[Split] "Welfare"

[callmeslick]

If all these corporations are paying a hundred times too much for all their management positions why aren't there qualified people stealing those jobs that 'Country Club Americans' aren't willing to do...for so little?

How did we get to a place where the stockholders aren't hiring 'cheap' upper-management labor?
I'd love to sell my business and go finish out my years as the CEO of some mega corp for a paltry sum of $500,000 per year!

except you aren't on the Board of Directors, or likely buddies with any of the Directors. In most corporations, the Directors control the majority of the stock, and the rest of the common stockholders are powerless to change matters.

[LEON]

It doesn't hurt that Costco collects $55 a year from each of its 64 million members in fees. Thats lets see 3 to the 4th times the hypotenuse <sp> move the decimal point.

$3, 520, 000, 000 in annual dues paid. That will help the bottom line

that's their business model....the same as Sam's Club and others, by the way. And, CUDA, don't frighten me and attempt math in public again!

What business model? Do you know for sure they are similar?

Investment methods (loan, creditors, stocks, bond), short term costs, long term costs, marginal costs, total costs? Locations can be important for various reasons, i.e. how easy it is to bring goods back and forth, availability for customers. Are they targeting the same group of customers? Do they differ in wage expenditure? Wages might be higher, but not necessary total wage costs. One must remember, when wages are low, employers will hire more to increase efficiency. If wages are high, fewer are employed, and employers demand higher productivity of each worker. Are we talking about wages in real term, or average wage? Average might be misleading if the spread have not been taken into account.

Are prices the same? Same brands? Or even the same commodity profile? If the profile differ, it can mean a lot. Bonus schemes for members? Prices can differ in terms of bonuses.

Economies of scale? If one have a advantage here, one can cut costs, and bring down the number of employees, which will increase wages but not wage expenditure. For instance Automation? If one have some high end modern storage facilities, with robot elevators etc, operating by one or two employees, one can cut down on total employees. (I changed employer couple years ago within the same profession. Though they looked similar on the outside, and even inside, my new workplace had some new technology that my old workplace did not have. A scanning system which made their customer tracking, security and services superior. It was a secret of course, and I had no idea they had a system like that. Soon after they bought up my old workplace)

What are the skill level of the employees? If one focus on high skilled employees, to better their service, wages will be different on that ground.

Often, Costco is Compared to wages at Walmart, and not Sam's, which also have higher wages than Walmart. But because Sam's are part of Walmart, these two are often confused.

Balance sheet (liabilities, assets and ownership equity), capital gain, liquidity

OK....That some few out the top of my head.

Just to give you an idea how important small details and variables can be: When retail chains started to take over back in the 70's. There were many speculations why they could charge so cheap. Of course one thing is that they can buy up a larger quantum, which is cheaper. Another is how they located themselves -- outside the city center. Which made transportation and delivery of goods cheaper and easier. However, this location was made possible because of something else also -- times were new, and people now had cars, and refrigerators and freezers. Distance to the store was therefore of minor importance, and customers was also able to purchase larger quantum of goods for storage in the freezer. Outside the retail store there were big parking lots. People could then park and fill up their cars, and then drive home and fill up their freezers. Customer preferences had changed, and the retail chains business model gave them an advantage in economies of scale, in which A&P grocery chain (located along streets in city centers) could not compete.

However, all this is irrelevant. Just overlook everything above. One must look at this in principles, not in details, facts and events, i.e. things like budget, costs, models, and what have you. More fundamentally; if Costco is similar to Sam's, then competition, profit and loss will determine who will survive. If Walmart -- or whoever -- runs with a huge profit rate, it will attract capital and investment as capital gravitates towards highest profit, thus bid wages up, or prices even further down.
Also, with economics, one must not only consider what is seen, but what's unseen, as well. If unions, legislation or pressure bid one's wages upwards, profit margin will go down. This might be good for employees, that's what is seen. What's unseen though, is all these jobs that will not come into existence because investors now have less money to invest with. I have a job thanks to our investors had profit from their previous projects.
Second; in the long run, high wages can be bad for the employees, as well. With less profit, less money will go back into reinvestment to protect their capital. Machinery and tools will then tend to wear out over time, thus decrease productivity, and cost cuts will be required. This is also unseen.

Edit: I wrote originally "regular stores", this should of course be "A&P grocery chain"

[callmeslick]

Leon, that's a lot of fine prose outlining the details of a business model, and certain nuts and bolts which one can glean from lower level business coursework, but really, what are you saying? Cut away the debris and one is left with nothing of substance to justify keeping wages low, except your suppositions, which aren't much comfort to US workers. I note that where you live, the social safety net is far more robust, and work laws mandate paid leaves and other perks that US workers wouldn't dream of having, in many cases. How does that day-to-day experience impact your views? That would be interesting to hear.

[LEON]

Leon, that's a lot of fine prose outlining the details of a business model, and certain nuts and bolts which one can glean from lower level business coursework, but really, what are you saying? Cut away the debris and one is left with nothing of substance....(...)

Replies like this really baffles me as I tried to give a conceptual reason on most of my points. No substance?! You really do not provide any arguments here, just talking points.
However, I originally wrote much more, but as I realized that I were trying to compress a 500 pages book in economics into some few paragraphs, I gave up. I also had doubt whether I should engage myself in this or not. Economics is my field and I know how complex it is. But, sometimes I can't resist the temptation. I often ask my economic teachers why they don't engage in debates over, let's say tariff quotas, but they say they have given up long time ago.

(...).Cut away the debris and one is left with nothing of substance to justify keeping wages low, except your suppositions, which aren't much comfort to US workers.

This is a question often asked, and I can't understand why people don't understand it.
First, what is economics, why do we need economics? Because we live in a scarce world. If we had abundance of everything economics wouldn't be needed. Consider an example: Water in the dessert are of crucial importance, but, at the same time it's scarce. It's then important that one economizes on the water supply. If a politician then decide that such a important resource should be cheap, and force its price down so everybody can afford it, he will create an artificial signal (low price) that water is of greater supply, thus people will increase their consumption, i.e. not only will we use it for drinking, but we will bath more, wash our dog, shoot with water pistol, and so on -- consumption goes up, and then we will experience a water shortage, which is far worse than expensive water.
One must understand what a price is. Its function. Whether we talk about wages, commodity prices or interest rates, they are all prices whose task is to balance supply and demand. Prices are not arbitrary, they contain information, information about amount of resources, and thus play a role in how they should be allocated. In case with the 'too cheap water price', water were allocated into unnecessary use.

