Monday, July 18, 2011

New way to look at (literally) appraising the minimum wage

New way to look at (literally) appraising the minimum wage: add one line within a line to ye ole 101 supply/demand chart always invoked against raising the minimum: show the labor component of the supply price. If the price of labor doubles -- but is only 10% of the total cost of output -- and demand consequently dropped only 10%: that sounds great for labor. Justice: simply explain that a market is only efficient (and fair) when all parties to a bargain are able to extract the maximum the other parties are really willing to pay.

Feed a bust -- rebuild US labor

Here is an email I just sent to David Leonhardt at the Times:

The consumer bust may never end as long as the US labor market remains a permanent pay squeeze market. It is more than plausible the US minimum wage could have risen to $15/hr from $10/hr (adjusted) as per capita income doubled since 1968. That means that half today's workforce may plausibly be earning less than what the minimum wage should be -- today's median wage being $15/hr. If we could somehow have foretold this to Americans of 1968 they would not have labeled it as wan "inequality." What "disaster": small nuclear exchange, plagues, comet strike?

Any OECD labor market that works for the average person (and empowers same politically too) uses legally mandated, sector-wide labor agreements. All that do not work so nicely (e.g., Japan, Australia) do not avail themselves of this seemingly perfect labor market balancer -- instituted to prevent a wage race to the top in postwar Europe.

Supermarket workers and airline workers would kill for sector-wide bargaining -- easy political place to start. Never happen if no one ever informs 2011 Americans of what I fantasized informing 1968 Americans of.

New way to look at (literally) appraising the minimum wage: add one line within a line to ye ole 101 supply/demand chart always invoked against raising the minimum: show the labor component of the supply price. If the price of labor doubles -- but is only 10% of the total cost of output -- and demand consequently dropped only 10%: that sounds great for labor. Justice: simply explain that a market is only efficient (and fair) when all parties to a bargain are able to extract the maximum the other parties are really willing to pay.

PS. Isn't inflation -- I'm thinking labor market inflation -- the classic way to diminish all debt (our grandchildren paying New Gingrich's grandchildren because Newtie and friends these days lend the government money at interest instead of paying taxes) -- and -- doesn't lowering real prices through inflation the classing cure for a housing bust?

Wednesday, July 6, 2011

Republicans have their minimum wage theory backwards

My comment on "Slate Magazine's" "Get A Job Kid" :

Republicans have their minimum wage theory backwards: that American teens are now missing out on minimum wage jobs because better skilled adults came running for them after 2007's "big raise" -- ROFL. After the "big raise" from $5.15 to $7.25 the federal minimum wage was still $1 short in buy power from what it was in 1956 (that's nineteen-fifty-six in case you think you read wrong) -- $1/hr nominally in 1956 being $8.19/hr adjusted.

But there's more -- as they say in those TV commercials. Average income in 1956 was 40% of what it is today. To put meat on those bones -- and mine -- when I was a kid in NYC we ate a lot of Hamburger Helper and a large variety of noodle casseroles, not because we were poor but because the economy simply put out a lot less per person back then. No dream in anyone's mind of stainless steel kitchens and de rigueur granite counter tops. :-)

Which brings up relative living standards. Americans on the minimum wage today -- if you can find any (recent parolees forced to take any job?) -- see the how the upper percentiles live on television and understand too well they are at the bottom of the 21st century standard of living barrel. McDonalds restaurants in Chicago are staffed almost exclusively by Mexicans. Higher skills than American teens? Worse English language skills. But no one else will work for Illinois' minimum wage of $8/hr.

LBJ was pushing the minimum wage pretty hard in both 1956 -- when as majority leader he snuck it through the US Senate seeing not enough conservatives present -- and in 1968 -- at 80% of the median wage. I guess there is so little money in that end of the economy that it does no harm.

America's greatest historical economic scandal: if the minimum had kept up only half speed with per capita income growth it would be $15/hr today. Today's American median wage (the average person's wage) is $15/hr. And 20% of our wage and salaried workforce is earning less than LBJ's minimum wage.

