Bob Kuttner on the danger of austerity

[Puppycow]

Austerity Does Not Produce Prosperity (http://www.huffingtonpost.com/robert-kuttner/get-a-grip-austerity-does_b_586611.html)

Austerity has suddenly become the universally prescribed cure for the fallout from the financial collapse. If widely adopted, it will prove worse than the disease.
. . .
The budget deficit here and overseas does need to return to a more moderate level -- after we get an economic recovery. But the problem with the austerity treatment during a recession is that if everyone tightens their belts at once, there is nobody to buy the products; the economy shrinks and repayment of debt is even more arduous. As John Maynard Keynes famously wrote, "The patient does not need rest. He needs exercise."
. . .
The current global economic crisis, now entering a new phase as a crisis of sovereign debt, has only one rough precedent. The last time major nations (such as Germany, its European creditors, and much of Latin America) faced insolvency, the combination of financial collapse and deflation helped create depression, dictatorship, and then World War II.

In the US, we finally ended the Great Depression with massive wartime borrowing and public outlay. We ended the war with a debt-to-GDP ratio of more than 120 percent, more than double today's ratio. In Britain, debt-to-GDP peaked at about 250 percent.

But all of the war spending recapitalized industry, re-employed and trained jobless workers; and after the war pent up consumer demand powered a record boom and rising revenues paid down the debt.
. . .
In this context, it is insane to think that we can recover from a financial panic and an economic recession by inducing a worse recession in the name of fiscal soundness. For now, while the real economy heals, there is no substitute for aggressive central bank intervention to restore markets in sovereign debt. The right grand bargain is tough financial reform and limits on Wall Street--so that this crisis is never repeated. The wrong grand bargain is austerity for everyone else.

Is Kuttner right? I understand that austerity will cause a recession, but if there's a serious misallocation of resources caused by too much government-sponsored make-work, a recession may be the only cure to free up those resources so that they can be reallocated to more productive sectors of the economy. In the long run the market can do this but it takes time and is painful. Is austerity a necessary evil or an unnecessary evil?

[drkitten]

Is Kuttner right? I understand that austerity will cause a recession, but if there's a serious misallocation of resources caused by too much government-sponsored make-work, a recession may be the only cure to free up those resources so that they can be reallocated to more productive sectors of the economy.

Well, yes, and no. The point of the stimulus is to keep the wheels of commerce turning (at all), which is to say, to keep money in circulation. From that point of view, there's no such thing as "misallocation of resources"; you're simply spending money on something that someone else thinks is unnecessary. I might think that a Lincoln dealership is something unproductive because everyone can get by with a bicycle or a Honda. Obviously the market disagrees, or Lincolns wouldn't sell.

The problem with the recent recession is that resources were NOT being reallocated to "more productive sectors of the economy." In fact, the free market was not allocating them at all, but was instead sitting on them because they wanted cash on hand instead of productive investments. When banks do that (as they did), the end result is a credit crunch -- banks have lots of money (resources) but are unwilling to lend them out (productively), production skids to a halt, unemployment goes through the roof, production of all sorts drops, and.... well, you've seen the results.

So with this recent example in mind, why should you believe that the government is that much worse at allocating resources than the market? Why should you believe that there is or will be such a serious miscalculation?

Is austerity a necessary evil or an unnecessary evil?

At the moment, an unnecessary one. It will become a necessary one when the economies are growing enough that they can support their own growth without government aid, at which point Keynesian economics suggests government spending should be lowered (and tax revenues allowed to grow) to pay off the debt incurred during the recession.

But of course at that point it won't be as "evil" either, because people won't be hurt nearly as badly by a spending cut.

[CatOfGrey]

At its root level, we have a conflict between what we receive and what we produce. Greece and Spain are in crisis because of too many 'free' benefits, along with fewer people to pay. For example, retirement pensions for 55 and 60 year olds. After a certain length of time, your productive population is so overburdened that they can't produce anymore.