Note. The water shortage was caused by the price control, not by greedy consumers. It's a failure of policy. Same thing when we have financial crisis, it's not greed, it's a failure of government policy. Basically artificial low interest rate, which increase demand for money, which require inflation to meet this demand, which in turn skews price signals and draw certain projects more profitable than they actually are. Results is a bubble which eventually will burst. Just like the water in the dessert example. (Low water price drives up a water bubble that burst when the supply is gone)

Back to wages. A wage is also a price who function like every other prices -- to balance supply and demand. If one drive wages down, demand for workers goes up, and thus drives wages up again. On the other hand, if one drives wages up, demand for workers go down, and unemployment will occur. I don't see how one can go around this. It's an economic law. We might want a higher wage -- we all do -- but the social price is unemployment.
Also. Wages are connected to productivity. If one's productivity is 9$ per hour, one can not be payed 10$. In that case the employer will lose a dollar for every hour. If one force wages above one's productivity, either one loses one's job, or the effect will leak out some place else -- somebody else will lose his job.

If one want a higher salary, one must increase one's productivity. Either by more education, or by capital investment done by one's employer (but this require he has profit to do so).

Speaking of wages and wage levels, consider this: Inflation is actually a wage reduction, not nominal, but in real terms. New money must get their value from somewhere. New money gets its value from already existing money, i.e. our wages. So if Government thinks low wages are so bad, why do they inflate? They inflate to prevent unemployment. Which is exactly what I say, i.e. wages are too high, and need to come down, Government do this by inflation. Problem with this method though, is that everybody's wages decreases, also the poor. As I said, problem is Government.

An economy will always seek equilibrium, i.e. balance -- balance between supply and demand. However, it will never reach its absolute equilibrium, because of constant fluctuations, i.e. shift in peoples preferences, innovation, competition, etc. If however this balance is prevented, it's because of government intervention, i.e. price control, wage control, tariff quotas, licenses, permits, manipulation of the money supply, artificial interest rates, and what have you. All this skew and distort the market, shown in a simplistic way in the water analogy. I believe it's here we must analyze our problems -- its causes, not its symptoms.

I note that where you live, the social safety net is far more robust, and work laws mandate paid leaves and other perks that US workers wouldn't dream of having, in many cases. How does that day-to-day experience impact your views? That would be interesting to hear.

You like to talk about the so called real world -- events, facts, and so on, i.e. concretes. In this case Norway. One must remember, without conceptual understanding one can not analyze concretes. One must be able to connect the dots, as well, and thus be able to examine both short term and long term effects, i.e. see things through principles.
As I mostly read US think tanks, newspapers, blogs, sites, and debating with US citizens, I often hear how wonderful Norway is, and is referred to where socialism works.
I can tell you many things about Norway, I can just mention some few here however. Yes Norway is a good place, no doubt. But where does our wealth come from? Where we have our freedom, things are good. Areas which our government provide services is a disaster. We have a ever growing line of people demanding government services. And, it's not welfare which is the biggest problem, though there's some real problems there as well. It's a ever growing bureaucracy, lobbying, and pressure groups who seek for government privileges which is the real problem. I get disgusted by reading Norwegian newspapers which write about all the pressure groups (farmers, artists, sports, workers, culture, youth programs, groups who wanna fight this and that problem) who claim their part of our mutual funds. Politicians also, constantly debating who we should tax, and who should receive the money.
You see, Government can't fix the problem of scarcity. If government collect taxes to distribute goods, they face the same problem -- scarcity. So, instead of competing in the market, people must now compete for public funds. And speaking of greed, this competition is much more disgusting and greedy, because these funds are our rights. Problem though, as I said, there isn't enough stuff for everybody.

What keeps our head above the waterline (if that's an expression in English) is our oil. However, in order for our Government to invest in oil extraction they have taxed all our industry into oblivion. We used to have so much production here, e.g. shipyards, Tandberg, HH, Dovre, and many more -- all gone. It's hard to find a job here, as long as I can remember it's been like this. We might have low unemployment, but that's because government pretty much absorb unemployment by expanding the state. We consume our seed stock, which is analogous with accumulated capital. It gives us some illusory and temporary wealth, but will backfire some day in the future.
Sweden and Denmark have had pretty much the same model as us, but without oil. Which mean they have built up a huge deficit, and are thus forced to cut their spending. Which spawn big quarrel and noise in media. But, what can one say -- money are gone.

OK, that was a lot of writing. Hope you have patience to read it. I also hope my English grammar is good enough to convey understanding. If you believe what I write is just some theoretical mumbo jumbo, with no regards to reality, I don't know what to say, and further conversation might be fruitless

[callmeslick]

your grammar is just fine, Leon, and thanks. I didn't mean to belittle the whole economics lecture, but was wondering how you were going to flesh it out with real world matters. You have. I need to digest that much information(roughly the equivalent of what transpires in whole thread strings here, and a years worth of posts on some other forums). I'll get back to you when I have.

[Spidey]

Nice to have someone that can post on economics, without all of the political mucketymuck.

[Tunnelcat]

Not to mention that fast food and pizza joints have a massive profit to employee margin, which is not typical of most businesses, or where labor is usually the single largest cost.

TC I did the math on several companies during the Hostess thing, and as I said before…you can take the pay of the typical CEO and divide it amongst the employees, and it only equals a few bucks a week.

So you could fire virtually every CEO in the country and distribute their pay, and almost nothing would change for the workers.

It wasn’t the drive for profit that forced companies to move overseas…it was international competition, something you seem to be blind to. I can give you cases like Dayton, that tried everything possible to stay here, but ultimately failed.

You think every business is exactly the same…dumb and greedy, well I have news for you…some businesses that have moved are owned by liberals.

How does that fit into your little box tc?

My main point Spidey is that I'm seeing jobs formerly taken by teenagers for part time work are now being filled by adults with families. I even had a burger flipping job in high school. It was part of growing up and a learning experience, but not something I'd want to have to do to permanently to support a family. It's unrealistic. What's gone so wrong in our present job market that able bodied adults who used to work for larger salaries in other occupations now have to resort to working for McDonald's or Taco Bell, on wages that can't support a family? There is nothing currently replacing those long lost manufacturing jobs, or even other professional jobs that have been outsourced, that people used to rely on in the past that easily supported a middle class family. I'm sure those new Hostess workers just love their new lower wages and smaller health benefits too. It's a gift from a nice LLC, who I bet is making a nice profit off of the situation. I also don't agree that raising the minimum wage would solve our problems either by the way, nor would unionizing the fast food industry.

As for CEO salaries being out of step with those in the past, the numbers clearly show the disparity in wage and salary rate increases between those of workers and those that manage things. It even outpaces inflation. Something's not right. You and CUDA don't see a problem with that?

LEON, you disagree with my position that raising wages won't stimulate an economy? I posit that the lower wages and fewer jobs due to the global arbitrage that Americans are now dealing with is hurting our very middle class dependent market-based economy. We created our oh-so-special American middle-class economic monster and now it's been killed by it's own success. Our country's economy is not even close in the method of operation for the socialist model in Norway. And I'm not against Norway's system either. I seems to be working for your country just fine. But most Americans just seem to have this aversion to anything socialist.

