Baumol’s Effect on Wages and the Liberal Mind

George Rebane

Actually Baumol’s Effect on the liberal mind is exactly nothing, zilch, zero, … .   Self-styled thinkers of the Left are constantly going on about workers not being paid enough as they come forward with all kinds of dodgy arithmetic showing how capitalists are making a greedy killing at the expense of their employees.  About fifty years ago a couple of economists – William Baumol and William Bowen - explained what happens when wage levels become disconnected from productivity, and here we’ll take a brief look at the result of that.  (This post is really an addendum to ‘The Liberal Mind – Wealth Transfer on Steroids’ and its extended comment stream.)

Before going on I would recommend that readers of the collectivist persuasion (liberal, progressive, socialist, communist, statist, …) give this posting a pass since it will only give rise to additional cognitive dissonance where enough is already in residence.  The purpose of this post is to familiarize the reader who already intuitively understands the basics of Baumol’s Effect (also known as Baumol’s Disease) but wishes to know its more quantitative details, and attach a label to it for effective communications.  I have been remiss in not having posted this much earlier, and thank a reader for his recent nudge.

Wage levels go up for a number of reasons, only one of which is really warranted and salutary to the general welfare, and that is that the worker so rewarded has become more productive either through experience, training, and/or using more advanced tools and methods (e.g. provided by technology).  Worker productivity is simply the number of units of work product (widgets?) the worker can produce for the money he is paid for such production.  Productivity may be measured in units per dollar.

But workers who witness the wages of other workers going up will naturally seek to have their wages also increase.  And if that doesn’t happen, then many of them who can will change jobs for higher pay.  Businesses with static productivity must then increase the wages of their employees in order to keep them, and this causes an increase in costs that lowers profit margins if all other things are kept the same.  The usual reaction to such collateral wage impacts (Baumol’s Disease) is that the affected business must either raise prices, lower output, and/or lower quality of output.  In short, the customers of the enterprise will in one way or another receive lower value (measured in constant quality units per dollar).  And delivering value to its customers is the mainstay of staying alive in a competitive business environment.

So to maintain the value of output in the face of rising wages, the workers must become more productive, else the disease starts taking its inevitable toll on people’s quality of life and the economy in general.  In industries such as manufacturing where productivity is positively impacted by advancing technology, raising a worker’s wages is not a problem.  But in fields of personal services such as retail, nursing, or the performing arts, the disease is rampant in that value received by the customer, patient, or patron is steadily reduced as the price of, say, healthcare (stand by for Obamacare) or tickets increases with no commensurate increase in the number or quality of product received.

When such inelastic (productivity unchanged) wage increases are forcefully implemented (government mandate, union strike, competition for workers, …), then prices increase, less product is sold (shortages), quality is reduced, companies go out of business, jobs get off-shored, etc.  What is even worse is that the causal sequence of such effects is almost entirely invisible to a large and active segment of a nation’s population either because of a cognitive deficit or ideological sclerosis.

The simplistic reaction to wage inequalities by such people is to attack the employer and accuse him of greed in making either excessive profits and/or receiving an outlandish compensation.  The reduction of either of these is touted as the remedy that will allow everyone to be paid a more ‘equitable and just wage’.  However, these numbers don’t work out, and that is not how the real world works.  For the private entrepreneur correctly maintains that it is NOT his responsibility to create jobs for anyone, let alone jobs that conform to someone else’s concept of a ‘living wage’ that reduces value to his customers.

Such people, let’s here call them ‘socialists’ regardless of their collectivist hue, never consider the matter of risk, and that risky ventures are only undertaken for an expectation of reward beyond the anticipated cost of the venture.  Moreover, that it is ONLY the taker of risk and bearer of cost who can reasonably and justifiably formulate the reward he expects for success.  Such a notion is totally foreign to the socialist who stands aside and insists that he, not the risk taker, is the proper judge of all such matters as levels of risk, appropriate costs, and just rewards.  

The predictable results from such ignorance and hubris are long a matter of our sordid history, and may be viewed as part of the broader symptoms of Baumol’s Disease that afflicts an economy by causing the unaccountable wage increases for workers who are no more productive today than they were yesterday.

Nevertheless, the disease continues unabated because it is the staple of populism and populist politicians seeking re/election.  Today we see current expressions of it in the discontentious froth of fast food and discount store employees demanding higher wages, not because they produce more, but simply because they can fog a mirror.  And under today’s received wisdom of social justice, that foggy mirror qualifies them for enforced redistribution of wealth from the employer and/or his customers.

For the numerate reader who wants to exercise his eighth grade algebra skills, the following set of simplified relations explains the whole matter in a more quantitative manner.  Please enter these relations in a spreadsheet, and put in some numbers.