Delaying retirement ages (an austerity measure) is a good thing. People who retire at 65 instead of 55 produce 10 more years of work in their lives. This makes them (and their countries) more wealthy. It also gives them more money to help others, or build something good. In general, increases in gov't benefits decrease productivity, and, through that, a decrease in overall wealth. The decrease in growth isn't because of austerity, it is paying for the 'artificial growth' due to those undeserved benefits all those years.

[CatOfGrey]

To respond directly to the article...WWII didn't exactly cause growth. Growth in the US was stymied for 5-6 years after WWII, and Europe didn't bounce back quickly.

Breaking a window on every house on the block isn't 'growth'. It takes money that would have been invested, or spent on cars, clothes, and education, and forces it to be spent at the glazier's. Destruction doesn't create jobs, it merely takes people away from their own pursuits and businesses to repair damage.

[drkitten]

Delaying retirement ages (an austerity measure) is a good thing.

Is it? I think you might be surprised. The current unemployment rate in Greece is 10%, and in Spain is 20%. There are only so many jobs to go around, and delaying retirement age means that a) young people can't get a job and spend their days on the dole while b) older workers continue to do the same job, typically at a much higher salary than the younger workers who would replace them.

In an era of full (or nearly-full) employment, it makes economic sense for people to work as long as possible. But that doesn't seem to be the situation right now. That's one reason that companies (who are interested in maximizing their bottom lines) often offer early retirement packages as a way of cutting costs while still maintaing productivity.

In general, increases in gov't benefits decrease productivity, and, through that, a decrease in overall wealth.

You'd be hard-pressed to defend that statement even "in general," but in the here-and-now, that statement is wrong beyond repair; government benefits are in many cases the only thing that have been overall wealth from collapsing as trade systems break down.

Just as a quick example, Cash for Clunkers accounted for something like two-thirds of the GDP growth during its tenure.

[CatOfGrey]

"There are only so many jobs to go around"

This is incorrect. There are as many jobs as there are demand for jobs. If you are 35 years old, and spending part of your money on someone else's pension (as in Greece), then this artificially lowers the amount you have to spend on other things (in other words, your standard of living is lower).

If retirement age is raised, then the burden on people is lower. More money to spend means that companies produce more stuff to spend it on. Standards of living and demand for jobs rise. Notice that the more people in a country work, the higher the standard of living. How does this not make sense? Think of the extremes - how would a country where 10% of people produce compare to a country where 95% of the people produce?

Companies offer early retirement programs because of another perceived economic right - the right to earn a higher salary because of seniority. This is a 'free' benefit that costs others. Someone who earns more and more than they produce become a burden on others. Early retirement allows a company to decrease salary to better match actual production, and delaying payment to employees that are less productive (remember that increased pension obligations are future, not current ones).

"government benefits are in many cases the only thing that have been overall wealth from collapsing as trade systems break down. "

I'll meet you part of the way here, on the concept of 'priming the pump', where gov't funds get economies started. In my opinion, this is used to justify way more than it should.

You're going to need to do better than "Cash for Clunkers" to convince me here. For starters, no one has yet paid the bill for C4C. At some point, we will either pay for through our own budget cuts, increased taxes, or we will 'grow out of the debt' through inflation. The underlying assumption that you can 'get something for nothing' is not correct. Borrowing $75,000 for a $75,000 Mercedes doesn't increase your personal net worth, either.

You are also neglecting that to a buyer making choices, C4C affected a choice. The extra $$ they spent on a car were $$ not spent on an addition to their house, or a dishwasher, or extra trips to Starbucks. These industries have probably suffered as a result of C4C.

[drkitten]

"There are only so many jobs to go around"

This is incorrect. There are as many jobs as there are demand for jobs.

This is simply wrong. Otherwise, there would be no unemployment; you could just pick a job off the tree where it grew.


If you are 35 years old, and spending part of your money on someone else's pension (as in Greece), then this artificially lowers the amount you have to spend on other things (in other words, your standard of living is lower).