[LEON]

LEON, you disagree with my position that raising wages won't stimulate an economy?

I completely disagree with you on this one, and I like to hear your reasoning on how that could work. Besides. I believe I have explained this in previous posts. If you found any flaws -- please explain.

I posit that the lower wages and fewer jobs due to the global arbitrage that Americans are now dealing with is hurting our very middle class dependent market-based economy. We created our oh-so-special American middle-class economic monster and now it's been killed by it's own success.

Again, you must provide me with an explanation. What is the problem with arbitrage, how is the middle class hurt?

Our country's economy is not even close in the method of operation for the socialist model in Norway. And I'm not against Norway's system either. I seems to be working for your country just fine. But most Americans just seem to have this aversion to anything socialist.

Fine, and don't go there -It seems to be working just fine?! Well let's assume that is true, question is how it will work in the long run. However, our system works as long one don't need any Government services. If one do, one must stand in big a@@ lines (from weeks to months (and even years), depending on what services one apply to), and go back and forth on different departments (what we call "paper mill", I don't know if that make any sense in English).

Take for example our health care: though we like to portraying it as such, we don't have a right to health care. We have a right to be evaluated. If they find one's health condition not worth any further attention, one won't get any either.

If one is retired, they are less eager to treat one. A pensioner take more money out of the system than he puts in, i.e. he is a cost for our Government. If he then have some serious health issues, maybe beyond repair, he will probably not be treated as he then is even a bigger cost for our government.
We just had a political debate about whether a patient, costing 500.000 NOK (85.000 $) or more a year to keep alive, should be treated or not. This is pretty amazing as we always hear that we can't privatize and let money decide treatment. Both in this case and with the pensioner, they let money decide. Reason however is simple, as I said before, the Government can't escape the problem of scarcity. Economics is a law of nature. Which reminds me of a Thomas Sowell quote; "The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

[CUDA]

I like this guy.

[Will Robinson]

If all these corporations are paying a hundred times too much for all their management positions why aren't there qualified people stealing those jobs that 'Country Club Americans' aren't willing to do...for so little?

How did we get to a place where the stockholders aren't hiring 'cheap' upper-management labor?
I'd love to sell my business and go finish out my years as the CEO of some mega corp for a paltry sum of $500,000 per year!

except you aren't on the Board of Directors, or likely buddies with any of the Directors. In most corporations, the Directors control the majority of the stock, and the rest of the common stockholders are powerless to change matters.

The question still applies. Are you saying the majority stockholders are overpaying by a hundred times or more for the services rendered from CEO and other upper level managers?
It doesn't seem like a wise expenditure from a group of people conventional wisdom declares to be greedy bastards who wont pay a decent wage so they can keep more profits for themselves....

[LEON]

What is this obsession with CEO pay? One is paid by productivity. A CEO's decision can mean 100 million in plus for a company, or if things do not turn out good; 100 million in loss. In the latter case it's important for the company to get rid of him as fast as possible. That's why a CEO has no notice period. The fastest and cheapest way to get rid of a CEO, - to avoid lawsuits, etc, - is to have a parachute deal. (I believe they are called so -- parachute?).

If one wanna see where the big money is, look no further than celebrities. Last time I checked Oprah Winfrey earned three times more than the highest paid CEO. Is she worth it. Should the camera operator, sound director or the makeup artist make more as Oprah should make less?
What about George Clooney, is he worth it. I often hear that nobody is worth that amount of money. So why is somebody willing to pay them that much? When Marlon Brando's name was on the poster of Apocalypse Now it probably brought more revenue to the studio than anything else, despite his 5 minutes or so performance in the movie.
When Michael Jordan play on the court it brings people to the tribunes, sponsors to the team and thus additional revenue. I'm an old cyclist (Tour de France kind of cyclist), and I know that help riders who help their captain, e.g. Lance Armstrong to victory, isn't paid anything near what he is paid (Though I know they split all the prize money they win during the ride).

Are they worth it? Of course they are, they bring revenue to the employer.

However, why aren't there any outrage about celebrities pay checks?

[callmeslick]

What is this obsession with CEO pay? One is paid by productivity. A CEO's decision can mean 100 million in plus for a company, or if things do not turn out good; 100 million in loss. In the latter case it's important for the company to get rid of him as fast as possible. That's why a CEO has no notice period. The fastest and cheapest way to get rid of a CEO, - to avoid lawsuits, etc, - is to have a parachute deal. (I believe they are called so -- parachute?).

it's not an obsession, and Leon, things don't really work that neatly in the real world. If CEO's were paid by productivity, things might be different. The reality is that CEO pay has skyrocketed in relation to entry level workers. That's not due to a massive increase in CEO responsibility(in fact, far less accountablity in the exec ranks than there was 35 years ago). It is all about a cushy, entitled relationship between most corporate executive teams and the board of Directors, who determine executive compensation. When my Dad was an exec with DuPont, the President and CEO(separate jobs) made roughly 20 times the starting pay for chemists. VPs(there were 6, IIRC) made around 8 times starting salary. That was how it worked at the 9th largest corporation in the world. Nowadays the rate at the top end runs around 80 times starting pay on average, and there are fleets of VPs and similar titles that are earning 15-25 times the starting pay. Who benefits from this arrangement? There is no clean little economic law governing it, merely raw power and a network at the top serving itself first and what's left over goes to the stockholders and employees.

If one wanna see where the big money is, look no further than celebrities. Last time I checked Oprah Winfrey earned three times more than the highest paid CEO. Is she worth it. Should the camera operator, sound director or the makeup artist make more as Oprah should make less?
What about George Clooney, is he worth it. I often hear that nobody is worth that amount of money. So why is somebody willing to pay them that much? When Marlon Brando's name was on the poster of Apocalypse Now it probably brought more revenue to the studio than anything else, despite his 5 minutes or so performance in the movie.
When Michael Jordan play on the court it brings people to the tribunes, sponsors to the team and thus additional revenue. I'm an old cyclist (Tour de France kind of cyclist), and I know that help riders who help their captain, e.g. Lance Armstrong to victory, isn't paid anything near what he is paid (Though I know they split all the prize money they win during the ride).

Are they worth it? Of course they are, they bring revenue to the employer.

However, why aren't there any outrage about celebrities pay checks?

because, as you note, celebrities DO, for whatever sociological reason, bring in the money. Second, it's a situation akin to winning on a longshot at the race track. There are a few thousand wannabe Oprahs, but one wins the prize, and likewise for pro atheletes. They got lucky, so be it. What they aren't doing, is getting those riches at the expense of millions of ordinary workers.

I guess this first response illustrates my thinking about your detailed posts above. Real life ISN"T pure economic theory. There is a huge dose of human nature in there, and that is where political and other institutions play a role in this complex mess we call an economy. Add to that mix an exploding pace of globalisation around means of production, labor pools and communications networks, and 'the economy' is a nearly organic sort of concoction, far and beyond any pure theory.

