What's wrong with our economy?

Proportionally over $2 trillion dollars goes to the 1% instead of the middle classes compared to 30 years ago.

We have the gross nation income to have stronger spending to support a robust economy. We've just diverted it to people who don't spend it.

 

If the dollar suddenly became 5 times more valuable than it is today, all of us would be 5 times wealthier IF we bought goods and services from abroad. If you wanted to buy that little villa in Tuscany, it just got cheaper by 80%. You want to see jobs go overseas quickly? This is how you do it. The only people who could afford US made goods would be Americans.

 

Increase the minimum wage and this will solve part of the problem.

End all foreign tax shelters and that will increase the value of the dollar and strengthen the economy.This is something President Obama has tried to do but has been stopped by the anti-American Republicans in Congress who prefer that the wealthy elites continue to be enriched.

 

"In the 1990s Nick Hanauer was one of the first investors in Amazon.com (where he served as adviser to the board until 2000). He founded gear.com and Avenue A Media which was acquired by Microsoft for $6.4 billion)."


http://en.wikipedia.org/wiki/Nick_Hanauer

here's a billionaire on 3/1/2012, telling the truth about how the economy works:

[video=youtube;WHy8Iq688VI]https://www.youtube.com/watch?v=WHy8Iq688VI[/video]


excerpt from talk:

"Since 1980, the share of income for the richest Americans has more than tripled while effective tax rates have declined by close to 50%.

If it were true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment is at record highs.

Another reason this idea is so wrong-headed is that there can never be enough super-rich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the median American, but we don't buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, we go out to eat with friends and family only occasionally.

I can't buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can't buy any new clothes or cars or enjoy any meals out. Or to make up for the decreasing consumption of the vast majority of American families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages."

 

Anecdote =/= statistical evidence, but what he says is consistent with the statistical data. The very rich do no proportionally spend the same percentage of their income as the middle class, and since we have over the past 30 years redistributed the proportional equivalent of a couple trillion dollars from the middle to the richest each year, combined with austerity, it should be no surprise that we are seeing such anemic growth in consumer spending, and hence, the economy.

 

No, because incomes and assets like real estate and stocks would fall by 1/5th, and "all of us" don't have huge wealth locked up in millions of dollars.

So it would be a boon to the rich, but not the middle lower classes.

Which is why it is not surprising that many wealthy folks push for a gold standard.

 

Why would real estate in the USA fall by 1/5th? Stocks perhaps since many buy stocks in US dollars and there would be a sell off by international investors. Anyone holding cash would make out like a bandit if they bought anything of foreign origin.

 

The assumption was if you have the value of the dollar increasing 5x, you must have the supply of dollars in the economy dropping by 1/5. How else could it possibly increase 5x? And if that happens the value of everything, from stocks to bread to real estate to wages, fall by the same amount.

 

If the $US suddenly increased in value by 5 times the economy would collapse almost overnight because no company that manufactures anything in the US could compete against the prices of goods from any other nation. As a small example, all the auto manufacturers would close their US plants and begin importing vehicles from elsewhere. That alone would disappear 10% of US economic activity. Considering the multiplier effect of such a huge reduction in consumer income and spending, 40-50million unemployed within a year is more likely than not.

In fact, there is fairly consistent record of national economies whose currency has suddenly increased in value, usually because of rapid exploitation of oil discoveries. Industrial, manufacturing and food production all shrank considerably, usually disappearing almost entirely as imports became far cheaper than the local cost of production. It happened in Venezuela and many other nations that had open markets like the US.

 

Massive swindles is one of our economy's problems. The 1990 recession was caused by the Savings and Loans Crisis. More than 1,000 banks (total assets of $500 billion) failed as a result of land flips, questionable loans and illegal activities

 

Wages are primarily based on supply and demand. If there are 10,000 mechanic jobs open but there are 50,000 workers competing for those 10,000 jobs, don't you believe the wages will be pushed down? Company A pays $20/hour then Company B pays $17/hour because there are 40,000 workers looking for work, then Company A can't compete with Company B then what? Meanwhile, the economy might be going up or down, by 1% or 3% or whatever...totally separate from the job market and relative wages. And, do you reduce wages if and when the economy is negative? The top priority of an employer is to keep the doors open, produce good products, and hopefully expand over time and the only way to achieve this is to compete with others in your industry and markets. If competition has lower cost labor and materials then others must follow...again no matter what is happening with the economy.

Lastly, IMO...it is not the job of the economy to provide everyone with a job at certain pay and benefits. If you can agree with this, then you can agree that GDP growth and job wages do not need to parallel each other. If government has a problem with people's incomes or lack of employment, etc. then this is a government problem...not an economy problem...

 

Wages are not primarily based on supply and demand of skills as you express and have never been except in very rare circumstances, certainly not enough to explain the entire national wage curve.