True but irrelevant. We're not discussing standard of living, but unemployment rates. I may be able to maximize my standard of living by selling you into chattel slavery, but for some reason society prevents that.


If retirement age is raised, then the burden on people is lower.

The burden on employed people is lower. The burden on unemployed people is much higher. To a first approximation, it balances -- the money you're not spending on pensions for the retired will be spent on unemployment benefits for the people who want a job but can't find one. And there's not measurably "more money" going around.


Companies offer early retirement programs because of another perceived economic right - the right to earn a higher salary because of seniority.

Again, true but irrelevant.

This is a 'free' benefit that costs others.

Actually, it's a function of the of the free market. The longer I have worked for you, the more valuable I am (if only because of my specific mastery of your specific operations, and also of what I could tell your competitors). If you don't want to give me annual raises, then feel free not to -- and I'll free free to leave and work for one of your competitors.

There's no law or government policy in most areas that says you MUST give seniority based raises; in most cases, the seniority-based raises have been negotiated freely as part of a collective labor agreement, and if the employer thought there was anything wrong with them, the only thing they needed to do was not to sign. ("No, we won't sign your collective bargaining agreement." "All right, then, we'll strike." "Go ahead; we'll hire scabs.")

But at the same time, a company that refuses to offer annual raises to its employees will find recruitment and retention extremely difficult, precisely because its employees are free at any time to seek better jobs. We just had that problem at my university; upper administration, citing the economic crisis and the loss of endowment funds, sought to hold the line on faculty salaries, with a 0% raise. I pointed out to the dean that I was free to leave and take my research program (and funding) with me, and he found 10% in some slush fund somewhere.


"government benefits are in many cases the only thing that have been overall wealth from collapsing as trade systems break down. "

I'll meet you part of the way here, on the concept of 'priming the pump', where gov't funds get economies started. In my opinion, this is used to justify way more than it should.

You're going to need to do better than "Cash for Clunkers" to convince me here. For starters, no one has yet paid the bill for C4C. At some point, we will either pay for through our own budget cuts, increased taxes, or we will 'grow out of the debt' through inflation.

Why is it that deficit hawks never expect GDP to increase? The only way to grow out of the debt is by decreasing the value of the dollar? The idea that the economy itself might increase seems to entirely escape them, despite the fact that that's generally what the economy does -- it's very rare that a quarter does not generate positive real growth.

Borrowing $75,000 for a $75,000 Mercedes doesn't increase your personal net worth, either.

Unless it's a collectors item that I expect to appreciate.


You are also neglecting that to a buyer making choices, C4C affected a choice. The extra $$ they spent on a car were $$ not spent on an addition to their house, or a dishwasher, or extra trips to Starbucks. These industries have probably suffered as a result of C4C.

But demonstrably have not suffered as much as the auto-related industry benefited, which is why the economy actually grew during the period of C4C.

If Starbucks drops 2% while GM goes up 30%, that's a net win.

[MikeMangum]

There are only so many jobs to go around

I'm glad you had this phrase early in your post so that I knew immediately that I could stop reading.

[Puppycow]

At the moment, an unnecessary one. It will become a necessary one when the economies are growing enough that they can support their own growth without government aid, at which point Keynesian economics suggests government spending should be lowered (and tax revenues allowed to grow) to pay off the debt incurred during the recession.

But of course at that point it won't be as "evil" either, because people won't be hurt nearly as badly by a spending cut.

I agree with you if we're talking about the US.
When I made the post I was thinking more about European countries, which cannot use seigniorage to pay for part of their debts.
In such cases, while it may be desirable to use Keynesian economics, Bond markets might not be willing to finance it unless there are credible austerity measures. This is why they might be a necessary evil in such cases.

[Tippit]

Austerity Does Not Produce Prosperity (http://www.huffingtonpost.com/robert-kuttner/get-a-grip-austerity-does_b_586611.html)



Is Kuttner right? I understand that austerity will cause a recession, but if there's a serious misallocation of resources caused by too much government-sponsored make-work, a recession may be the only cure to free up those resources so that they can be reallocated to more productive sectors of the economy. In the long run the market can do this but it takes time and is painful. Is austerity a necessary evil or an unnecessary evil?

That depends on the legitimacy of the debt. Austerity in this case simply means that funds that would otherwise go to roads and schools will just go towards debt service. If much of the debt is owed to Wall Street banks, and was foisted on the nation by corrupt politicians, then austerity is a very bad idea. It's better to simply default. According to http://www.usdebtclock.org/ as of this post the debt per US taxpayer is $118,131. Nowhere did I consent to any of this debt, nor do I consent to servicing it. My exposure to US Treasuries is limited, so as far as I'm concerned, the creditors can get screwed. Austerity for the Greek or Spanish people would be a disaster. They're better off suffering the loss of credit than making huge cutbacks in their public budgets to service what amounts to mostly illegitimate debt. To the extent that some of the debt is owned by honest citizens, they will get hurt, but austerity would represent an even bigger disaster.

[CatOfGrey]

This is simply wrong. Otherwise, there would be no unemployment; you could just pick a job off the tree where it grew.

I think we are talking past each other here. It is a circle, perhaps a vicious one, but in a growing economy, improvements in products, manufacturing, and the way we do things makes us more productive - a computer makes a typist capable of much more than with just a typewriter, so they become a 'word processing specialist' worthy of a bigger paycheck. So more jobs are created when that bigger paycheck gets spent on a new toaster.


True but irrelevant. We're not discussing standard of living, but unemployment rates. I may be able to maximize my standard of living by selling you into chattel slavery, but for some reason society prevents that.

I'm actually referring to the whole of a society here. The bigger the ratio of producer to non-producer, the better off your society is. If you have nine people carrying one, it's easy. If you have six people carrying four, it's difficult.

And more directly, unemployment is a big impact on standard of living.


The burden on employed people is lower. The burden on unemployed people is much higher. To a first approximation, it balances -- the money you're not spending on pensions for the retired will be spent on unemployment benefits for the people who want a job but can't find one. And there's not measurably "more money" going around.

Yes, there is actually more money going around. When you raise the retirement age, more people as a percent of the population are still 'making widgets'. This means more actual production which means more consumption. This increased consumption means less unemployment.

Actually, it's a function of the of the free market. The longer I have worked for you, the more valuable I am (if only because of my specific mastery of your specific operations, and also of what I could tell your competitors). If you don't want to give me annual raises, then feel free not to -- and I'll free free to leave and work for one of your competitors.


You are correct here...most people are somewhat more valuable as they grow in experience.

There's no law or government policy in most areas that says you MUST give seniority based raises; in most cases, the seniority-based raises have been negotiated freely as part of a collective labor agreement, and if the employer thought there was anything wrong with them, the only thing they needed to do was not to sign. ("No, we won't sign your collective bargaining agreement." "All right, then, we'll strike." "Go ahead; we'll hire scabs.")

You and I have completely different perceptions of the world here. To be clear, I'm not implying that unions are wrong: they aren't, and are crucial way for generally uninformed workers to get properly taken cared for. But unions enjoy significant political influence, especially in the government, where government workers unions actively support candidates that will rubber stamp their request regardless of actual value or worth.

We just had that problem at my university; upper administration, citing the economic crisis and the loss of endowment funds, sought to hold the line on faculty salaries, with a 0% raise. I pointed out to the dean that I was free to leave and take my research program (and funding) with me, and he found 10% in some slush fund somewhere.

As one who works with a gaggle of professors, I completely understand. But think of the process here. This is a zero-inflation environment right now. The money for the university is lower. In my opinion, no professor has a 'right' to a certain salary, especially when the money is not there. However, you are more productive than average. You deserve what you got. But, if you were an employee of the [union shop] Cal-State Uni. system, your request would have been against union rules.


Why is it that deficit hawks never expect GDP to increase?

Of course GDP increases - but not because of government spending. Cash for Clunkers is a government program that took money from somewhere (in the form of taxes), spent it by overpaying to buy used cars, to encourage people to take money that they would have used somewhere else to purchase a new car. This didn't generate anything real, it was just a large-scale shell game.

If Starbucks drops 2% while GM goes up 30%, that's a net win.

You are intentionally missing this point. It's not just Starbucks. It's every other company in the USA. Stealing a dime from everyone's bank account and giving it to one person is not a net win.

[Toke]

Of course GDP increases - but not because of government spending. Cash for Clunkers is a government program that took money from somewhere (in the form of taxes), spent it by overpaying to buy used cars, to encourage people to take money that they would have used somewhere else to purchase a new car. This didn't generate anything real, it was just a large-scale shell game.It got money in circulation, pretty much what GDP measures.

[GlennB]

... a computer makes a typist capable of much more than with just a typewriter, so they become a 'word processing specialist' worthy of a bigger paycheck. So more jobs are created when that bigger paycheck gets spent on a new toaster.
...

Except that the computer allows one typist to produce 100 letters that once required 100 typists to turn out in the same time.

Think of all the jobs that aren't created when 99 typists' salaries go missing from the economy. Think of the toasters that aren't being bought!

Just sayin' ;)

[Malerin]

Yes, there is actually more money going around. When you raise the retirement age, more people as a percent of the population are still 'making widgets'. This means more actual production which means more consumption. This increased consumption means less unemployment.




You might be interested in this article:

The workplace is an obvious starting point. Almost all government pension plans, and most private ones, still operate on obsolete assumptions that people stop working in their mid-60s and die soon after. For the 21st century, all G-20 countries need policies aligned with the transformation that aging populations represent - on retirement planning, financial literacy and workplace "healthy aging." Our new middle age can become an engine of productivity, not a cohort of dependence.

http://www.washingtontimes.com/news/2010/may/21/debt-and-the-demographics-of-aging/

[Puppycow]

Time to Buy Dollars as Euro Economies Reach Limits of Austerity (http://www.bloomberg.com/news/2010-08-02/time-to-buy-dollars-again-as-euro-economies-hit-limits-of-fiscal-austerity.html)

FX Concepts LLC, the hedge fund that bought the euro in June just as it began a 9.7 percent surge against the dollar, now says it’s almost time to get out of the currency.

The firm, which manages $8 billion in assets, expects the euro’s advance from a four-year low on June 7 to come undone by September, partly because European austerity programs will start to weigh on growth. Reports last week that showed Spanish consumer confidence falling to the lowest level this year and banks tightening credit standards in the region suggest the budget measures may already be undermining the recovery.

The same fiscal measures that helped restore confidence in the euro may soon weaken the region’s economies and torpedo the rally. A July 30 survey of 21 money managers overseeing $1.29 trillion by Jersey City, New Jersey-based research firm Ried Thunberg ICAP Inc. found 75 percent don’t expect Europe’s common currency to strengthen over the next three months.

“Austerity is really bad for growth,” said Jonathan Clark, vice chairman at New York-based FX Concepts, the world’s biggest currency hedge fund. “In the U.S., austerity is mainly on the state level, but in Europe they are whole-hog into cutting spending to reduce deficits. Under a pessimistic scenario, the European currencies are in a lot of trouble.”

I understand the part about austerity hurting growth, but I don't necessarily think that would hurt the Euro. After all, slow growth hasn't hurt the yen, it's stronger than ever.

[drkitten]

I understand the part about austerity hurting growth, but I don't necessarily think that would hurt the Euro. After all, slow growth hasn't hurt the yen, it's stronger than ever.

Well, why would you buy into an economy that you don't expect to grow?

[Puppycow]

Well, why would you buy into an economy that you don't expect to grow?

Because there are other factors and a lot of people don't think about it that way. Gold's not going to grow either but that hasn't kept people from flocking to it.

Economics is so hard to predict because too many people do not behave in a logical, predictable way.

[Zep]

Except that the computer allows one typist to produce 100 letters that once required 100 typists to turn out in the same time.

Think of all the jobs that aren't created when 99 typists' salaries go missing from the economy. Think of the toasters that aren't being bought!

Just sayin' ;)Wrong way to look at it, and many bean-counter types do just that. Think instead of 100 typists with a computer each - you can then turn out 10,000 letters (assuming that is the product of that business). The technology investment (i.e. purchase and support = added economic throughput) allows the same workforce to be 100 times as productive, which in turn fuels more throughput itself.

[Ziggurat]

This is simply wrong. Otherwise, there would be no unemployment; you could just pick a job off the tree where it grew.

There is unemployment because people are not willing to work (or are forbidden by law from working) at wages employers would be willing to pay them. That doesn't mean the jobs aren't there, if people would take the pay or government would let them. The number of jobs is not a fixed quantity. It is unlimited. It's only the number of jobs which meet specific criteria which is limited.

The burden on employed people is lower. The burden on unemployed people is much higher. To a first approximation, it balances

First approximation isn't good enough. It doesn't balance.

-- the money you're not spending on pensions for the retired will be spent on unemployment benefits for the people who want a job but can't find one. And there's not measurably "more money" going around.

There's more wealth going around, because it's the more productive workers who are working. Which is why first approximation isn't good enough.

[The Central Scrutinizer]

Nowhere did I consent to any of this debt, nor do I consent to servicing it.

Nowhere did I consent to paying for police and fire protection in my town. Does that mean I can stop paying my property taxes?

[drkitten]

Wrong way to look at it, and many bean-counter types do just that. Think instead of 100 typists with a computer each - you can then turn out 10,000 letters (assuming that is the product of that business). The technology investment (i.e. purchase and support = added economic throughput) allows the same workforce to be 100 times as productive, which in turn fuels more throughput itself.

Er, no. This is the classic "better mousetrap" fallacy, beloved of technologists everywhere and decried by everyone with actual business experience.

Your production isn't determined by the number of letters you can write. It's determined by the number of letters you can sell; putting computers into the hands of your typists won't magically conjure up a hundred times as many clients for your letter-writing firm. You still only need/want to write as many letters as you will be paid for. Unless you can find a way to get new clients, you'll actually discover that your costs have gone up, not down (the technology isn't free, you know), and that your revenue remains the same. You'll have to let most of the typing staff go, because there's no work for them to do.

And this also points out why unemployment is actually a problem. If there's no work for them to do at your firm, your firm has no reason to employ them at any positive wage. Even if they worked for free, they still cost money in office space, supplies, phone services, et cetera.

What you can do is use some of the money that you freed up by firing most of the typists and hire some more sales and marketing staff. Increase your market share. But everyone else in the industry will be doing the same thing as well, because they can read a balance sheet as well as you can. Your market share can go down just as easily as it can go up. But even if it goes up, it's unlikely to go up enough to hire all the typists who are suddenly out of a job industry-wide.

It's even worse if you're not in the letter-writing business. If the typists are really just staff members (as they usually are), then you can't even increase the workload via market share. If, for example, you are running a taxicab company, making your secretary twice as productive won't put more cabs on the streets. It just means that she costs more for the same amount of typing (because technology still isn't free) which she accomplishes in 1/100 of the time. The usual solution is to cut her hours and use the money to buy a new cab (if the market will support it).... but again, the typists are out of work.

Sure, you can build a better mousetrap. But unless you can sell the better mousetrap as well, it does you little good and often harm.

[drkitten]

There is unemployment because people are not willing to work (or are forbidden by law from working) at wages employers would be willing to pay them. That doesn't mean the jobs aren't there,

Yes, it does.

If I'm not willing to pay you, the job isn't there. If I'm not willing to pay the overhead it would cost me to allow you to work for free, the job isn't there.

