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View Diary: Where Adam Smith Was Wrong (121 comments)

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  •  the quest then, is this: (23+ / 0-)

    What can be done about it? Thats not meant to be a cynical "this is the way it is, so it'll stay that way" question. Its a quenuine question, what wort of action can be taken to correct this imbalance? Tarrifs on foreign goods to give domestic goods better competitive leverage? tax breaks for companies that have a certain (high) percentage of thier production inside US borders?

    I think the diarist has done well articulating a significant problem with our current economic system, but I'd like to hear ideas for solutions. It seems to me that, ultimately, we have to find a way to make domestic production more economicaly attractive than outsourced production, without gutting our labor laws and putting our kids to work as janitors.

    Right now, buying American carries a premium. when you can even find american made products you need. Some people are willing and able to pay that premium, but a lot of people aren't willing to pay more for the same thing imported, or (thanks to the recession and growing income iniquity) cannot afford to pay that premium and have to buy the cheapest option available.

    What can we do to turn that around?

    "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." - Henry Ford

    by sixeight120bpm on Wed Jan 11, 2012 at 06:01:48 AM PST

    •  good question! (3+ / 0-)
      Recommended by:
      DRo, Siri, Dinclusin

      What can we do to turn that around?

      •  no idea! (6+ / 0-)

        Thats why I asked! :D

        I'm hoping to trick people smarter than me into having a discussion and inadvertantly furthering my own personal education on the subject. its all part of my evil plan to know the world.

        "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." - Henry Ford

        by sixeight120bpm on Wed Jan 11, 2012 at 09:48:35 AM PST

        [ Parent ]

        •  Wage Equality (5+ / 0-)

          The gap between CEO's and workers is far too large. Back in the 50's and 60's when the US economy was more domestically oriented and successful (well, if you were white), the wage gap between management and union workers was much smaller than today.

          Some pasty white doughy ex-frat boy makes uber-millions for what? These guys are not bold entrepreneurs, they're greedy money vacuums. That's why few begrudge Steve Jobs his money, he created something unique and beautiful that folks want, he made his money not by being a vacuum, but through his creativity. By contrast Mitt Romney and dubya are heartless tools whose money came by accident of birth and connections, and in Romney's case a vulture attitude.


          "Political ends as sad remains will die." - YES 'And You and I' ; -8.88, -9.54

          by US Blues on Wed Jan 11, 2012 at 10:29:43 AM PST

          [ Parent ]

          •  While true... (0+ / 0-)

            This is a side show and doesn't really matter in terms of solving the larger issue of our competitiveness in the global economy and restoring the middle class.  

            •  Not so. (3+ / 0-)

              It is the main driver in the corporate quest for short-term profits at the expense of the long-term. CEOs aren't striving to earn a fat retirement package 20 years from now, they're instead trying to pump up their stock price to inflate a golden parachute in a year or so.

              "Nothing happens unless first a dream. " ~ Carl Sandburg

              by davewill on Wed Jan 11, 2012 at 12:44:27 PM PST

              [ Parent ]

              •  Not Not So (0+ / 0-)

                Again, a sideshow.   The drive for quarterly profits to drive up stock prices is itself a sideshow relative to productivity and income issues.  

                You could put whatever artificial constraints on executive compensation in place you want and it would not solve the problem of stagnation of middle class income.

          •  Wage Equality is a good start. Also,... (0+ / 0-)

            ...equality of laboring conditions, including both non-wage worker circumstances (hours, safety, comfort, medical and other benefits) and environmental requirements (non-polluting).

            Either workers must be permitted to move freely across borders to jobs, or closed shop international unions must prevail.

            The alternative is billions of workers across the globe all competing with each other as, each alone in poverty and misery, they race to the bottom.

            A man? A prisoner! A cage? Iron! Did Noriega care? No, sir! Panama!

            by Obama Amabo on Wed Jan 11, 2012 at 11:33:00 AM PST

            [ Parent ]

            •  Easy to say this (0+ / 0-)

              When you are in the top 1% (global 1%, rich people who make more than $50k/year).

              Living standards in India and China have been rising massively during this decade. It's not $60k like Joe 1%er American factory worker might make, but go ask your average Foxconn worker if they'd rather do that or farm rice paddies like their parents did. I'm sure workers in those areas would take great exception to the suggestion that globalization induces poverty.