The primary determinate of wages is the median geographical sector wage, in other words the average wage that someone applying for a job will be offered is near the median of what every employer of that skill in that sector of the economy in that geographical area is already paying. If a company wants to minimize its employee expenses it needs to make some very complex calculations to figure out where its operations will be most profitable.

There are states that compete to offer massive tax breaks, grants and other incentives in order to overwhelm economic calculations to get a business to locate there but there is a lot of evidence that, in general, such incentives have not met the goal of increasing economic activity enough for the state to recover its investment but have acted more like direct subsidies. These subsidies drive wages down across entire economic sectors and across geographical lines and divorce wages from supply and demand. Manufacturers with massive tax breaks and subsidized wages force unsubsidized competitors to reduce wages and benefits and give up profits to stay in business.

It is a race to the bottom, which is not good for any economy and has not been since the first textile manufacturer in Massachusetts moved away in 1846 in search of lower wages. As the textile mills moved away inventors and entrepreneurs moved to take advantage of the workforce they left behind, people already conformed to the atmosphere of factory work, at first to produce improved and more complex textile machinery at a large scale which led to the manufacture of intricate machinery to make everything from watches to locomotives. Many of the mills and manufacturing factories of the industrial revolution were developed and made by the inventors, engineers, machinists and mechanics of Massachusetts. Manufacturing wages in Massachusetts have been among the highest in the world for almost 150 years but manufacturers are still attracted because manufacturing in Massachusetts is profitable for high value added complex products and replicating the knowledge and skill of manufacturing employees in other places has proven especially problematic. It is easy enough to build and operate a $Billion+ microchip plant anywhere in the world. It is not the same thing to just move the manufacture of the absolutely precise machines that make up that factory, which is why many of the machines in the microchip factories are made in Massachusetts, some by the great great grandchildren of the first textile workers.

It is all about moving up the value chain and Massachusetts is the standard bearer for the entire industrial revolution in that. It was where the industrial revolution began in the US and the first place to experience both its economic benefits social costs. Amazingly, Massachusetts has seemed to find the balance between social and economic imperatives. Living expenses are among the highest in the US but so are wages. Every big high tech internet company including Apple, Microsoft, Google, Facebook, Twitter, SAS, IBM, etc has significant presence in the state. Manufacturing employment is increasing as firms like iRobot and the the many companies that make the machines that make microchips and components for things like cell phones and drones expand to meet increasing demand. It is one thing to think something up and order it from manufacturers, which is what the people in Silicon Valley do. It is quite another to make the machines so the manufacturers can actually make the things to do that, which is what the people in Massachusetts do.

Over 98% of the population has health care insurance.

Massachusetts is definitely an outlier, like something between the EU and the US without all the deliberate the stupidity and ignorance. Massachusetts places a high value on education, being the first place to make learning to read and write and do math compulsory, and holding to that ever since which pretty much guarantees that almost of its citizens are at least minimally educated enough to form their own opinions. There has been very few losing votes to override the property tax limit to build a new school in the entire state since the property tax limit and override provision was introduced. If there is one thing the people of Massachusetts seem determined on it is improving education for their children.

While other states are cutting their tax rates and education budgets, to them more and more attractive to low margin employers, Massachusetts will continue to produce citizens with the skills that high tech high margin employers are looking for. Massachusetts will maintain its position at the top of the value chain while other states race to the bottom, only to be eaten alive by ever lower priced overseas competition. Low margin commodity production will never ever return once it has fled. No amount of tax breaks grants and incentives will ever convince any operator to permanently move their operations back for the long term. If they have not moved yet it will only delay their move and make the inevitable move even more profitable for them. It is a lose lose situation for everyone but the employer.

Anyway, the only promise of the future is that the pathways to making an income will be further and further narrowed as more and more work is automated.
If those who control the wealth do not begin even thinking about how to address this problem they can begin numbering their days on this planet,

I have a question:
What is the purpose of the economy if it is not to serve the needs of the society it operates in?

 

Imo, Unrealist 42, you seem to have 'hit the nail on the head', for me anyway.

As you implied, I think, cutting wages and labor is ultimately self defeating. If you examine a P&L account of any company, it is a common failure of accountants to cut Direct Labour costs. OK in the short term that makes more profit. In the long term it becomes more and more difficult to produce more profit. But if you have more people to produce more goods then the company will ve much more profitable. That I think is what Massachussetts might have done too.

In the limit if you continue to emphasise reducing costs you end up with no labor and cannot produce anyhthing, hence no profit and no company. Whilst it is imporant to keep costs down, the continued emphasis on reducing costs ends up with no business. Many companies in USA and more will go that way too, unless we do a Massachussetts. Look what happened to Britain they reduced their costs so much that they have little home grown manufacturing business anymore. The money men killed them off, IMO.

 

What causes a reduction in operating costs? Probably competition followed by opportunities to increase profits. Talking about profits first, in a company's quest to increase profits, they must continue to provide quality product on time with competitive pricing...labor usually is a significant component of achieving this therefore a company must maintain an efficient and effective labor pool. Regarding competition, a company has no choice but to compete, so they must exercise all their options, including labor costs, to keep the doors open and grow. At the end of every single business day, the company MUST satisfy the demands of the consumer...if a company jeopardizes this...they are playing with possible failure...

 

you mean I've proven that what I said was correct. the $ has lost 98% of its value (from 100 years ago) it lost that to inflation, and you want more of the same, obviously. YOu can have it and I"ll keep buying gold, having already stock up on survival supplies and skills. So I don't care if you get your way. In fact, I hope you choke on it.

 

all you've done is show that you don't understand economics and finance

 

I guess because wages is what we must have to continue living? And if you keep losing wages via inflation, people start dying from a lack of resources? I know, I know, this isn't important to some conservative minded people...and the solution to the perils of wages not keeping up with inflation is just go out and become rich. Then you won't have to worry about wages keeping up with inflation. These really are brilliant guys, the ones who think in that manner. All should be candidates for the Darwin award.

 

Yep, you got it. The economic model that a nation has should have at least one goal of providing for the population a means for self support, for all humans must have food, clothing, a roof and medical care. And the economic model should be structured to provide for the necessities of life for the population. It should not be simply a model that allows a great deal of income to go to a few at the top which makes them extraordinarily wealthy, yet that seems to be what our current model is structured, consciously, to do. And it is not serving the population very well at all, which is straining our safety nets, even as the conservatives reduce those nets. It's an utter lack of decency and even cruelty, given that our model is not devised now for people to be self supporting through their work.

There is a cost here, that taking away safety nets will create, and that cost is something human societies have seldom put up with, and it ended up very violent, pulling apart society at the seams. That the conservatives are oblivious to this fact shows how unintelligent they really are, in their delusions.

We direly need a WPA 2, I agree, for the trend will only add more people without living wage jobs, and something has to take up the slack, or things will be untenable and it will be far too violent for society to put up with for very long. Of course, this will require taxing the elites more, and once again they will not get a free lunch when it comes to grabbing more of the income pie. We will have to take some of that income back, via taxes in order to keep them from hanging from oak trees when the suffering reaching a certain point. The rich should be in great fear these days, and there really isn't a safe place for them, if the trends continue.

We need another FDR to once again save capitalism by reversing what the greed of the few has created, an economic model that no longer serves the population. Perhaps this time we will not forget that the sort of economic model a nation has is very important, and that is must serve the people, and not just serve a small group of the people. This should be common sense, but we don't seem to have much of that today.

Our military is construed to protect americans, and our economic model should be designed to feed americans and provide what humans have to have. And clearly, it isn't doing that today. Which cannot continue on. If we continue to allow business to use our markets for their foreign made goods, we are gonna have to create another WPA, financed by taxing where the income is going. No way out of it, for pay me now, or pay me later, but payment will have to be made. Society will always move to order, even if its a bloody move. You can set your watch by that fact.

 

Part two. How wages rise.

The reason why the textile industry left Massachusetts was because living conditions were improving and incomes from factory wages were no longer sufficient to meet the expenses of living in these improved conditions. It was the first time that a large portion of population had cash to spend, which afforded the ability of large numbers of people to pay for improvements in their basic living standard that had long been around but unaffordable to the common people, who lacked the cash to pay for them. Things like indoor plumbing and candles and meat more than twice a year.

Some manufacturers met workers demands for higher wages and made improvements in efficiency and productivity to maintain their profits but many just packed up their old machinery and moved it to places where living standards were low enough that workers would accept wages that allowed them to maintain their profit margins. The textile mills have moved almost continuously since the mid 1800s, spurring the rise of living standards everywhere they went and moving on to ever less developed places as the demands of rising living standards made possible by their wages also resulted in their low wages becoming increasingly unattractive to workers. These days they are moving into Africa, the last least developed area of the planet.

The textile industry has been a keystone of economic development for nations since the beginning of the industrial revolution and continues in that role to this day. However, it is only by letting go of the textile industry and moving ever further up the value chain that nations have been able to maintain a steady improvement in the standard of living of their people. Japan and Korea and Taiwan are prime examples of how a nation can leverage textile manufacturing to move up the value chain and make huge improvements in living standards in just a few decades.

Spending $Billions in subsidies and tax breaks to support the continued operation of inefficient uncompetitive industry using obsolete manufacturing techniques is far worse for a nation than spreading that money into basic R&D and multiple endeavours to encourage nascent ventures aimed at the next big thing. The DOE lost $500Million on Solyndra but it has booked an overall profit on its entire portfolio of investments in a whole slew of companies with similarly promising technology and similarly risky economics. The successes are producing thousands of new jobs and competing in world markets.