The welfare state in Europe was instituted after WWII as a compensation for something call LEGALLY MANDATED, SECTOR-WIDE LABOR AGREEMENTS which were designed to hold off the race-to-the-top by labor unions so more money could go to rebuilding -- which very same labor market system recently chased Wal-Mart out of Germany because they could not hang on there paying the same pay and benefits as everyone else. Every OECD labor market in which sector-wide is in place (e.g., Canada, Germany to take the lite and heavy versions) the economic well being of the average person is assured. Sector-wide bargaining prevents the race-to-the-bottom too.

Everywhere in the OECD sector-wide is not in place (e.g., Japan, Australia, America) labor is ever more screwed. Theoretically I cannot think of anything else that can reverse America's race to the bottom; can you?

Monday, July 4, 2011

It is not the Holocaust -- waited too long for a Jewish state -- God said to Abraham kill me a son

It is not the Holocaust. The further back in today's Israel's, the less likely it would have retaliated to a guerrilla force hiding grabbing two uniformed soldiers POWs by mass bombing neighboring Lebanon's infrastructure and capital city, killing 1000 men and women in 400 children – or to a single soldier taken POW by bombing immediately the only power plant supplying electricity for a million mostly very poor Gaza inhabitants? The further you back, the closer to the Holocaust, the less likely such venomous reprisals would have been.

It is not fear of military attack today than decades ago. It would take 9,000 NATO quality tanks and crews to invade against today's Israel's 3,000 -- takes 3 to 1 on offense. Israel's fighter force is fully one-sixth the size of today's American fighter force: active, National Guard and reserve. What other small nation possesses nuclear tipped ICBMs, 5 second-strike nuclear warhead missile submarines, nuclear bombs and even nuclear artillery shells?

I would postulate "The Picture of Dorian Gray* syndrome": the more Israel offends its neighbors, the more Israel's guilt builds up unconsciously, the more Israel needs to repress its growing bad conscience, the ever more desperately Israel strikes out at anyone who reminds it that it is not the respectable nation state it wants to see itself as (analogous to a Mafia kingpin who lately comes to desire respectability). * [1945, 3 1/2 stars, cinematography Oscar]
Suppose mid-19th-century Americans arriving to settle in the Midwestern continent had found 20 million Plains Indians already living there – instead of the 1 million remaining after Spanish diseases had traveled up from the Gulf Coast starting 100 years before, wiping 95% of them out.

The only feasible – and moral – way for us to have moved in on them would have been to assimilate the Indians into our culture – it is called acculturation*. The Indians took to European horses and guns. Why would they not have been attracted to the "iron horse" all the other conveniences of a technological civilization that they were a 1000 years behind? In this alternate history, America might have had many Indian blood presidents by now. :-o *

Want a nice Jewish state (neighborhood)? In 100 years the Chinese will be reading and writing English and the world may be one big city with a really big Chinatown. Today's Israel would be only a neighborhood in that world -- a world where people get off airliners and walk around other countries like they were their own -- oh, we already have that world. For those who waited two millennia for to return to a Jewish nation – they have waited too long. :-)
God said to Abraham kill me a son/Abe said God you must be putting me on/God said no/Abe said what/God said do what you want Abe but the next time you see me coming you better run. (B. Dylan)

Did Abraham jump at the opportunity to kill his son? I didn't know the kid. Do West Bank settlers who they are obeying God's will taking back their biblical homeland from Palestinians agonize (like Abraham) over doing such a thing: evicting them from their ancestral homes and lands? Do they offer tearful apologies to them; do they long to offer generous financial compensation to them?

God chose Abraham because of his willingness to give unselfishly – not grasp greedily. What would Abraham have thought – what does he think – about the unabashed eagerness of West Bank with which West Bank colonizers displace whole Palestinian communities.