              (-5.50,-6.67): Left Libertarian
              Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

              by Sparhawk on Wed Jan 11, 2012 at 03:33:25 PM PST

              [ Parent ]

        •  Protectionism. (3+ / 0-)

          Added costs to foreign products to make our labor / regulations competative.

          -9.63 -6.92
          Fox News - We Distort, You Deride

          by rick on Wed Jan 11, 2012 at 11:31:12 AM PST

          [ Parent ]

    •  Beyond shopping for the lowest wages... (19+ / 0-)

      there are other cost savings for going overseas for production.

      These low wage countries have few if any protections for workers to protect them from dangerous conditions in the worlplace.  There are many ways to exploit the workers besides low wages.

      Countries without environmental protections are ripe for exploitation as well.  The costs of polution are socialized and absorbed by the community in the form of a lower quality of life and health.

      The privelige of trading with the U.S. should include the responsibility of meeting the same standards imposed on American manufacturers.  Either that or payment of penalties or tarriffs to eliminate that advantage.

      Free Trade is a fraud that permits this abuse.  

      Our goal should be to have Fair Trade

      I am here to represent the democratic wing of the Democratic Party. Roar louder!

      by Josiah Bartlett on Wed Jan 11, 2012 at 09:59:34 AM PST

      [ Parent ]

    •  The Japanese rate loyalty to country higher than (16+ / 0-)

      just good bargains.It has paid off for them.But many times you have to search for goods that are American made at any price.

      There is a price for everything.Our electronic goods simplify our lives and are bought cheaply by us. Americans love "hand-made" things and are ready to pay more for them.

      We might be shocked at how much "hand-making" goes on in producing an I-Phone or many electronic products. Chinese factory workers toil like slaves in 12 hour days at great cost to them personally.Many of these workers are only teenagers. When they can no longer work , they are tossed aside.

      We need to rethink our dependence on these goods and the real cost behind them.

      This isn't just an economic problem. Its a moral one as well.

    •  the price of cheaply produced goods (9+ / 0-)

      externalizes many of the costs of production and shipping and is thus artificially low.  If environmental damage alone were adequately internalized in the price of goods and services worldwide, this would be far less of a problem.

      Unfortunately, the mechanism to include such costs does not exist yet. I'd be all for a global greenhouse gas tax, but that doesn't even cover matters like water pollution, deforestation, or more general habitat loss.

      "You try to vote or participate in the government/ and the muh'fuckin' Democrats is actin' like Republicans" ~ Kweli -8.00, -6.56

      by joey c on Wed Jan 11, 2012 at 10:06:08 AM PST

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    •  Re-localize (8+ / 0-)

      The cost of the "carrying trade" is on the rise. Modern cheap logistics depends entirely on cheap oil.

      Electrify U.S. Rail and extend the system so that the transport of goods can be done by means other than petroleum. That way international transportation depends on a fuel with an ever increasing cost (bunker oil) and domestic transport depends mainly on a decreasing cost fuel (renewable electricity).

      Encourage the wage increases happening in China and India. This will reduce the labor cost differential and help Chinese and Indian industry re-focus on their domestic markets.

      Enforce and strengthen international environmental regulation. This will help normalize the cost of using fossil fuels for all countries.

      Transfer subsidies from fossil fuels to renewable fuels with one possible exception: GTL facilities may be helpful in reducing the price shocks of liquid petroleum, so they may need some encouragement from government.

      Just some ideas.

      "Who is John Galt?" A two dimensional character in a third rate novel.

      by Inventor on Wed Jan 11, 2012 at 10:11:53 AM PST

      [ Parent ]

    •  I'm sure there are solutions (5+ / 0-)

      But just about everyone of them would diminish the power, control and influence of the usual suspects. So they would be as difficult to create and implement as any Economic Reform.

      I naively assumed that energy costs would eventually diminish the low wage "advantage" that East Asia appears to have, but someone pointed out that transnational shipping vessels face no regulations out on the high seas (and in many ports of entry) as to emissions, fuel economy, waste disposal, etc. Therefore they operate on essentially the very, very cheap dregs of the refining process, which is otherwise waste product.

      Occupy Wall Street AND K Street!!!!

      by Egalitare on Wed Jan 11, 2012 at 10:43:13 AM PST

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    •  I'd even hesitate to call it a problem (0+ / 0-)

      Why should Americans be entitled to work for $10/hour when there are capable willing people all over the world who will do the same work for $1/hour?

      You mention correcting the imbalance. The imbalance is that we're wayyy better off than the rest of the world, and they want to catch up. This free trade around labor is what is going to make that happen.

      •  from the point of view... (1+ / 0-)
        Recommended by:
        Saint Jimmy

        of a US citizen actualy attempting to live off $10 an hour, I'd call it a problem. Sure, i might live better than starving children in somalia, and I'm sure I don't work as hard as people in chinese sweat shops, but in the midwestern american economy with all its requisite living expenses, I am just scraping by, living paycheck to paycheck and worring if Ill make rent next month.

        I won't say that I'm entitled to better, but I will damn well declare that Americans can do better. My parents are exemplary of the American dream, they started with nothing, worked hard and are now retired and living thier personal dream. I do not see that ever happening for me. The options are no longer there. They have been removed, sacrificed on the altar of stock price and shareholder profits.

        We had it better once, when Americans made things. When we did industry and did it well. This does not "entitle" us to continued prosperity, but it tells me that it is possible for us to earn it. If we can insource jobs and grow the middle class, maybe my kids will have a crack at dream like my parents did, and that I increasingly feel is lost of me and my generation.

        "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." - Henry Ford

        by sixeight120bpm on Wed Jan 11, 2012 at 11:19:18 AM PST

        [ Parent ]

        •  This isn't about stock price and shareholder (0+ / 0-)

          profits. This is about whether or not Americans should be entitled to do relatively simple jobs that someone else somewhere else in the world can and will do for much lower compensation.

          We did have it better once because we built up our domestic economy, often at the expense of other economies around the world. And we didn't let foreign people participate in our system, often because the costs of trade were too great, but those costs aren't there anymore. The world is becoming one market - one economic system in which everyone is on equal footing. If Americans want to maintain their place at the top of the economic pyramid, they need to provide services the world desires above all others. And manufacturing work isn't that. Nor is being a waiter or receptionist or retail associate or cashier or most of the common jobs Americans now perform.

          America's chance for remaining more prosperous than other countries is to leverage our wealth to achieve high levels of applicable education. That's our shot at a sustainable competitive advantage in the world. And individuals who don't take advantage of our educational systems will see the jobs they do become commodity labor, where the lowest wage wins. It's not pleasant, but this is the cold economics of it.

          •  take advantage of our educational system? (2+ / 0-)
            Recommended by:
            IreGyre, Saint Jimmy

            The one with skyrocketing tuition that requires people to bury themselves in debt before they even get out into the workforce? We need to see some serious reforms to our educational system before "taking advantage of education" because a serious option for a lot of people.

            Even a degree is not a gaurantee of a well paying job in these times. It is disturbingly easy to find case after case of people who followed the rules, went to college after high school, took on the debt because conventional wisdom said a high paying job would be waiting for them on the other side. But there wasn't, not they are underemployed and crushed under debt. this is far too common.

            And don't even THINK about getting back into school if you'v been out in the world for awhile and had to take on non-educational debt.

            I understand what you are saying with regard to labor as a commodity, and I believe you have hilighted the problem in labeling it AS a commodity. Should not the workers who generate the wealth be entitled to a fair share of the companies earnings? We used to think so. in the 50s and 60s, CEO pay was only about 30 times average employee pay. now it has ballooned to 300 times employee pay, while employees have seen thier wages stagnate. Profits are being made, The people doing the work just aren't seeing thier cut. Specificaly because labor is now seen as a comidity. That needs to be corrected somehow. There are several interesting solutions in this thread as to how to encourage that.

            "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." - Henry Ford

            by sixeight120bpm on Wed Jan 11, 2012 at 12:31:17 PM PST

            [ Parent ]

            •  Yes, the one with rising tuition (0+ / 0-)

              And you don't have to bury yourself with debt. You can go to the best state school for like $12k a year (in my state) plus housing, which you can probably pay for with a part-time job. You can easily leave undergrad with less than $60k in student debt. At 6.8% interest (which is higher than you'll probably get), you're talking about $400/month in payments. If you get an art degree, that's probably not worth it, but if you get an engineering degree, that's absolutely worth it.

              As for going back to school, I'm in graduate school right now. With an auto loan and a mortgage. Yeah, you have to be responsible with your finances to get people to lend to you, but that should be something we're doing anyway.

              Why should people doing the same job over time have their real wages rise? That makes no sense to me. The profits go to the people who take risks and innovate or engineer changes in the way we do things that make them better in some way. The guy loading the same potato chip bags into the same box shouldn't see his real wages increase over time. It's the same job. The price of that labor is at real equilibrium. The only labor seen as a commodity is the labor anyone can do. The stuff that's hard to do is where the profits are going. And for the most part, that's how it should be. Now, I would argue that C-level compensation is probably higher than is needed for incentivizing, and probably more compensation should go to mid- or senior level operations managers or the ownership stake, but that's another discussion.

      •  Because Americans can not live in (4+ / 0-)

        America on $1/hour.

        -9.63 -6.92
        Fox News - We Distort, You Deride

        by rick on Wed Jan 11, 2012 at 11:32:35 AM PST

        [ Parent ]

      •  squeezing workers (2+ / 0-)
        Recommended by:
        sixeight120bpm, Kurt Sperry

        How about paying people in those other countries $10/hour?  Oh no, that's heresy!

        •  There's a market for labor (0+ / 0-)

          Wages are determined by supply and demand. If you try to offer $10/hour in a developing country, you'll have way too many applicants for the jobs, and people will bid down the wage they demand. There must be an economic equilibrium between supply of labor and demand for labor - and that's what determines wage rates.

          •  again, the magic of the market solves all... (4+ / 0-)

            So I suppose then that you're against the minimum wage?

            •  Well, depends on the context (0+ / 0-)

              I'm not taking a stance on minimum wage, but here's the truth about it.

              Having a minimum wage does increase unemployment (among people who are generally poor and uneducated). On the other hand, minimum wage laws increase wages for people whose labor is valued near but below the minimum wage level (because companies will make the hires anyway and just get less profit from those hires). Whether or not this increase of wages from people near the minimum wage level outweighs the total wages from the additional people who would be employed without minimum wage laws is the trade off I'd look at to take a stance on minimum wage.

              I'd go with the policy that maximizes total wages.

              •  See past the supply and demand chart (2+ / 0-)
                Recommended by:
                sixeight120bpm, Saint Jimmy

                "The truth" that you put forward here is based on a whole load of assumptions -- more than I can catalog right now -- that aren't necessarily true in the real world.

                The first is that because supply and demand might set a certain job's wages at a certain level, that the worker is only "valued" that much.  This idea of how much a worker is "valued" is very vague and ambiguous, but I'll assume that you mean the amount that that worker is worth to the employer in terms of the profit that the worker helps the employer to bring in.  This value that the worker brings in might be far, far greater than the worker's wages as set by the labor market; the going rate of pay might be low due to the abundance of desperate workers, or any number of extraneous influences, such as lack of information, etc.  In such a scenario, the employers may be willing to pay far higher wages than the market sets; imposing a minimum wage may make practically no difference in the number of hires made, since each hire is still very useful to the employer in meeting the demand for their goods and services.  The main difference is just that a larger proportion of the profits go to low-level workers.

                This is, of course, a hypothetical proposition, but I venture that it is far closer to reality most of the time than the scenario you propose, whereby raising wages above the market level leads to proportionally fewer hires.  The minimum wage has never led to any waves of unemployment.

                In short, just because the market sets the price of something at a certain level does not mean that it would not be worth possessing even at a much higher price.  The simple supply-and-demand model that you see on a chalkboard fails to capture reality most of the time.

                Another assumption you make is that the workers under consideration are significant only as workers -- not as consumers.  While individual firms might prefer to pay their workers as little as possible, in the aggregate, it is better for them to pay workers more, and so to create a class of consumers with disposable income.  The US economy is suffering right now because consumers are paid little or are unemployed, meaning they cannot consume.  Firms are basically in a prisoner's-dilemma situation.

                •  So you make two basic points (0+ / 0-)

                  First, the issue of valuing labor by the output of that labor rather than market prices for labor is a good point. In the scenario you describe, minimum wage laws can be used to transfer wealth from the ownership stake in a company to its lowest paid laborers. However, at the higher wage rates, you are going to be left with excess supply of people wanting to do those jobs, and you will see unemployment rise. The increase in supply will come both from the unemployed and those employed in more lucrative, but more demanding jobs. Considering that these people are probably more qualified for the positions, they are likely to get them - which puts at risk the rate of technical advancement and the rate of standard of living increases. How it all plays out at a macro level is what's interesting.

