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:

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