[Tunnelcat]

LEON, I am not an economist. I'm just an observer of what's been transpiring in the U.S. job market and Wall Street over the last 30 years. Let me ask you about global arbitrage. The hourly wages of the average Chinese worker is less than a tenth of their average counterpart in the U.S. It is also twice as cheap to live in China than in the U.S. So do workers in the U.S. now have to live in squalor packed like sardines like Chinese workers do? I've seen how they live and work and it isn't pretty. They're 3 times as likely to get killed on the job than we are and far more susceptible to suicide. The Chinese also have work longer hours too, so that's the ugly reality of your increased productivity argument. Productivity increases at the cost of worker quality of life. Not a good exchange. Workers here are already working longer hours for less pay, so I ask how much more work is required out of a 40 hour work week to increase productivity and grow an economy? Factory workers here already put out 73.4 dollars per hour in output. That's one third more than in Germany and twice as much as those in Taiwan, even though the wages of German workers are 11% higher than ours and their standard of living is higher than ours. Is it right to squeeze U.S. workers even more just for better productivity, especially if those same workers can't afford to partake of a better economy?

My objection is that workers in the U.S. cannot afford to live here on the competitive wages that the Chinese and other Asian countries have placed upon the global wage market. That's the problem with global arbitrage. Someone's standard of living has to go down in order to raise it for others. Either we have to lower our standard of living to compensate and still be competitive in a world market, or they have to raise theirs to our level, which I'm sure they'd just love. I don't see either happening. Corporate CEO's and managers have continually raised their compensation to keep up their standard of living, but the wages of workers has not kept up at all. Just taking in inflation adjustment alone, wages have technically dropped over the last thirty years due to competition from China and Asia. By that metric, most workers in the U.S. no longer have the disposable income that they used to. It only makes sense that they won't spend what they don't have, and if there is no spending available, there will be no growth, at least in the U.S. If my logic is flawed, future events may soon tell me that.

As you pointed out, we live in a world with limited resources. There is no practical way for ALL the former third world countries to rise up to our high standard of living. There are too many people and not enough resources to go around. Nor can our planet absorb the waste that would come with the modern industrialization of every country on the planet. The U.S. and Europe will have to lower their standards of living to just to compete globally, as has already begun due to foreign wage competition. I don't see a good future for all.

[CUDA]

Someone's standard of living has to go down in order to raise it for others.........we have to lower our standard of living to compensate and still be competitive .

WAIT. isn't that what the left in this country is calling for???? that sure as hell is what some on this board are calling for.

[Spidey]

CEO’s make BooKoo Moolah…oh well, it’s still a free country, so I guess we must do something about that little flaw.

[LEON]

Tunnelcat. You stumble into many fallacies in your writing, and you bring too many events and variables into the equation that it's not easy for me to explain things. I'm not even sure where to start. So if we can slow things down a bit, it would be good.

Callmeslick, if you can be patience and wait, it would be good too.

TC, (if I may call you that) Yes, we all observes reality. Question is how we connect the dots. Let me give you a simple analogy: Do you have kids? I have a son, he's 22. Anyway, you are probably familiar with this situation. If a kid, 6 or 7 year old see a bike, and ask his mother if she can buy it, she might answer; -No, we don't have money for that. Later, when she gonna pay for some goods, and the kid sees her wallet, and all the money, he will say; -I thought you said you hadn't any money, and point at her wallet. The point here; the kid make an observation, something he can see. What one can see has a great impact upon one. However, the kid haven't developed any conceptual capabilities yet, so it's hard for his mother to explain why they can not buy the bike, so that conversation will probably end with; -Because I say so!
As we grow, we develop our conceptual reasoning, but we might not take an education in economics which is a complex subject, and require studies like everything else. So, when we now look at macro economics we make similar mistakes as we did back when we were a kid and saw mom's wallet. We point at some rich guy and ask why he has so much, or why can't he invest, why he has his money in a Swiss bank, and so forth.

In economics one must think in three dimensions. Not flat and connect dots at first level observation. All events in economics have several positive feedbacks and negative feedbacks. We must consider them all, and think through all the variables.

Consider another analogy. An analogy which explain the core foundation of economics: Wealth creation must goes through these stages; saving/investment/production/consumption. In that order. If an agricultural society increase their consumption; they will decrease their seed stock. As they consume their seed stock, they'll be less able to sow, and thus end up with less wealth. At some point they must decrease their consumption, i.e. save, in order to build up their stock again.
Note; when they start to eat their stock, they will experience that as an increase in wealth. But this wealth is temporary and illusory. When they reach a point where they can't keep up the consumption, they will experience that as a recession.
Note also; the politician who decided to tax the farmer for his stock, will be popular, as people felt richer because of this. The politician who decide to cut consumption will be unpopular, as we now feel poorer. This is what we see, i.e. first level observation. We connect two events which happen right after another.
However, if we sees this conceptually; it's the first politician's decision which brought us into the recession, not the second one. The second one will bring us back to a level in which we can increase our consumption again. This is to connect the dots, based on observation, conceptually, not perceptually.
For the record; seed stock is analogous to accumulated capital, i.e. capital goods. Seed we eat is analogous with consumption goods. As we through various stimulus schemes try to increase our consumption, we will erode our accumulated capital, and thus be less able to produce and keep up with consumption.

I believe this is the problem in our current economy, we have consumed too much, and too long, and need to cut our standard of living and consumption. I'm afraid no Fed chairman, or politician have balls enough to take us into a recession like that. So I'm not too optimistic.

At this point I'm not sure what to say further. Wages in China is not the problem. If you believe low wages in China is a problem, then your suggestion to increase US wages must worsen the situation even further. I would say government intervention in the economy is the problem.
However, trading, like division of labor is a good thing, it benefits us. We pay our imports with exports. If one hamper one of them, one hampers the other as well. Absolute advantage and comparative advantage is a huge factor. Seems like you believe economy is a zero sum game. Money is not wealth, it's what money buy which is wealth. Same with jobs, jobs is not necessary wealth, production is. All this of course require further explanation, but, must be considered in our question about arbitrage. Which I can come back to.

Question is if you want to. As this is my field I want to go deep, I know what is required in order to understand this. But again, question is if you want to take a closer look at this. I can write more, I get English training and explanation training doing this.

OK, it's late here. Write in English require some intellectual effort on my part, and at the moment I'm slow.

[LEON]

More analogies; let's say one run a computer repair company. One repair computers, and now and then one carrying the computers back and forth as an extra service. But, one wanna increase one's productivity, and hire an errand boy.
Because repairs is what customers want, one has an 'Absolut Advantage' over one's errand boy in this field. Also, one is much faster to bring computers back and forth than his errand boy. Which mean one has an 'Absolute Advantage' here as well.
Question now is; would it pay to hire the errand boy? Yes, because the boy has something called 'Comparative Advantage'. Since repairs is demanded, that is also what one should concentrate one. The boy makes one more productive as one now have more time devoted towards computer repairing. To run back and forth oneself has an opportunity cost -- one can devote less time on computer repairs.