                  Your second point is much less interesting. Primary effects are much greater than secondary effects. For a particular firm, paying laborers, say, 10% higher wages results in a significant cash outflow for the company. Very little of that returns as an inflow to the company because the laborer has more money to spend on the firm's product offerings. That's the micro view. The macro view is that ultimately, money is just a proxy for facilitating trade of products and services. If you try to just start paying people more, you're saying their labor is worth more than a bunch of other goods that it was worth less than yesterday. That just throws the whole system out of wack.

                  •  Whack the system (3+ / 0-)
                    Recommended by:
                    wsexson, Saint Jimmy, zedaker

                    From the first point:

                    at the higher wage rates, you are going to be left with excess supply of people wanting to do those jobs, and you will see unemployment rise.
                     This is begging the question.  The notion that imposing a minimum wage will lead to any significant increase in unemployment is exactly what is at issue, and I see no good evidence that it will.

                    From the second point:

                    If you try to just start paying people more, you're saying their labor is worth more than a bunch of other goods that it was worth less than yesterday.
                     This is also begging the question.  In what way is a worker "worth less" when they are paid less?  My argument was that we must question this idea of a worker's "worth," and recognize that the wage a worker can garner on the market often fails to capture what he or she is really "worth" to an employer.
                    That just throws the whole system out of wack.
                     Too bad.  Looking at the history of this country, including the conditions that workers faced before safety laws, child labor laws, minimum wages, etc., I'd say the unrestrained free market needs some whacking.
                •  see history of minimum wage (1+ / 0-)
                  Recommended by:
                  Saint Jimmy

                  there was a reason it was fought for in the 1800s and 1900s. Large employers competing with each other in a particular industry routinely imposed wage cuts and living standards, health, nutrition, access to even minimal medical care all worsened...

                  Arbitrary cuts were destructive and those who could not survive or endure the situation were replaced by immigrants who did not know what they were getting into... paid with company script redeemable only in company stores etc. for basic necessities. We may not devolve to a Walmart only script system for the working poor set up by large corporations.. sort of privatized food stamps instead of money but we'd get near enough... and how wonderful that some manufacturing would come back... import 3rd world workplace safety and environmental standards and the return to the "glory days" of late 19th century robber baron capitalism will be complete.

                  With no minimum wage, unions crippled and less protection from abuse by government agencies the race to the bottom would begin again. We already have industries full of undocumented immigrants working for less and expanding prison labor working for 3rd world paychecks. This cannot have a happy ending if this trend continues... it will only end with a severe 2 level class system with a very weak middle class in between... and eventually a lot of re-unionizing and strife when people are pushed far enough into a corner where they have nothing much left to lose and they will fight back for the minimum standards that made the US prosperous with a strong middle class.

                  Pogo & Murphy's Law, every time. Also "Trust but verify" - St. Ronnie (hah...)

                  by IreGyre on Wed Jan 11, 2012 at 02:27:54 PM PST

                  [ Parent ]

    •  Internalize the externalized costs and (2+ / 0-)
      Recommended by:
      IreGyre, tacet

      normalize pricing.

      Establish and maintain an index for the cost of fair trade labor, environmental impact, public health impact, etc. of each and every product and service. Then, whether the producer is domestic or foriegn, apply tarrifs to ensure that real costs are covered and paid for up front, "at the pump".

      This would eliminate the advantage of cheap solutions based on raping the commons and carrying expensive downstream/externalized costs, such as carbon fuels, as well as of goods and services that depend upon exploitative labor practices.

    •  #Occupy. Spread the word. Eventually (1+ / 0-)
      Recommended by:
      Saint Jimmy

      even rank and file Ditto Heads get it. Okay, not, but a huge chunk of them do. Not ditto heads, of course, but a big chunk of rank and file Repubs do. First we #Occupy. The rest takes care of itself.

    •  Fair Trade (1+ / 0-)
      Recommended by:

      as opposed to "Free Trade" agreements, are a start.  Raise that bottom up in other countries.

      A "moderate" in this environment is a person who splits the difference between half-assed government and a total shitpile.

      by Dinclusin on Wed Jan 11, 2012 at 04:43:39 PM PST

      [ Parent ]

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