UnitPrice = UnitCost + UnitProfit = UnitCost*(1 + ProfitRate),

UnitCost = VariableCost + FixedCost
              = (UnitLaborCost + RawMaterialsCost) + Fixed Cost,

Productivity = Units/Wage or 1/UnitLaborCost,

UnitPrice = constant1*Wage*(1 + ProfitRate),

Value = Unit/UnitPrice = Unit/(constant1*Wage*(1+ProfitRate),
           = Unit/(constant1*Unit*(1+ProfitRate)/Productivity), or

Value = constant2*(Productivity/(1+ProfitRate)).

So we see that to maintain Value in the face of falling productivity caused by higher wages, we must reduce profits through the reduction of ProfitRate.  But ProfitRate has a natural limit that is above zero before the business will quit operations.  For a short term it may use retained earnings or further investment to stay in business, but that is only done when future profits promise an appropriate return for the risk undertaken when making such a decision.  And here we see also that ProfitRate may be increased without sacrificing Value to its customers when businesses become more productive.  This should illustrate the relationship of wages, productivity, and profits, and explain the motivation of business owners when they trade off wages, investment to increase productivity, and expected profits.

Comments

[stevenfrisch]

http://thecurrentmoment.files.wordpress.com/2011/08/productivity-and-real-wages.jpg

Based on BLS data.

[fish]

Based on BLS data.

Without accounting for the final severing of the dollar to gold and the slow burn of currency debauchment.

Grade D+

Sure real wages haven't kept up.....you haven't convinced me why.

Insert random chart here - http://www.zealllc.com/c2003/Zeal080103B.gif

[Account Deleted]

SteveF at 1:13 - Do you happen to have chart that shows the increased (and expected further increase) in the total cost of employing folks? Wages alone are not an accurate measure of the cost to employers. Also, it would be helpful to show the increase in costs to employers to meet other new mandated regulations imposed by the various govt agencies that control the companies.

[George Rebane]

re stevenfrisch 113pm - First, thanks to Mr Frisch for sharing that figure citing BLS data, for it illustrates how data can also be used to gently misinform. The shown disconnect between 'real wages' and unknown (real or nominal?) productivity gains implies that the greedy capitalists have taken the difference, and put it into excess profits or 'unconscionable' wages.

Since 1975 the graph purports productivity to have more than doubled, while 'real wages' have remained stagnant. From the relations I have presented above, this should raise questions in a thinking reader. Assume for the moment a real-to-real dollar comparison, have profit margins then doubled during that period in those (or any) businesses? Have executive compensations increased to such an extent as to commensurately increase fixed costs to sop up the implied largesse? Have the arguably increased costs of government compliance accounted for the difference? Have the productivity gains been passed on to the customer in increased value? Or has technology replaced worker cadres so as to cause the retained workers to compete in the new job markets with their now commoditized skill sets?

The implication of that graph is clearly one of usury. It is assembled by the blog 'thecurrentmoment' run by a clatch of leftwing academics who inform us that "The motivation behind the blog is that the current moment requires some new thinking, by the Left, about the relationship between politics and economics." The "new thinking" motivated by such information displays is understandably welcome grist for their leftwing readership to which Mr Frisch presumably belongs, and which that readership is invited to carry (unadorned and unexamined?) to counter posts like this one. However, standing naked on its merits, the figure can only elicit its desired response from the lightly informed.

[Russ Steele]

SteveF

You can down load and spreadsheet below for calculating the real cost of employment, it is far more than just wages. You can enter your own numbers in the sample model and see how much more you are paying your SBC employees beyond just wages. Of course as the SBC CEO you knew about those costs and how meaningless the chart you posted was. Right!

http://cfowise.com/budget/how-much-do-your-employees-really-make

[stevenfrisch]

Of course I know what benefits my employees are getting. And of course these are aggregate numbers. Our inclusion at SBC is about 24% (about 5% lower than the current national average) so to be 100% accurate we would need to compare the cost of benefits to the American workforce pre-1975 to the cost of benefits today.

Is it your contention then Russ that the cost of benefits is higher today? Although I could not find a direct comparison to the dates 1975 and 2013, I did find a comparison of 1977 to 1999.

http://www.bls.gov/ncs/ect/sp/ecbl0014.pdf

(see page 9)

It would appear that the 'delta' between the cost of benefits in 1975 and 2013 is probably not much--since benefits have actually gone down in the last 15 years as the number of union households has declined.

It is also true that benefits should track pretty closely with real wages even once adjusted for inflation since they are tied together.

So really your point is kind of pointless, Russ. The important statistic relative to George's post is the delta between productivity, which to the credit of the American worker is increasing, to wages, which to the shame of American business is flat at best.

The naked truth, contrary to what George posted, productivity is increasing while real wages (and benefits) are decreasing.

But I don't expect facts to matter.

The facts are there is no, "falling productivity caused by higher wages".

[George Rebane]

re stevenfrisch's 321pm - it is no great accomplishment to predict the debating behavior of a liberal, nor do I claim such. We merely note that none of the pertinent factors I raised were addressed, but merely the implied politically polluted point of the graphic restated, and this time explicitly along with his grossly misunderstood notion of "falling productivity caused by higher wages" thrown in for good measure. And so go the class wars.

[Todd Juvinall]

Nice smackdown ot the easterner.

[stevenfrisch]

Here is the same data calculated with 'real hourly compensation' which includes benefits from 1947-2010. See page 59.

http://www.bls.gov/opub/mlr/2011/01/art3full.pdf

Here is the relevant finding:

1) Productivity in the U.S. nonfarm business sector grew an average of 2.2 percent per year over the past 63 years, despite a prolonged slowdown between 1973-1995.

2) Real hourly compensation grew by 1.7 percent per year over the same period of time and since the early 1970's real hourly compensation has grown more slowly than productivity.

(I fully expect to hear now that the Bureau of Labor Statistics is a 'liberal' source and thus unreliable.)

[stevenfrisch]

I guess you are just so busy throwing around full of shit charges like, 'self styled thinkers', 'collectivist persuasion (liberal, progressive, socialist, communist, statist, …) etc., that you have no time for facts.

You remember facts don't you George, they are what you once respected as a scientist before you became a curmudgeon.

Fact: productivity has increased while real compensation has stayed static. No misunderstanding and no doubt about it Mr. Big Brain.

[George Rebane]

stevenfrisch 357pm - Thank you for that reference which contains the graphic from BLS that gives lie to your previous graphic (both claiming real wages). From the same reference we learn again - "There are two components that account for the gap between real hourly compensation growth and productivity growth. The first is the difference between the price indexes used to account for inflation in the BLS productivity and hourly compensation measures. The second is the change in “labor share,” which, as explained earlier, is the share of output that is accounted for by workers’ wages, salaries, and benefits."

The labor share effect in industry with advancing technology has been much covered on RR over the years (and repeated here in my post), and is known to most students of current economics. I know you don't share the conclusion, but your case here falls somewhere between hollow and hopeless. Nevertheless, presented to proper audiences ...

[stevenfrisch]

The first graphic I posted was adjusted for inflation....if your point is that business is more profitable due to technology make it....I agree with you that we need to do a better job training workers and I think we share remedies...but the reality is that the top 10% are getting much richer and the bottom 60% are getting much poorer; the gap is increasing at an alarming rate, it is primarily being caused by wage stagnation, and if the top does not start sharing some of that benefit they are going to see a class war like they have not seen in this country since the early 1900's. When the workers are burning the banks and running sit down strikes you can question whether or not the ruling class should have responded to discontent earlier. Of course you will be long dead come the revolution....

[George Rebane]

stevenfrisch 434pm - No one has denied the widening gulf between the riches of, say, the top quintile and the bottom one. Again, RR has been way ahead of the curve in these discussions, including admonitions to Republicans. (Not that they want wage dispersion, but that they ignore America's growing systemic un/underemployment.) And as has also been acknowledged here is that this will lead to revolution, as will also the resulting tyranny planned by the progressives.

But unless you predict this revolution to be many decades out, I plan to be here at least witnessing it - remember technology and all that ;-) In the interval, my mission is to help spread the word so that collectivists again don't kill hundreds of millions like they did in the 20th century. And they always start by duping the least able to think for themselves. (Cue the music for the teachers unions and Common Core coming to a school near you.)

[Account Deleted]

Steve - if you really concerned about the 'wage gap', don't you think you should examine why it is so? Not political theory, but actual cases of those that have and those that don't. All over the world it boils down to those that hustle, have and those that lay about, don't. Providing small percentage exceptions don't disprove the rule. There are millions of folks with almost no money that travel hundreds or thousands of miles to toil in this country while nearby are millions that claim there are no jobs.
Artificially raising the cost of hiring workers will always result in less jobs and increased automation. I agree there is violence coming. I note that when the conservatives predict the same we are called alarmists and hot heads. Maybe now you have a idea of why we want to have an armed populace? The police and natl guard have, in the past, proven to be unable to provide adequate protection of homes and businesses.

[Bill Tozer]

"burning the banks and running sit down strikes."

Ah, the glory days of the 60's. Carrying the coffin of the symbolic death of the flower girl down Haight was a touching finish to the end of the Revolution. Think Kent State put a damper on the Occupy Your Campus movement as well. What we need now more than ever is some good old Flower Power. Or as FDR said when Prohibition ended, "What America needs now is a drink."

The Revolution is always a possibility. Our government has stock piled thousands of tons of morphine, ammo, and powdered milk in case it gets...shall we say....rather unpleasant.

Housing prices are on the rebound so the American Dream is getting out of reach for too many each and every day. Government's solution for greater home ownership was the catalysis that drove the whole woorld to its knees just a few short years ago.

Milk prices are set to soar if the Farm Bill is not passed and if Congress does not act by the end of the year, Medicare doctors will take another hit with a 24% reimbursement cut. Gotta be nice to the Medicare docs. Who else will accept Medicare's old sick folks?

I guess to avoid The Revolution, we should place everybody on food stamps and pay everybody's utility bills, give everybody a pre-paid BarackObama Phone, and of course tons of money. Maybe free internet so we all can order pizza delivery without using up our BarackObama phone minutes. Free internet is part of my pursuit of happiness.
What else can we throw in to the mix to pacify those who to No Fault of their own where raised believing that Government is the solution and government IS the answer for everything. Everything from somebody hurting your feelings to the choices you made can be rectified by relishing all personal empowerment to our Great White Father in Washington.

I suppose Washington can help us eke out our miserable existence by outlawing gasoline taxes, highway taxes, tire taxes, cig taxes, booze taxes, and all taxes. Let that other dude up on the hill pay for my needs. I am worthless as a screen door on a submarine so you must provide for me or else. Or else means bad things.

What can the private sector do? Hmmm. I know how the private sector thinks. First, they demand results. They have cute little worthless sayings like:

"If marketing is the last thing on your mind, then stressing about profit will become the first thing on your mind.

You have to accept the fact that some people simply cannot afford you. If you price a Benz the same as a Civic, then you will have many offers but no profit.

Customers are reliable employment. Value to customers is what keeps customers coming back and customers are the real boss."

How lame is that?

I once had a real demanding A-Hole for a boss, a real meticulous control freak and sometimes gave away the store. Must have been Bi-Polar or something. Finally he went belly up again, but that was when I was self employed. Today I let other self employed folks worry about things like taxes and vehicle fleet insurance and security and compliance and the proper disposal of a empty bottle of Windex.

So, all you employers out there, pay us po folk more or we will burn down your buildings and riot until you give us what we want, when we want. Good luck cause our wants are never satisfied even when our needs are met. Fear us po folk, fear us more than angry black men. Peace out dudes. Love and Harmony to the World.

[stevenfrisch]

I do quite bait to address the wage gap thanks you very much.

My goal is not to foment revolution it is to avoid it.

[Bill Tozer]

The wage gap (or Income Inequality if you prefer)is a global fact of life and the gap is widening. From South Africa to Iceland, from Tahiti to Haiti to Outer Mongolia.

Maybe the socialists are right. Maybe only a World Government can address this world wide problem. The World is big, we are small. They are many, we a few. Alas, who will be the boss of me?

[Bill Tozer]

My, that was quick. The Revolution is upon us! They just toppled the Statue of Lenin and chanted "Revolution!" Time to nuke some popcorn and pull out the ole hot apple cider maker. Exciting time, bro, exciting times.

https://plus.google.com/photos/+socialreader/albums/5955139493822023969

[Ryan Mount]

The government in many regards is responsible for this widening gap. Let's review:

- Too Big Too Fail: Big Banks and the Financial Industry in general benefit heavily from a quasi government insurance policy. Trillions and trillions of free monetization. The nanny state if you're a crony.

- Cheap (like basically negative rates) access to massive amounts of Credit.

- State-based [gasp!] IT R&D, for example, largely once sponsored by DARPA/government, and we're riding on fumes now. Unless one considers an iPhone an innovation. The government drastically severed funding during the Vietnam war era. Now we fund weird shit with little regard to global economics. Solendra?

- Fake monetization with QED. Kept *our* economy soft, but relatively stable, but encouraged all kinds of money to flow to periphery markets. Now QED is going to be curtailed with bogus positive job numbers and too low Core inflation, these "emerging" markets are going to go all Jihad on us. Enter American military hegemon to shore that up for our multinational corps and investments.

- Can I deduct my jail time for my 1040? Apparently yes. JP Morgan was recently fined $13 Billion for *criminal* behavior. 1/2 of that is going to be deducted from their taxes. Loverly.

I would suggest that before we demonize the masses in this presumptive coming "war," I would heartily suggest that we look at them as the canary in the coal mine. They are the most vulnerable in our culture and the most susceptible to the whims of the government and its crony allies. They're the first to go. So we're (the privileged people who have time to comment on a blog site) next, but not at the hands of the irascible masses.

You're aiming at the wrong target.

[George Rebane]

RyanM 659am - Don't exactly know who the "you" is doing the "aiming", but your analysis seems on the mark. Also, QED ?= QE = quantitative easing.

[Bill Tozer]

Indeed Mr. Mount, those with little feel that biggest pinch. That last 20 goes 2-3 days after payday.

What puzzles me is that if we are a growth based economic system, then why are some so opposed to expansion. Jobs, wages, standard of living, our livelihoods all depend of growth. Or at least having things remain static as a minimum. This includes all emerging economies and countries as well as the American worker. Seems that all the emerging markets are always emerging but not quite making it beyond emerging (side note).

Perhaps we are beyond the tipping point as Dr. Rebane believes. When folks are living check to check there is no room for error, no reserve to pay for a blown tire or getting hit with a broken pipe during a cold snap. Or even a smog check. Canary in the coal mine is correct.

Yes, we all laugh when the official CPI has the inflation rate of 1%. I chuckled last week or so when our Government announced the unemployment rate has gone from 10% to 7%. Chuckle? Because whatever the unemployment rate really is, there are basically the same amount of workers working. No growth.

When QE parts 1-60 and QE the Sequel (Parts 1-70) finally ends because of rosy employment numbers, then interest rates will rise, affecting those living on the edge. At least low growth and demand has kept prices at the pump stable since last year.

So, if wages rose last month at .3% and unemployment is down and inflation is tame, what is all the fuss about? Or, maybe the bean counters don't go shopping lately.

When the folks start rioting in the streets with the usual and predictable footage of breaking windows and setting bonfires, someone will announce some new program and wash their hands of the matter. Just like the Stimulus. Economic crisis? Announce the Stimulus and wash their hands of the matter. Nothing to see here, moving on.

Bottom line is that when people are hungry or cold or broke, their philosophical and moral core convictions go out the window and they demand Uncle Sam fix it for them. This does not bode well for the Conservative movement which stands for debt reduction and living within one's means. Yes, I am a card carrying member of the Party of No. And that won't cut it in our cold harsh hostile world as people just cannot get enough or make it on their own. We are edging closer than I wish to admit to the tipping point.

[Ryan Mount]

I beg your pardon. I generally try an avoid the 2nd person as I find it boorish and incendiary.

I should have said "we." What I was saying that we need to be careful in our analysis here. And certainly more careful of our conclusions. Our sites need to be firmly focuses on the crony government and by extension, its cronies. The vulnerable are an easy target. And we're next.

The same big government, for example, that provides all of this social infrastructure is the same government that is enabling this cronyism and the military apparatus that keeps them save in the global economy.

[Bill Tozer]

Nobody is denying income inequality as a potential problem. Perhaps a serious challenge for us. Here is one man's opinion.

http://finance.yahoo.com/blogs/daily-ticker/the-myth-of-america-s-decline--152512864.html

[Bill Tozer]

We already spend 48% of our budget on Social Security, Medicare, and Medicaid. That will rise to over 50% of the Federal Expenditures as millions of folks who sign up for BarackObamacare at put on the Medicaid rolls which will bust the budget (again) and hit states the hardest...which in turn will leave fewer greenbacks for social safety nets at the local level.

Let's look at Income Equality as the sole source of our current woes.

http://www.nationalreview.com/article/365788/income-inequality-revisionism-james-pethokoukis

http://nypost.com/2013/12/07/the-medicaid-time-bomb/

And now, closer to home where the real issues are, aka, where the rubber meets the road and what American's are doing about this issue:

http://rantchic.com/2013/11/07/the-20-pictures-girls-need-to-stop-posting-in-social-media/?utm_medium=referral&utm_source=Outbrain&utm_term=Title1

[Fuzz]

GEORGE

(I wrote this before reading some of these last posts so it's more of the same but I'll post it anyway. Here goes:)

I haven't read all your past discussions of the economy and "inequality" but wanted to offer some thoughts and get your reaction. I'm a straight up guy. I look for the proper solutions to problems, regardless of political affinity. I'm not interested in political fights and name calling. I want what is "best" for the nation.

Here are some often cited stats:

By some measures, since 2009, 90% of all wealth gain has gone to the top 1%.

Productivity has surged, but income and wages have stagnated for most Americans. If the median household income had kept pace with the economy since 1970, it would now be nearly $92,000, not $50,000.

The top 400 own more wealth than the bottom 150 million combined.

The 6 Walmart heirs possess somewhere between 115 - 144 billion in assets, more than the bottom 40% of the entire nation.

The top 10% own 80% of all stock.

Regardless of economic theories, you have to deal with the existential realities of life. You'll hear it said that if businesses are taxed and regulated more, they won't just sit back and take it, they don't exist in a vacuum, they'll react to it. Well, poor people, stuck in jobs that pay sub-survival wages, will do the same. If you're a single mom, with 2 kids, working at Walmart, and barely surviving, maybe you don't have enough money to afford training to elevate skills. Like 52% of your fellow Walmart workers, you receive public assistance to get by. You're stuck, but you want a better life. You see Walmart as a highly profitable company that could pay more if it wanted to. This growing sentiment among the poor has now moved into the protest phase. Will it ultimately move into a violence phase?

Prudent business planning requires not only an understanding of Austrian economic theory but human psychology. Is it really "smart business planning" to let society drift into outright violence over low wages, growing poverty, and a poisonous level of "inequality"? I remember hearing an interview on the radio with a middle-aged, middle class guy in the midwest. Both he and his wife had just been laid off from their many-year jobs at a big company that was outsourcing. (It was in a "company town" without many alternative jobs.) They were running out of savings, their home value had dropped, and they were getting desparate. What struck me was that this was a regular guy, who sounded intelligent, and he said, "...before I let my family starve, I will steal your cow. I know how to dress a cow, and I will steal one of yours before my family starves." Now, the simple answer might be, "if he tries to steal MY cow he's a dead man." What happens if there are millions like him? We're not anywhere close to that scenario but the first rumblings of movement in that direction are now being heard.

In 1914, Henry Ford doubled the wages of his auto workers. He wanted them paid enough so they could afford to buy the cars they were making. The Wall Street Journal castigated him as a "traitor to his class". Within a couple years, Ford's profits doubled.

Isn't it really in the best intersts of business, without government diktat, to bend the virtuous economic curve in favor of higher wages, despite a short term hit to profits, because it will ultimately (perhaps quickly?) result in higher profits AND a healthier, more stable society?? Here's a very gross analogy: If the entire US workforce was employed in manufacturing, and you replaced all of them tomorrow with robots because it dramatically lowered expenses and boosted profits, what do you think would happen? ...... outright bloody anarchy. It would be the red, white, and blue version of the French Revolution. The guillotines would be drug out and the estates of business owners would be burned. Would it have been better to stay with manual labor? ...... well, if the alternative is to either starve or be executed, what do you think?

My question is: what is the proper consideration that business should make in its operations and theories to the existential realities of life? At what point is it proper to "break the rules" of economic theory to accommodate human psychology and behavior, if only to preserve a civil society?..... (if you've already answered this, just point me to that passage).

[Gregory]

"In 1914, Henry Ford doubled the wages of his auto workers. He wanted them paid enough so they could afford to buy the cars they were making."

No, Fuzz, he paid more to reduce the costs of employee turnover, which includes recruitment and training but also lost productivity, for if an assembly line stops, the productivity of all goes to zero.

By paying more compared to other employers in the area, he lowered labor costs while maximizing productivity, but I understand... it's a great myth for your point of view, isn't it?

[Account Deleted]

The post by Fuzz at 11:45 does a good job of laying out the left wing mind set. It's full of nonsense, but when you operate constantly on bad data, your conclusions will be faulty. First of all, the biggest reason the wealthiest people in this country have accelerated their increase in wealth share is due mostly to actions by the left wing govt that the poorest folk support. Everyone here (left and right) agrees that an uneducated and skill-less citizenry will end up resulting in a socialized govt that cannot deliver what they promise. And yes, it will lead to violence. And since we seem to be hell bent on re-distribution of wealth as the panacea for achieving 'social justice', violence is around the corner. The money possessed by the 'the rich' may seem to you to be a large amount, but it will not even begin to make the poor well off. The wealth possessed by the Walton family is not cash sitting in a vault.
Fuzz claims that he does not want to deal in theories. Fine. Tell us all how you plan to strip wealth from the rich and how you would hand it out. Tell us what Walmart should pay it's employees and how it will then increase it's profits.
As to Fuzz's last 2 questions, the first is easily answered by looking at Walmart. They are obviously popular with the poor and middle class as these folks gladly and voluntarily shop there. They obviously offer a fair compensation package to their employees as they have no trouble getting folks to line up for employment there. The only issue with Walmart is that they are not unionized and the unions, like the mob, want their cut.
As to the next question, ask the folks who thought they could 'break the rules' of the free market and see what the results were. The grand socialist experiment at Ben And Jerry's should be answer enough. The economic rules that free market conservatives live by aren't 'theories' they are facts of life that are as reliable and unbendable as the laws of physics. Any country that has bent or broken those rules has come to violence and grief.

[Fuzz]

Gregory and Scott., you're not getting the point. My post was not intended to express an idealogical mind set, as I indicated at the start. It was sort of a rhetorical question.... I was playing "the devil's advocate" if you will. My apologies if the Ford statement was incorrect.... it was something I had read without further investigation. My point is that, for whatever reason, if the forward evolution of our economy DOES lead to violence, is there ANYTHING that big business could have done to thwart this outcome? They hold the economic purse strings and wield tremendous power in Washington. Yes, we have Democrats in government. Yes, we have leftists. Yes, people for them them. It's a fact of life. There are legions of poorly educated, poor workers who's vote counts as much as yours. You'd probably like every "leftist" in the US to just disappear but it ain't going to happen. How do you deal with this reality?..... just let it go wherever it's going without any thought other than keep the guns loaded? Does the fact that a tremendous amount of tax dollars go out to public assistance bother you? People make the argument that this amounts to a wage subsidy to big business. Does that bother you? Remember, I talked about business bending the economic curve on their own.."without government diktat"! I'm not saying that the economic theories are wrong! ..... I'm asking how we deal with this situation!

[Fuzz]

Here's something that every CEO should read. Bill Gross is the CEO of PIMCO, the worlds largest bond fund.

http://www.pimco.com/EN/Insights/Pages/Scrooge-McDucks.aspx

[George Rebane]

Fuzz 336pm - please consider -
http://rebaneruminations.typepad.com/rebanes_ruminations/2009/05/republicans-need-a-new-strategy.html

There is no question that to keep the peace, unwarranted wealth transfers must occur. By unwarranted, I mean 'not earned' as civil society understands earning.

As other commenters above have correctly pointed out, the simplistic wealth transfer prescriptions of the Left totally ignore the realities of human nature, and fall into their perennial error of 'doing this won't affect anything else'. In fact their implementation will AGAIN pauper hundreds of millions and kill equal numbers.

We are past the tipping point, headed for social chaos, and no one knows how to bring this state of affairs down to a soft landing in these pre-Singularity years. My feeble effort is to recognize the problem and offer a starting point for discussing a solution.

The Singularity is discussed extensively in RR's Singularity Signposts pages and defined here -
http://rebaneruminations.typepad.com/rebanes_ruminations/2010/04/singularity-whats-that-wappendix.html

I believe that any discussion of major social problems (politically correct: 'issues') - education, literacy, numeracy, healthcare, employment, income, wealth distribution, crime, climate change, environment, aging, ... - without recognizing the likely impacts of accelerating technologies is a waste of time and intellect. We live in the last great century of Man.

[fish]

Yeah Fuzz....Bill Gross...another 1% er who after essentially telling the government to "get out their checkbook" to save PimpCo in 2008 now wants to, after oozing away with his billions, buy the peace with the middle classes tax dollars! Bill Gross concerned with labors plight?? Time for him to bust out his checkbook!

[Account Deleted]

Fuzz - good reply - but, no, I'm not missing the point. I have had and have many solutions.
"just let it go wherever it's going without any thought other than keep the guns loaded? Does the fact that a tremendous amount of tax dollars go out to public assistance bother you? People make the argument that this amounts to a wage subsidy to big business. Does that bother you?"
First off - armed citizens are the bulwark of democracy. That does come first and foremost. Is that enough? NO! But you need that first. Otherwise you get what we have already seen ad nauseum in history. Just got through reading 'The Envoy' 'nuf said. I said that it seems that we want to go with socialism and wealth redistribution. That's not what I want, but I'm a realist and I can't shoot dead everyone that thinks otherwise. We are actually already heavily into wealth transfer. The working middle class handing wealth over to the govt and the super rich by order of the left wing govt. That's because the middle class has most all of the wealth. The 'rich' just don't have as much as the left thinks. Walmart doesn't get 'subsidized' by the govt. The govt has decided to buy votes by handing out money to folks that make a certain income. That is something totally beyond Walmart's control. I used to make minimum wage - $1.65/hour - and received nothing from the govt. Yet somehow I lived in an apartment in Davis, went to school, drove my own vehicle, went to Oregon to visit friends and have a vacation..... do you get the point? And yes, I paid taxes. What happened in the meantime? Did Walmart force the govt to 'subsidize' it's workers? Show me some evidence. My attitude was that I needed to work hard and provide for myself. But that attitude is pretty much gone now. Now the American poor live better than most of the rest of the world even though they don't even have to work. The Fed 'creates' trillions out of thin air even though O-Blame-O says everything is peachy. We are heading for trouble and the general populace doesn't want to listen to my solutions. My solutions involve rolling up sleeves and working. Works every time it's tried, but my country wants to sit on it's collective butt and scream 'feed me'.

[Bill Tozer]

Mr. Fish, I happen to like Bill Gross. I have read everything he says about everything when I find it on the web. I like Bill Gross because he is honest, candid, and is the first to admit he made a mistake. And he has an unconventional sense of humor and way of saying things when writing of financial and world economic forecasts, including his boo-boos.

Yes, it is at times hard to listen to some gazillionaire tell us anything. They have theirs and there is not enough hours left in their lives to spend it all. Gates, Buffet and now Gross are sharing their perspectives and insights as they focus less on their respective companies they built to more larger issues.

I happen to agree with Gross on growth and education. I have seen it in my own company. Billion dollar share buy back here, cutting a few hundred middle management types there, a few nickle and dime cuts to go along with bigger cuts and higher prices and requirements more more productivity in less time, more efficiency, etc. Of course my employment does a ton of investments in expansion, capital expenditures, infrastructure, "intrastructure" and R&D.

Leaving aside the issue of individuals who are in the top 1%, I have noticed this trend of extreme pressure from investors (Wall Street) to get that price of the share up, up, and away since the Great Recession. So many companies feel it too as investor pressure is driving everything. Even to the point of curtaining expenses and slash and burn just to keep Wall Street happy.

These issues of growth and investment in organic growth may lower the true unemployment rate. I can't do nothing about the dismal failing public education system in the United States of America nor can I do much. But just reading Gross's thoughts, I see where I can be saving more and squirreling away some nuts. That way when the goberment sends its squirrels up my pants legs, the furry little critters won't starve to death.

[Account Deleted]

OK - all you good lefties - where do we go now?

http://www.bloomberg.com/news/2013-02-07/fed-s-evans-says-qe-could-stop-before-drop-to-7-jobless.html - And I could find a lot of other examples.

O Blame O boot lickers can start the excuses.

http://www.bls.gov/news.release/empsit.nr0.htm

Go ahead statists. Please tell me about how wise and wonderful is the central govt.

Hate to say it - but our economy is toast. Something about being creative with free market forces. The gun slingers in the stock market will make a killing and the hard working middle class will get screwed again. Thanks left wingers.

[Bill Tozer]

Golly, Mr. Obermuller, I am not quite sure where you stand on this issue. Perhaps you can make you sentiments more clear. Here is one of my favorite Brits articulating my sentiments:

http://video.foxbusiness.com/v/2914800653001/stuart-varney-this-command-economy-is-un-american/?intcmp=obnetwork

[Gregory]

I'd love to hear what Fuzz thinks about local public employee pensions paying more than the salary of the POTUS currently in office and relate that to the need for higher taxes.

No, I've not missed any point you made, Fuzz, and I think it appropriate for Gross to feel a tad guilty for the huge amounts of money that the Feds have poured in his direction; I just think you so often have your head where the sun does not shine brightly.

I also remain further to the left than I am to the right... sorry to burst your bubble.

[Bill Tozer]

Wages and the Liberal Mind? Here we go around the Mulberry Bush, ashes, ashes, we all fall down.

Favorite quote from today's news:

Medicare typically pays doctors $76 for return-office visits, but in California doctors only receive $24. A tonsillectomy, meanwhile, pays out between $500 and $700, whereas doctors in California receive $160 for the procedure.

“We need some recognition that we’re doing a service to the community,” Thorp said. “But we can’t do it for free. And we can’t do it at a loss. No other business would do that.”

http://rt.com/usa/california-doctors-boycott-obamacare-959/

Can't do it for a loss? Heck, Thorp, yes you can. Yes We Can! Them doctors are selfish greedy money grubbing 1%ers with huge tax write offs. Tax the crap out of them. Only government can do something they consider for the common good without ever considering the costs. Take them doctors to the Tree of Woe and put honey and ants on their eyeballs and sew their eyelids open, I tell ya. Greedy little things make me ill.

[Account Deleted]

We would all love to hear what Fuzz and other leftists would actually do, but gee whiz, they don't follow party lines. They're not theorists. They have actual solutions that they will reveal soon or sometime after that. They know the exact salary Walmart should pay and how they will make all wrongs right. They love to ask hard hitting questions but seem rather shy about demonstrating their own personal brilliance. We can wait. Another eggnog, lovee!

[Ben Emery]

You guys live in a dream world if you think Obama or the Democratic Party represents the long term interests of everyday people, 99.5% of the population.

[fish]

You guys live in a dream world if you think Obama or the Democratic Party represents the long term interests of everyday people, 99.5% of the population.

They are all you've given us.

[Todd Juvinall]

BenE, in our country, now study up, we have elections. The democrat party controlled the House and the Senate (except a cuple of years under Reagan) for most of my life. That says the "free will" of the majority was democrat party lovable. So, the policies we are all living with, the high taxes (causing women to work to pay their families share), the regulations (that transform in dollars) and the lose of other freedoms, are a wholly owned democrat party party.

[Bill Tozer]

Mr. Fish and Mr. Juvinall: We must respect Brother's Ben's wishes that we do not confuse Democrats with Libholes nor Progressives. Brother Ben is correct that the Crats and Libholes do not represent the long term interests of "everyday people." He is becoming a bit touchy concerning issues of semantics lately.

I think I will let Brother Ben stifle my freedom of expression and cower before his request. Yes, words have meanings and can hurt people's feelings.

I do have to wonder who represents the long term interests of everyday people. That includes Saturday night people and Sunday people and even Monday morning people. Hmmm. Who represents the long term interests of 99.5% of the population?

Maybe the Green Weenie Party, the Naturalist (Nude) Party, the Peace and Freedom Party, The Commie Pinko Party, The Raghead Party...I know! The Military of The United States of America.

Brother Ben, I will consider your request to not label libholes as Crats nor Progessives as part of Vast Left Wing Conspiracy spewing forth vomit from the DNC. NOT!

This in not an Offensive Free Zone. But thank you for trying to restrict what I say and how I say it. Completely on topic.

[Account Deleted]

"You guys live in a dream world if you think Obama or the Democratic Party represents the long term interests of everyday people, 99.5% of the population."
Who is 'you guys'? Not any conservatives that post here do.
You have mice in your pocket?
Oblame-O wants single payer govt run health care and income redistribution. So do all the libs that post here. What's the difference?
I do note that most all of the lefties that post here are adamantly against Oblame-o's foreign policy and his acceleration of police state snooping policies.
As far as his policies on the economy and social issues, the difference between the Dems and the Greens or Socialists is nothing more than how fast we move towards the same end result.