This mechanism appears when nations trade with each other as well. China can never take over all production, no matter how cheap, how productive they might be. Rest of the world will always have at least 'Comparative Advantage' in which it will pay more for China to trade instead. To produce everything have a to great opportunity cost, and will not happen. Also, rest of the world have for sure lots of 'Absolute Advantage' so no worries. Besides, if China produce everything, there's no point to sell abroad, as there's nothing China can buy back. Domestic production is then forced to happen.

Cheap goods from abroad is good for us. That mean wealth is flowing in, not out. For China; it's opposite, their wealth is flowing out. Their weak yen policy make it cheap for foreigner to buy their goods, but expensive for China to buy goods abroad. Which is; they sell cheap and buy expensive. Do that sound like business? All China do is stacking up US $, and let their goods abroad. At some point they must use their $ too. If US do not increase their production, all these $ will be worthless and China will stop selling their goods.
This is how trading works, or should work. Foreigners sell their goods, cheaper than ours, which leave them with lots of our currency to buy our goods. Our citizens will also have higher purchasing power, due to cheaper goods from abroad, and thus be able to demand more domestic goods. This is a win win for both. Cheap goods from abroad might out compete our similar domestic products, but as foreigners demand other products from us, production will increase here, and thus absorb newly released labor. If one hamper cheap imported goods, or goods in general, to be sold domestic, one will hamper export as well. Because purchasing power from abroad are left with less of our currency.

To produce cheaper have the same effect. Either through some new technology, machinery or cheap labor abroad. It will release domestic labor -- which is a scarce resource -- to do something else. This will increase wealth. But this require that government do not make it difficult to create more jobs.
In US kids can hardly open a lemon stand on a street corner without police shut it down. Not long ago I read about a woman, who had open a hairdressing salon, but was shut down because she couldn't meet all the government requirements. If she had to take all the courses, and make all the adjustments authorities demanded, it would increase her prices significantly. She was forced back to unemployment. I also saw a documentary about a guy with a business idea to transport people back and forth from the airport. He went back and forth with the authorities for three years or so before he finally was told he couldn't. Transportation and taxi unions also opposed him. One can't increase production and prosperity under condition like this. There's too much rules, regulation and taxation.

However, cheap labor in China is not the reason for outsourcing. That is to confuse low wages with low wage expenditure. If one see production in China they use methods and machinery we used some decades ago. They haven't accumulated enough capital yet, thus their productivity is lower. They therefore must hire countless with workers to reach a productivity level in which they can produce at our level, thus wage expenditure also reach our level.
Our entrepreneurs do not escape high wages, they escape rules, regulations and taxation. Get those away, and investments in US will increase.

Remember also; taxes is not only what people pay, but what government spend, either through deficit spending or inflation. US government reckless spending, and huge deficit and debt make it hard to do anything in US at the moment.

Government is the problem, get them away

[callmeslick]

CEO’s make BooKoo Moolah…oh well, it’s still a free country, so I guess we must do something about that little flaw.

it was controlled via the tax code prior to 1970-something. And, damned if that didn't work, and folks could still get wealthy.

[callmeslick]

LEON, a glance at history shows that the US is not spending recklessly, in fact, not even spending near what it should for infrastructure and basic research. Is there money wasted? Was money completely wasted on two major wars?Sure. But, if one looks at the 1950's, we had a huge debt, had a few years of heavy deficit spending, and it paid off for the entire society for decades. Sometimes, that is what is required to move a nation forward. Private corporations do not, especially in the modern economy, wish to invest in basic research, even whilst realizing that all higher-level R and D is based upon such work. Why? Because the short term profit is not there.

[LEON]

LEON, a glance at history shows that the US is not spending recklessly, in fact, not even spending near what it should for infrastructure and basic research. Is there money wasted? Was money completely wasted on two major wars?Sure. But, if one looks at the 1950's, we had a huge debt, had a few years of heavy deficit spending, and it paid off for the entire society for decades. Sometimes, that is what is required to move a nation forward. Private corporations do not, especially in the modern economy, wish to invest in basic research, even whilst realizing that all higher-level R and D is based upon such work. Why? Because the short term profit is not there.

More facts, more details, more events. Do you have the tool, i.e. conceptual understanding of economics to analyze these facts? Do you take into account all the factors and variables that is operating? Do think in three dimensions?

You just jump to one talking points to the next one, e.g. Costco, CEO pay, theoretical economics vs real world, debt, deficit, etc. You even made a new fallacy with your private lack of long term investment determination.You will never learn economics by this method. You just make perceptual observation -- just like the kid in the above analogy. While I try to explain this conceptually, in which you jump to the next talking point so fast that you even overlook thing I have already explained. I must also write whole essays to make my point come through, which even can be in vain as this things are complex.

I'm not standing on a mountain top, and you on another one, in which we see the terrain from different angles, and argue about which one is right. You are standing in the terrain and looking at the details, while I try to see this through principles, which is to study the terrain on a map.

Principles enable us to understand both short term and long term effects, as I explained in my analogy with the seed stock. To eat seed stock make us wealthier in short term, but poorer in the long run. To state the first, one just need to observe, the latter require conceptual understanding in order to connect the dots.

The problem with economics is that people think they understand it -- it sounds intuitive. But, it's actually counter intuitive. One wouldn't argue in quantum physics or brain surgery if one have no knowledge about it. Economics is not easier, it's only that it concerns us so much more, and politicians and media constantly talking about it, which make us talking about it as well. Thus fallacies start to build up, which not happen with quantum physics or brain surgery because people don't make statements about it.

EDIT: Economics is not an empirical science, one cannot prove economics with statistics, economics is not a quantitative discipline, it's a qualitative discipline. It's a social science and about human action.

[CUDA]

I REALLY like this guy

[Will Robinson]

Someone's standard of living has to go down in order to raise it for others.........we have to lower our standard of living to compensate and still be competitive .

WAIT. isn't that what the left in this country is calling for???? that sure as hell is what some on this board are calling for.

What TC is failing to remember is the solution is already in place.

We are about to make citizens of the current illegal immigrant workers who have been here long enough to reject living and working in the conditions she outlines....BUT...we keep the same broken border security in place so the next 20 million or so replacements can come in. And when they work their way up to the point of rejecting hard work for low pay we have another political foodfight and give them amnesty...

So you see TC, the congress has it all worked out so quit complaining about a bunch Chinese factory slaves.

The democrat party, exploiting the plight of the underclass by deflecting their role in that exploitation onto their rivals since 1932.

[Spidey]

Cheap goods from abroad is good for us. That mean wealth is flowing in, not out. For China; it's opposite, their wealth is flowing out. Their weak yen policy make it cheap for foreigner to buy their goods, but expensive for China to buy goods abroad. Which is; they sell cheap and buy expensive. Do that sound like business? All China do is stacking up US $, and let their goods abroad. At some point they must use their $ too. If US do not increase their production, all these $ will be worthless and China will stop selling their goods.
This is how trading works, or should work. Foreigners sell their goods, cheaper than ours, which leave them with lots of our currency to buy our goods. Our citizens will also have higher purchasing power, due to cheaper goods from abroad, and thus be able to demand more domestic goods. This is a win win for both. Cheap goods from abroad might out compete our similar domestic products, but as foreigners demand other products from us, production will increase here, and thus absorb newly released labor. If one hamper cheap imported goods, or goods in general, to be sold domestic, one will hamper export as well. Because purchasing power from abroad are left with less of our currency.

But see, there is a huge flaw there, because there is no guarantee that the money will return to the source, this is what I call a fallacy wrapped in a pipe dream, as applied to raising wages.

Example:

Let’s say there are three companies…

AmeriCar
AmeriTV
And AmeriBox (refrigerators)

All three raise their wages to help Joe consumer have more buying power.

BUT:

Joe consumer buys:

GermaCar
JapaTV
And KoreaBox

I have put this question to many here in the US in regards to raising wages, and I can see how it applies to trade as well, my problem is…it doesn’t seem to work in practice.

So how do you guarantee the money gets back so AmeriCar and the others so they can still sell their products at the more expensive price they must have because of their higher wages?

In your example who will create more demand for domestic product, when the consumer is addicted to cheap goods?

No, I’m sorry but I must disagree with you about cheap goods, because we don’t have a properly educated consumer base, who understands the positives and also the negatives, or proper trade laws that insure reciprocity.

The problem as I see it is this…in this country we see the consumer as more important than the wage earner, and have little understanding of just how much consumer choice drives the economy, or affects the wage earner. But of course we always have those convenient scapegoats to blame.

[Tunnelcat]

LEON, I do agree with your examples about how the system works, I can't begin to even argue on your terms since your perspective is way above my pay grade. But I still see from a historical perspective that the present market's very method of success will lead to it's own future's demise, so I've got another analogy. Humans are acting and living just like the insect called the Bronze Birch Borer, or even the White Tailed Deer. When there is food aplenty, ie., trees and browse, both species will breed and breed. Good times for all. Soon every Birch tree becomes home to hundreds of borers, just as deer populations soon overrun the available land. But then the suffering and decline starts. Every birch tree becomes so infected with borers that the tree starts to die, just as too many deer start eating every plant they can and start losing their food sources. Eventually, all the birch trees around are dead and gone and the insects die off because they've lost their hosts and can no longer breed. Deer also begin to crowd themselves in an area, depleting their food and start spreading disease to one another in close quarters. Their population soon crashes because the food is now gone and disease and predation now becomes the dominant factor. It's part of nature's cycle and it's been well studied by our own species, so we should have some inkling into our own future.

But we're human beings. We have a big brain. We should be able to avoid that strife with our smarts. But in the end, we still haven't risen above our basal nature. We'll keep on repeating the history of boom and bust because we forget, or fall to our lust for more. We're still slaves to nature's will because we're driven by that same mechanism. Even trade and economics works that way, because the humans who created the system followed the exact same evolutionary mold that nature created eons ago. Oh, you can come up with numbers and figures that say I'm wrong, but in the end, the nature of the system will prove we're fallible. Humans are just as greedy as any other animal on the planet and are innately dedicated to self-preservation and constant reproduction. Following that same process, they'll keep on the road to growth, catering to the constant needs that this new world market demands, constantly looking for the cheapest labor to make the most profit and the most products to sell, as they've done all through recent human history. They'll keep on making boatloads of cheap quality products because the market now requires it. Cheap Chinese labor that is the necessary evil to achieve that goal by playing one country off against another. Once the Chinese demand more wages, another country will soon fill the void. This opens up a whole new market of buyers with money to spend because now they demand those same products everyone else has. But those products are based on planned obsolescence by design, all to feed that ravenous demand for growth and profit and that "something new" lust people tend to get. A "something new" that usually breaks or fails, is unrepairable and recyclable and gets thrown away as waste and rarely recovered, polluting the ground, water and air and necessitating the making of more new products to fill the demand in an endless voracious cycle. This market ideal is trashing the planet.

Even in the face of dwindling planetary resources, we humans keep on breeding within our countries beyond the ability to adequately feed and clothe our populations within the borders. People will then have to move to other areas in search of food or work out of desperation, those same said immigrants that you detest Will Robinson, moving just like animal populations do in nature, adversely affecting the local populations they move into, because the that wonderful market drives and demands it. But no one wants to deal with these problems, because they equate the market with the God of freedom. So will humans end up like Birch Borers? Do we die off en mass when the overcrowding drives us insane like rats and all the resources expire, or do we use our smart brains and quit acting like insects, rodents and deer with our economics and market practices?

You asked if I had kids LEON. No I don't. The one smart decision I made years ago. I would not want to bring a child into this world today. The present is bleak enough and the future looks even bleaker. And yes, you can call me TC. Everyone else does.

[Will Robinson]

TC, you are projecting based on your own prejudice that I detest immigrants. I detest the exploitation but you dodge that issue by your false allegations....that makes you a good little democrat....

[LEON]

Cheap goods from abroad is good for us. That mean wealth is flowing in, not out. For China; it's opposite, their wealth is flowing out. Their weak yen policy make it cheap for foreigner to buy their goods, but expensive for China to buy goods abroad. Which is; they sell cheap and buy expensive. Do that sound like business? All China do is stacking up US $, and let their goods abroad. At some point they must use their $ too. If US do not increase their production, all these $ will be worthless and China will stop selling their goods.
This is how trading works, or should work. Foreigners sell their goods, cheaper than ours, which leave them with lots of our currency to buy our goods. Our citizens will also have higher purchasing power, due to cheaper goods from abroad, and thus be able to demand more domestic goods. This is a win win for both. Cheap goods from abroad might out compete our similar domestic products, but as foreigners demand other products from us, production will increase here, and thus absorb newly released labor. If one hamper cheap imported goods, or goods in general, to be sold domestic, one will hamper export as well. Because purchasing power from abroad are left with less of our currency.

But see, there is a huge flaw there, because there is no guarantee that the money will return to the source, this is what I call a fallacy wrapped in a pipe dream, as applied to raising wages.

Example:

Let’s say there are three companies…

AmeriCar
AmeriTV
And AmeriBox (refrigerators)

All three raise their wages to help Joe consumer have more buying power.

BUT:

Joe consumer buys:

GermaCar
JapaTV
And KoreaBox

I have put this question to many here in the US in regards to raising wages, and I can see how it applies to trade as well, my problem is…it doesn’t seem to work in practice.

So how do you guarantee the money gets back so AmeriCar and the others so they can still sell their products at the more expensive price they must have because of their higher wages?

In your example who will create more demand for domestic product, when the consumer is addicted to cheap goods?

No, I’m sorry but I must disagree with you about cheap goods, because we don’t have a properly educated consumer base, who understands the positives and also the negatives, or proper trade laws that insure reciprocity.

The problem as I see it is this…in this country we see the consumer as more important than the wage earner, and have little understanding of just how much consumer choice drives the economy, or affects the wage earner. But of course we always have those convenient scapegoats to blame.

Chicken come home to roost. US $ can only be used in US. China, Korea or Japan will sooner or later invest their money in US. There's no way around this. Or -- If they are really stupid -- burn their US $ , but who cares, then US got goods in exchange for paper. That's a pretty good deal.
However, if this doesn't work, the reason is most likely due to government tariffs, or like China does; devalue their currency which mean Chinese won't enjoy US goods.

Edit: I don't get this rise wages so Joe can demand more. That do not work. As you say yourself, if his employer must rise his prices, then what's the point? A rise in price will cause demand to go down, thus he sell fewer, and he must decrease his output.

Edit 2: This is how it works. When cheap goods come in from abroad, Joe increase his purchasing power as he now have more money left to chase domestic goods. Labor and resources will then shift to this area in our economy.
Demand for US goods from abroad will also increase as they are eager to use their dollars. Both Joe and foreigners now represent increased demand in the domestic economy.

Edit 3: My country sells klipfish (dry fish, dunno what they are called), France sells cheese. When France sell their cheese here, they will open up an account in a Norwegian bank, and keep their Norwegian currency there. It's then easy for the French to by Norwegian klipfish.
However, stupid Norwegian government have imposed a tariff on French cheese. To protect Norwegian cheese (which is run by the government BTW) This pisses of the Frenchmen, cause now they have less money to buy our klipfish, which also hurt our klipfish industry. And Norwegian are stuck with bad domestic cheese. Only one who benefit from this is the Norwegian state.

[LEON]

TC, good analogy.

Yes, I agree with you that times are hard and the future doesn't look too bright. However, I disagree on why we are in this current situation, and what the solution is. I don't know if I can explain it any easier. Like your notion that capital seek cheap labor, I have explained this, but seems I'm not able to get the message through.

I want to say one thing though. The root problem is inflation -- money printing or to keep interest rate down. Both controlled by the state. Inflation causes money to lose its value, thus decrease demand to hold money. Who wanna keep their money, tomorrow they're worthless. This drives up consumption, which we both seems to agree is bad -- resources are scarce. Decreasing money value also drives up financial speculation as they are desperate to make more before it loses its value.
Interest rate screaming to rise, but can't due to price control, would prevent both consumption and speculation to run rampant. A higher interest rate would encourage savings, which is the foundation for prosperity.

I understand your concern about having a child. I have thought about it myself. I have some concern about my son's future. However, he's half way through his economic education, and have 3 more years before he will get his master degree, and he's already a tough debating opponent, as he give me a run for my money.

[LEON]

CUDA, your avatar scares me :/

[Top Gun]

To produce cheaper have the same effect. Either through some new technology, machinery or cheap labor abroad. It will release domestic labor -- which is a scarce resource -- to do something else. This will increase wealth. But this require that government do not make it difficult to create more jobs.
In US kids can hardly open a lemon stand on a street corner without police shut it down. Not long ago I read about a woman, who had open a hairdressing salon, but was shut down because she couldn't meet all the government requirements. If she had to take all the courses, and make all the adjustments authorities demanded, it would increase her prices significantly. She was forced back to unemployment. I also saw a documentary about a guy with a business idea to transport people back and forth from the airport. He went back and forth with the authorities for three years or so before he finally was told he couldn't. Transportation and taxi unions also opposed him. One can't increase production and prosperity under condition like this. There's too much rules, regulation and taxation.

You're kind of doing the same thing that you've accused others of doing, in that you're taking anecdotal evidence and applying it as broader theory. While certain regulations may make certain business practices more difficult, that overlooks the fact that the purpose of those regulations is generally for the protection of consumers and the general public. Just as an example, if the guy who wanted to start his own taxi business didn't go through the official certification process, there was nothing to prevent him from driving complete rust-buckets that would sooner kill the passenger than get them to their destination. I mean, take a look at China right now. It's not exactly a huge secret that their very lax environmental policies have led to atrocious levels of industrial pollution. I just read an article the other day stating that the fine particulate pollution in Beijing is at record levels, well above what it was this time last year, and they're paying for it: foreign tourism is down some 10% across China as a whole, and more than 15% in Beijing, largely attributable to the negative press about air quality. US companies may set up factories overseas in countries where it's easier to do business, but at what cost? I'd sure as hell rather live in a country where it might be more difficult to start a business, but I have clean air to breathe and water to drink, than to live in the absolute shithole that most of China's industrialized areas have become.

(Also, if economics really is a qualitative science, maybe we should just shut down those degree programs and shunt the students into the hard sciences and engineering, where they can work with actual quantitative facts. )

[Spidey]

No, the problem is all that theory just doesn’t translate into practice, but you still need theory, for the places to start, and such.

The larger things that drive an economy, such as principals and laws will always out weigh the theories.

[callmeslick]

The problem as I see it is this…in this country we see the consumer as more important than the wage earner, and have little understanding of just how much consumer choice drives the economy, or affects the wage earner. But of course we always have those convenient scapegoats to blame.

if you change the word 'consumer' to 'investor' you might start to approach the real problem with the current US economy.

[Spidey]

Cept, it’s not an “investor” driven economy.

Not saying the investor is not important tho…

[callmeslick]

the US economy is fast becoming not only driven by, but DOMINATED by investment, and investment income is vastly preferable to labor income in how it is treated via taxes, and other perks. A statistic I've cited before(likely on this board) is that more money changes hands through inheritance in the US than through wages. That is an investor driven economy. You just don't see it, as it isn't a visible a consumer spending, and wage earning.

[LEON]

Top Gun. There's no solutions, only trade-offs, i.e. nirvana fallacy.

What protects customers and consumers is competition. To hurt - or as you say; kill - one's customers doesn't sound like business. Even rumors can hurt one's business, so one better make sure one's reputation is flawless. However, government requirements and standards hampers this development towards better products for several reasons. Minimum requirements tend to be maximum quality in the market. First; if one make some improvement, it isn't clear if it's within the requirements or not, and must go back and forth through government approval before one can use it. Is then not sure if one will devote time and investment to improve one's products as it's not sure if it will go through. Second; if one satisfies the requirements, one is safe from lawsuits, thus pay less attention to safety, or further improvement. This affect the consumers too as they believe the state take care of one, and take less responsibility oneself. Third; government isn't omnipotent, government can approve bad solution, and withhold good solution. Fourth; lobbying, or rent seeking. Government have vast interest in funding, and often grant privileges to certain firms, and approve them as consumer friendly.

I think the market are far more efficient to weed out bad products, than some bureaucrats who pay no price for being wrong.

In my country we have surcharges on new cars, and the more safety equipment the car has, more expensive it is -- it's called a luxury tax, i.e. a car who protect one's safety is consider a luxury. Amazing. If government is so eager to protect its citizen they should tax old unsafe cars, which would eliminate those cars from the roads. But, here lies the reason they don't. If old cars disappears, so do the revenue. So instead of making new cars cheap and old one expensive, they do the opposite. Which leaves us with lots of unsafe cars on the road, but also ever new cars which they extract surcharges from. Point is The Government is not neutral, they have their incentives as everybody else.

Private property rights is a good way to protect one against pollution. When property is collectively owned and the state administers it, one run into the 'Tragedy of the commons' -- what no one owns no one take care of. That's why environmental destruction was more considerable in communist China, than in the west. Which brings us to your point -- China. Funny you promote state legislation to protect one against pollution, and draw China as an example on how bad it can be, which is run by the state. (The problem in China is present for some other reasons as well, e.g. stage of development and accumulated capital. But that's a vast new topic)
If a river flows through a city, and are owned by the stat, factories would probably emissions the river, and people throw their garbage in it, e.g. bikes, car wheels, etc. Which one could see in river Thames and our river in Oslo. If the river is owned privately a factory must pay a lot to destroy the river with pollution, which will incentivize the factory owner to find other solutions.
Also, back to our old unsafe cars above, old cars pollute more as well, but surcharges on new cars prevent that old cars weed out faster.

However, pollution is such a buzzword with lots of associative contents which generate emotions in people. Pollution can be bad, of course. However, my point is to consider the trade-off. For instance when we started to cook our food on fire, we got smoke in our lungs, even our children. Question is, should we continue? We must consider the trade-off. Cooking on fire was superior to what we had before.
Should we outlawed flying back when that were pioneered? People fell down, and it was dangerous. Which brings us back to the point about safety we made above. The world had looked quite different today had we prohibited flights back then. Today we have outlawed nuclear power, even though I believe that have killed far fewer than flying. Maybe it's the right thing to do, I don't know. The trade-off though, is that to develop safe energy takes longer or even not at all, and the next generation might not enjoy safe energy as we enjoy safe flying today.

To say that you rather have difficulties in business creation, than employment is quite remarkable. But, that's a trade-off too, like smoke in one's lung and people falling down from the sky. It's hard to consider what's not seen here, all the creativity and activity we would had, if it wasn't for all the hampering in the market place.

There is already quantitative economists -- Keynesian Economics. They work for the Fed and Government, and are pretty much the reason for the mess we are in. They believe we can micro and macro manage our economy, using maths, charts and equations -- demand side economy.
I'm a supply side economist, and believe one cannot interfere with the economy because it's impossible to know what a right price should be, thus one will only mess things up doing so. I believe value is ordinal, not cardinal. When one buy an iPhone 300$, one evaluate the iPhone as more worth than 300$. The seller opposite, he evaluate your 300$ as more worth than his iPhone. Otherwise there wouldn't be any trade. Both believe they are better off doing the deal. One cannot go out and prove or measure this. Either one understands it, or one don't.

[Spidey]

the US economy is fast becoming not only driven by, but DOMINATED by investment, and investment income is vastly preferable to labor income in how it is treated via taxes, and other perks. A statistic I've cited before(likely on this board) is that more money changes hands through inheritance in the US than through wages. That is an investor driven economy. You just don't see it, as it isn't a visible a consumer spending, and wage earning.

The basic fault in our economy is the drop in production of goods, this is caused by the consumption of imported goods, instead of domestic, not by any new sources of income such as investment.

The shift to investment as a source of income, may well be a result of the lack of domestic production that can produce income, but the root problem is still consumption.

[snoopy]

(Also, if economics really is a qualitative science, maybe we should just shut down those degree programs and shunt the students into the hard sciences and engineering, where they can work with actual quantitative facts. )

This is totally off topic, but....

If you think science and engineering is just "quantitative facts" you should take a look at some of my course work. The deeper you get into it, the more you learn about how it's so complex that it's specifically unknowable, and you resort to random processes. (Unfortunately, I think probability and statistics might actually be growing on me... it's gone from hate to dislike.)

[Top Gun]

Yeah, that line was immensely tongue-in-cheek. I sat through a course or two on quantum mechanics myself.

[Tunnelcat]

I want to say one thing though. The root problem is inflation -- money printing or to keep interest rate down. Both controlled by the state. Inflation causes money to lose its value, thus decrease demand to hold money. Who wanna keep their money, tomorrow they're worthless. This drives up consumption, which we both seems to agree is bad -- resources are scarce. Decreasing money value also drives up financial speculation as they are desperate to make more before it loses its value.
Interest rate screaming to rise, but can't due to price control, would prevent both consumption and speculation to run rampant. A higher interest rate would encourage savings, which is the foundation for prosperity.

Oh, I think that inflation is already going on and our government is hiding the true figures from everyone because it's already a problem with their monetary policy. All a person has to do is go and buy gasoline, groceries and in our country, health care, to figure that one out. They're hiding it because they're afraid that the big bad Stock Market would throw the royal fit if they suddenly lost access all that essentially free money they've been playing fast and loose with, which would spoil our government's propped-up-with-toothpicks economic recovery plans.

CUDA, your avatar scares me :/

Go out and rent the movie "Gran Torino" and you'll see why he uses it. It's a very good movie too. It'll also teach you something about the American psyche.

[callmeslick]

TC, sometimes you puzzle me. Who, exactly, is hiding realities about inflation? Gasoline/Oil prices are actually pretty flat, with short term fluctuations, largely due to speculaton. Those items, along with food, are COMMODITIES, and thus traded for high profits by the 'investor' class I cited earlier, and since that class is holding more and more of the money, they have the cash to bid the costs up. Finally, Healthcare is inflated due to our system of delivery, not due to our monetary policy. Further, every one of those items is documented, monthly, in a very accurate fashion, at least looking at my home budget figures. I'm always amused at the alarm over the monetary 'problems' of the US, and wonder how the entire rest of the planet is so stupid as to use our currency as a 'safe haven'.....

[LEON]

CUDA, your avatar scares me :/

Go out and rent the movie "Gran Torino" and you'll see why he uses it. It's a very good movie too. It'll also teach you something about the American psyche.

Ah, thought I recognized Clint Eastwood. I saw Gran Torino when it came out. Isn't he (Clint) one of the few conservative celebrities in US? Him and Chuck Norris if I'm not mistaken.

Part of my motivation to write here is to understand the "American Psyche". As I have said before, I read and follow almost exclusively american writers and news media - mostly about economics. I have also thrown myself into debates on FB, youtube, Disqus, even Deviant Art lately, just to understand what people feel about these issues.