Friday, July 1, 2011

No fair and efficient market unless both sides can EXTRACT THE MAXIMUM the other will pay

Are American median wage earners, at $15.11 an hour*, getting what the minimum wage rightfully should be? LBJ pushed the minimum hard in 1956 (as Senate majority leader) and 1968 – to 80% of, for the times, much more robust median wages. (* “State of Working America – 2008-2009”, p.134, Table 3.5, Wages of all workers by percentile, 1973-2007 -- 2007 dollars)

More incredibly, 20% of today’s American workforce earns below LBJ’s $10.15 an hour ($1.60 adjusted) minimum.

Jumping the federal minimum wage to $15 an hour could make about 3% direct inflation – easily computed: 70 million (half the workforce – at most; many positions not hourly or salaried) X $3.25 average raise (close enough) X 2000 hours (work year) + 3.5 million* more half raises for those at or below the minimum (in 2009) getting the full raise X $3.25 X 2000 hours = $477.75 billion altogether -- out of a GDP of $14 trillion = 3.4% direct inflation. * (

Before we check out the only workable solution to today’s American pay and benefit race to the bottom let's put stupid Republican economic tricks behind us. An individual banker can figure he cannot bust the entire economy all by his lonesome so why miss out on millions in fees before the bubble bursts? Republican tax cuts for the rich flooded banking system with excess liquidity while their deregulation ideology did away with checks on irresponsible loans. Of course, the automatic Republican response to the resulting real estate bust is even more tax cuts and endlessly picking away at new restrictions on over lending. And don’t forget to cut government spending in the middle a recession. Feed a bubble; starve a bust.

Guiding free market principle: Markets operate at maximum efficiency – also at maximum niceness -- when both parties to a bargain may extract the maximum price the other would be willing to pay.

There are two kinds of labor markets in modern OECD economies: the kind that produce adequate political and economic strength for most people and the kind that do not. Wherever legally mandated, sector wide labor agreements are the rule the average person gets what they need because they cannot be out flanked at the bargaining table and because the associated unions supply adequate political muscle. Where they are not the rule the average person is toast.

From “Japan, the System That Soured”, I got the impression that the vaunted security of half the Japanese work force is paid for with permanent 60 hour work weeks and that the other half lives more like our illegals. Australia, which uses an eccentric judicial system for setting wages, has seen union membership dropped from 40% to 20% over the last 25 years.

The original intent of legally mandated, sector wide labor agreements was to fend off a race to the top by European labor unions after World War II so more money could be directed to rebuilding industries. Europe's vaunted welfare state was actually a compensation for lower wages. Britain did not adopt sector wide agreements in the aftermath of the war and thus fell behind in development (according to Barry Eichengreen in "The European Economy Since 1945").

Magic bullet on the “Great Wage Depression” (I hate that pallid word “inequality”): What prevents the race to the top just as effectively prevents the race to the bottom. Over 60 successful years all over the first, second (Argentina) and third (Indonesia) worlds prove so.

Magic bullets for today’s housing bust stalling recovery: shifting 15% of lost income share back to the bottom 90 percent of earners could add 30% more inflation over X number of years. David McWilliams' “Follow the Money” about Ireland’s housing bust and in Matthew Lynn’s “Bust: Greece, and the Euro” both tell that inflation is the “painless” cure for housing bubbles at all times and in all places – home owners who wont lower their price nominally will ignore an inflation discount.

Magic bullet on consumer spending stalling recovery: no need to explain

Magic bullet for the exploding federal deficit: Inflation is the classic “painless” cure a bulging federal deficit (think post WWII) – in the long run our grandchildren get to pay back less to the Republican’s grandchildren (Republicans preferring to lend t
he government money at interest over paying their share of taxes).

Best video by Robert Reich (a lawyer):
Best article by Harold Meyerson (a journalist):
Best book by Thomas Geoghegan (a lawyer):
Best book digest on You Tube -- "The Coming Collapse of the Middle Class" by Elizabeth Warren (a lawyer):

Loudest wake up call?: Median pay for top execs at 200 big companies jumps 23%, 2009-2010: