wary of these long term trends when we're discussing this topic. However, IMO the long literature on this, particularly with regards to inputs of production and demand based on price, are pretty straightforward and predictable. I think it would take a lot more study and much longer length to really overthrow this thinking. I'm not advocating sticking to what is conventional thinking for the sake of it; I just think all the reasons that it has been held before are so strong that it will take far more than recent studies, like the Card-Krueger one, to overthrow because of the reason of its importance and the susceptibility it has to being used for political gains.

 

[Ikki]

Aside from that, what do you think of Bernie's $15 minimum wage idea or his economics in general? Is it too left for even you? Which Presidential candidate's policies do you agree most with?

 

[harsh.ag]

I really don't like the prospect of high minimum wages. A basic income coupled with a low minimum wage is preferable.

In the alternate, I would have minimum wages lower than $15, maybe $10. USA has a big problem with the welfare state. This should make things better.

In regular times, I do think raising minimum wages have negative short term employment effects. Right now, with some inadequate demand still in the system, this may have far less distortionary effects. And an uptick in inflation would only be a boon for the economy.

 

[ohnoitsyou]

Aside from that, what do you think of Bernie's $15 minimum wage idea or his economics in general? Is it too left for even you? Which Presidential candidate's policies do you agree most with?

Sup par ad hominen. Lift your game.

 

[harsh.ag]

When I am referring to work worth their labour, I am referring to what the market is willing to pay them for that kind of labour and expertise. Footballers were being paid 20k in the 70s IIRC, they're paid millions now. Unless you're arguing that owners/shareholders are being duped out of money because of what the company is willing to pay its CEO the distinction is irrelevant IMO. It's a private entity and can pay whatever it wants to such an employee. They will determine their worth, knowingly, and pay that cost.

So you don't allow for the possibility that the labour market may be broken on some level? With downward nominal rigidities on wages, we know of at least one way it is broken. I am not saying the shareholders are being duped out of money because of superstar CEO pays. But that the pay distribution between workers and CEOs have not been following productivity increase. One really can't claim the labour market is working well if wages consistently and largely lag behind productivity, because that's how wages in a market are supposed to be decided. One can't claim the market has the present day right by virtue of it being the market.

The irony that we are worried about downward wage rigidities even while thinking that wages are too low below productivity should make everyone think long and hard about how the labour market is right now.

Also, I think when some economists try to portray themselves as being above politics, there are committing either hypocrisy or showing that they are too afraid to get into a fight which will only leave them worse off. When an economist says that he doesn't care about distribution effects, only efficiency, he is in effect claiming that he thinks the marginal value of the next dollar is identical whether it goes to the CEO or the restaurant staff. Now, that's a perfectly reasonable position to take, but it is certainly political.

 

[Ikki]

Sup par ad hominen. Lift your game.

That wasn't supposed to be ad hominem. I'm pretty sure harsh is towards the left on these issues, but I often wonder how people perceive Bernie who is basically a socialist. "Even you" is basically me asking, "even in your opinion". Probably should have phrased that better.

So you don't allow for the possibility that the labour market may be broken on some level? With downward nominal rigidities on wages, we know of at least one way it is broken. I am not saying the shareholders are being duped out of money because of superstar CEO pays. But that the pay distribution between workers and CEOs have not been following productivity increase. One really can't claim the labour market is working well if wages consistently and largely lag behind productivity, because that's how wages in a market are supposed to be decided. One can't claim the market has the present day right by virtue of it being the market.

The irony that we are worried about downward wage rigidities even while thinking that wages are too low below productivity should make everyone think long and hard about how the labour market is right now.

Also, I think when some economists try to portray themselves as being above politics, there are committing either hypocrisy or showing that they are too afraid to get into a fight which will only leave them worse off. When an economist says that he doesn't care about distribution effects, only efficiency, he is in effect claiming that he thinks the marginal value of the next dollar is identical whether it goes to the CEO or the restaurant staff. Now, that's a perfectly reasonable position to take, but it is certainly political.

Arguing that it can be broken is different to saying the solution is wage fixing. Ultimately, these are private institutions and they're free to distribute their income as they wish and the best gauge of that amongst competitors will determine the standard and their success. Ultimately, their aim is to make money. If it ends up that they should change that structure, that is on them.

Nor would I argue about how wages in a market are "supposed" to be decided. Employee A may provide more productivity than Employee B, but Employee A may be far more easily replaced than Employee B. Relatively, there are so few people qualified to run companies, especially huge ones, that this scarcity will work in favour of these people. In a way, it should encourage people to learn what it takes to run a business, than just take up a low wage job and stay there for years. In the fast paced world we live in these days, I think there needs to be re-education.

Also, productivity is not the only concern. CEOs tend to be in positions of extreme importance in organisations where just them being in a position (or leaving it) can greatly effect stock prices. There's also the argument that CEO wages have risen in line with increase in market capitalisation of the large US corporations.

We should also take care at looking at the broader picture. Many US articles/studies cite the AFL-CIO when it comes to comparing CEO pay vs the average worker. The AFL-CIO only looks at the S&P500, thus only 500 CEOs and cites a 331:1 ratio. In actual fact, there are over 250,000 CEOs. The average pay of them vs the pay of the average worker in 2013 was $178,400 vs $46,440.

Unless you think having any opinion can be political I guess there should be a point of differentiation. What if they simply don't care about how that dollar is spent? That wouldn't be a claim that the marginal value of the next dollar is identical when it comes to CEO vs employee. It can be argued that the only thing that matters is that the decisions that company makes only matter if it enables it to be more efficient and consequently profitable - which in turn has a myriad of other benefits for the wider community. Now you can argue if it is better to pay the CEO more or the worker more, that's the potentially political argument IMO, but that's a matter for that company to decide - it's a private entity after all.

 

[Ikki]

You wouldn't have to cut jobs if everyone else in the restaurant business also had to double the rate of pay of their employees. That is the difference between a micro change and a macro change. The menu prices of restaurants would increase, and most of the cost increase will be transferred to consumers. There might be some downsizing of course, as I did suggest.

And if consumers are forced to pay more, the restaurants have less business. You're destroying small businesses as a result. Not all restaurants will raise their prices, some will lay off employees they can do without, hindering their services but keeping their prices competitive. People care about low costs probably more than any other factor, that's why most businesses have to stay price competitive.

The above will be a loss in employees and a loss in terms of what the consumer can now enjoy. You're also not figuring in the real effects to the employers. People have their lives based on expected costs and incomes. Owners have mortgages and other debts as well. It's also why a lot of people hire illegals or those willing to work off the books. This is how the real world works. No one is going to eat those costs bar the big companies that have really high volume. The model will be cutting labour to keep the prices cheap.

Aside from all this, it's the kind of nonsense that rewards people for remaining unskilled at the expense of entrepreneurs; it's the real race to the bottom. I'm not sure you have a business background. I'd encourage you to get one if you don't and see how these things work.

 

[Ikki]

Do you have evidence to support if all the bad things you are saying happened in the previous rounds of minimum wages increases?

Also, you are not the only one who knows how the real world works. I work in India, and know way more about how businesses are run off the books and illegally and eating costs and government regulation than you can ever hope to in all your life.

And if you only want to discuss these things with businessmen, then kindly go to a business forum instead of posting here, you obnoxious man.

I deleted my post in the other thread to stop derailing it.

Yes, we discussed the evidence earlier in the thread wrt to minimum wage hikes.

I come from a 3rd world country, I'm familiar with illegal practices as much as you, don't worry. In fact, I'd say most ethnic small restaurants have workers off the books even in countries like Australia.

The point was not to sound obnoxious but to help you understand how unworkable your suggestion is. It only looks good on paper: every business increasing their prices the requisite amount to reflect the change in labour costs. This is the kind of coordinated and unworkable suggestion someone that thinks of business activity in a central-planned theme would come up - not a businessman that is competing with others.

I think if you really engaged in business (again, I'm not trying to be obnoxious) you'll realise just how hard it is to compete and possibly why such people deserve more than those who remain unskilled workers. The argument is that businesses are unscrupulous because they don't give higher wages, but they do that because the value of the labour is not worth higher wages and they need to stay price competitive. Yet you don't reconcile that with the fact that the same businesses that are gonna look for any advantage to keep prices down have more scope for that when there is an artificial increase.

That prices are important is simply a fact of demand and supply. Restaurant prices for foods have generally fixed (relatively) for raw materials that are reflected in the price of the item you're purchasing. After a minimum wage, it hasn't gotten more expensive to actually make that meal. It's just become artificially more expensive because of a wage hike that isn't justified by the value it adds to the business.

Therefore businesses that require (or do without) less labour will thrive. Because you're not encouraging businesses to simply raise their price, you're encouraging them to find value in creating less labour-intensive activities. People who would otherwise work in such establishments no longer have as much opportunity to gain an income; ergo, jobs are lost.

 

[harsh.ag]

The point was not to sound obnoxious but to help you understand how unworkable your suggestion is. It only looks good on paper: every business increasing their prices the requisite amount to reflect the change in labour costs. This is the kind of coordinated and unworkable suggestion someone that thinks of business activity in a central-planned theme would come up - not a businessman that is competing with others.

I think if you really engaged in business (again, I'm not trying to be obnoxious) you'll realise just how hard it is to compete and possibly why such people deserve more than those who remain unskilled workers. The argument is that businesses are unscrupulous because they don't give higher wages, but they do that because the value of the labour is not worth higher wages and they need to stay price competitive. Yet you don't reconcile that with the fact that the same businesses are gonna look for any advantage to keep prices down, because that will help them sell more and make more money, and there is more scope for that when there is an artificial increase.

Therefore businesses that require (or do without) less labour will thrive. Because you're not encouraging businesses to simply raise their price, you're encouraging them to find value in creating less labour-intensive activities. People who would otherwise work in such establishments no longer have as much opportunity to gain an income.

It is not about philosophy or about business ethics or vilifying/penalising business owners. it's about workable solutions.

Show me some evidence how what you are saying happened in the last rounds of increases in minimum wages. Do restaurants now employ less workers than they used to in the 50s? If you don't find any evidence, will you still continue to support this theory?

 

[Ikki]

It is not about philosophy or about business ethics or vilifying/penalising business owners. it's about workable solutions.

Show me some evidence how what you are saying happened in the last rounds of increases in minimum wages. Do restaurants now employ less workers than they used to in the 50s? If you don't find any evidence, will you still continue to support this theory?

Bolded: no, in many regards there is a very political aspect to this discussion that promotes certain philosophies and consequently vilifying employers and to make victims of employees. It's inescapable really.

You're asking me for proof of the negative effects of new MW raises? Which ones and where? I've already cited the Neumark-Wascher paper. It also discusses the rises in MW during the 60s, 70s, etc IIRC. Let's not pretend there is any established and uncontested ground. Simply put, for every paper/study you put forward I can put one back and if I can't find one now it's just a matter of time till one is made. This is the nature of the literature on this subject. This is because as said, there are political and professional motivations for wanting to advance the cause/demise of MW; aside from the fact that it's complex because of the contextual nature of employment and varying theories and methodologies used to make determinations.

Let's, for the sake of keeping the discussion simple rather than throwing papers around dick-waving like we know something is objectively indisputable, boil it down somewhat. I've read your posts and you're measured however I do find several points you've argued comfortably countered by common sense economic thought and business practices - that I find almost exactly align with my own dealings in business (especially the restaurant business).

Previously you mentioned a solution wherein companies simply just pass the labour cost to the consumer (and it may be true in certain contexts) but do you actually believe it, taking into account my objections? Does it not seem at the surface level wrong or too good to be true that everyone is simply gonna work it the same way and it won't affect employment, and consequently the business of the establishment, and furthermore the economy of the country?

I ask because I have a hard time believing anyone who has done business in the restaurant business thinks like this. It gives me the same feeling I have when I read someone trying to use economic studies to show communism works. People can pull up a lot of **** to justify anything. Do these studies really convince you? Are they comprehensive enough for you? And if they aren't, are you comfortable with imposing a MW regardless?

 

[ohnoitsyou]

Bolded: no, in many regards there is a very political aspect to this discussion that promotes certain philosophies and consequently vilifying employers and to make victims of employees. It's inescapable really.

You're asking me for proof of the negative effects of new MW raises? Which ones and where? I've already cited the Neumark-Wascher paper. It also discusses the rises in MW during the 60s, 70s, etc IIRC. Let's not pretend there is any established and uncontested ground. Simply put, for every paper/study you put forward I can put one back and if I can't find one now it's just a matter of time till one is made. This is the nature of the literature on this subject. This is because as said, there are political and professional motivations for wanting to advance the cause/demise of MW; aside from the fact that it's complex because of the contextual nature of employment and varying theories and methodologies used to make determinations.

Let's, for the sake of keeping the discussion simple rather than throwing papers around dick-waving like we know something is objectively indisputable, boil it down somewhat. I've read your posts and you're measured however I do find several points you've argued comfortably countered by common sense economic thought and business practices - that I find almost exactly align with my own dealings in business (especially the restaurant business).

Previously you mentioned a solution wherein companies simply just pass the labour cost to the consumer (and it may be true in certain contexts) but do you actually believe it, taking into account my objections? Does it not seem at the surface level wrong or too good to be true that everyone is simply gonna work it the same way and it won't affect employment, and consequently the business of the establishment, and furthermore the economy of the country?

I ask because I have a hard time believing anyone who has done business in the restaurant business thinks like this. It gives me the same feeling I have when I read someone trying to use economic studies to show communism works. People can pull up a lot of **** to justify anything. Do these studies really convince you? Are they comprehensive enough for you? And if they aren't, are you comfortable with imposing a MW regardless?

Could you please explain to me how incredibly rich societies are unable to generate jobs that people can live off?

 

[wellAlbidarned]

ohno

 

[ankitj]

Brilliant speech this from the outgoing central bank chief of India, Raghu Ram Rajan: http://m.rediff.com/business/report...critics-in-a-hard-hitting-speech/20160620.htm

Rajan has been pretty firm on not tinkering with monetary policy to stimulate growth. He articulated his rationale very well here. Thoughts on this?

PS. Posted here rather than in Indian politics thread because the comments are relevant in general and not just to India.

 

[harsh.ag]

Goldman got no problems with liquidity

 

[StephenZA]

Just noticed that the Economics thread stayed with the News/Politics Forum rather than just moving to Off Topic... find that amusing for some reason.

 

[watson]

Australia: a nation of cash-poor millionaires

Who wants to be a millionaire? Forget the game*show and the song titles – the average Australian household now has more than a million dollars in net wealth. The trouble is we are becoming increasingly cash poor.

While the value of our homes has risen to the point where the average household can boast millionaire status – on paper at least – Deloitte Access Economists has found 37 per cent of households are*concerned about their ability to pay their bills and household costs. It*expects this number to increase to 40 per cent within two years.

The major culprit has been the combination of slow wages growth and increases*in the cost*of living, including utilities, health costs and even groceries if taken on a 10-year view.

Deloitte*quotes research showing 7.2 per cent of households are feeling mortgage stress – not because interest rates are high, but because they have taken out larger mortgages to pay for residential property. And 11.5 per cent of households are experiencing rental stress.....

Australia: a nation of cash-poor millionaires

The takes home messages from the SMH article .......


The demand from newly arrived immigrants and foreign investors has overtaken supply thus pushing-up the cost of buying a new home or renting a property.

The demand for food and services by a rapidly increasing population has also pushed-up the cost of groceries and vital services.

The end result of these two things is that a fifth of households have little or no cash to spend on non-essential goods and services thus crippling the wider economy.

Therefore Australia’s record levels of immigration levels have essentially ruined the Australian economy and left it highly vulnerable to a global financial shock of some kind.

Bottom line - ‘Mass immigration’ ruins the economy.

 

[smalishah84]

The takes home messages from the SMH article .......


The demand from newly arrived immigrants and foreign investors has overtaken supply thus pushing-up the cost of buying a new home or renting a property.

The demand for food and services by a rapidly increasing population has also pushed-up the cost of groceries and vital services.

The end result of these two things is that a fifth of households have little or no cash to spend on non-essential goods and services thus crippling the wider economy.

Therefore Australia’s record levels of immigration levels have essentially ruined the Australian economy and left it highly vulnerable to a global financial shock of some kind.

Bottom line - ‘Mass immigration’ ruins the economy.

 

[watson]

Yes you are funny

 

[Uppercut]

https://www.theguardian.com/news/2017/nov/14/the-fatal-flaw-of-neoliberalism-its-bad-economics

Pretty good summary of the current worldview of academic econ, which I fully agree with. Rodrik is nailed on for a Nobel at some point.

 

[Redbacks]

There are entire ghost town in China, built and never used. So whilst you could accept that their different way of doing things has worked (given they have such a comparative advantage in labour costs over developed nations it's pretty easy) it excludes the fact that such wasteful spending has held back growth rates. Maybe GDP would be growing x% faster a year if left to private enterprise, compound that loss up and within a few decades they are significantly poorer than they should be.