If my company can produce and sell 10,000 widgets a month, I am not willing to pay you anything to increase my production to 12,000/month. That will just end up costing me more money as the unsold widgets pile up in the shipping warehouse.


There's more wealth going around, because it's the more productive workers who are working.

No, there isn't. Because older workers aren't necessarily more productive. They cost much more.

... which is why older workers are typically among the first let go, absent a union contract to the contrary. It's the reason that "age discrimination" is even an issue in the first place. Companies love to cut older workers, precisely because they're typically less productive in terms of resource cost. And raising the retirement age therefore keeps less productive workers around longer instead of replacing them with more productive workers, and therefore means less wealth going around.

[pgwenthold]

... which is why older workers are typically among the first let go, absent a union contract to the contrary. It's the reason that "age discrimination" is even an issue in the first place. Companies love to cut older workers, precisely because they're typically less productive in terms of resource cost. And raising the retirement age therefore keeps less productive workers around longer instead of replacing them with more productive workers, and therefore means less wealth going around.

When you are saying "resource cost," you are talking a marginal cost, right? It's not like they do less work, and heck, could even do more than someone with less experience, but through seniority raises, they end up costing a lot more for that work.

In that respect, aren't unions the cause and the protector at the same time? By insisting on seniority raises, instead of simple cost-of-living for the position or meritorious, they then also have to put in firing protections, to keep them from being expendable?

If salaries were kept at marginal rates, then age discrimination shouldn't be a problem.

[drkitten]

When you are saying "resource cost," you are talking a marginal cost, right? It's not like they do less work, and heck, could even do more than someone with less experience, but through seniority raises, they end up costing a lot more for that work.

Well, sometimes they actually do less work. For example, younger researchers may have better technology skills which means they can be more [absolutely] productive in a modern office environment. But the older workers still typically have more knowledge of your specific business process, which means that they can do more damage if they decide to jump ship for your competitors.

But, yes, to a first approximation the older workers do more work than their younger colleagues, but not enough to justify their higher salary on a piecework basis.



In that respect, aren't unions the cause and the protector at the same time?

No, they're not the cause -- you get the same effect in non-union shops. As a simple example, check out the military pay tables. You get more money as an E-4 with four years of service than just with one (http://www.dfas.mil/militarypay/militarypaytables/2010WebPayTable34.pdf) (by about 25%). And no one's going to suggest to me that the Army is unionized....

At this point, "seniority raises" are part of our cultural expectations. So while there's nothing in theory wrong with the idea that you shouldn't get raises just for showing up to work, in practice, that idea would require a radical change in work culture. And if you try to impose that as a single employer, you will most likely just create a bad work environment, lower morale, and end up losing people who don't want to work under the culture you are trying to create.


By insisting on seniority raises, instead of simple cost-of-living for the position or meritorious, they then also have to put in firing protections, to keep them from being expendable?

Again, if union policies were solely to blame, then why did the general public insist on anti-age discrimination laws?

[Puppycow]

If all the unemployed people were super intelligent and creative, they could create their own jobs, but I don't think that's very realistic for most people. Most people are not smart enough or creative enough to become successful inventors or novelists or artists.

So theoretically there may be an unlimited number of jobs, but only in an imaginary world where everyone is an Edison or a Picasso or the like.

[quixotecoyote]

If all the unemployed people were super intelligent and creative, they could create their own jobs, but I don't think that's very realistic for most people. Most people are not smart enough or creative enough to become successful inventors or novelists or artists.

So theoretically there may be an unlimited number of jobs, but only in an imaginary world where everyone is an Edison or a Picasso or the like.

Or that to get to the point you can create your own job you need starting capital or at least a day job to pay the bills.

Edison paid the bills working at western union.

Picasso was living in poverty until the Steins essentially became his patrons.

[The Central Scrutinizer]

Or that to get to the point you can create your own job you need starting capital or at least a day job to pay the bills.

Edison paid the bills working at western union.

Picasso was living in poverty until the Steins essentially became his patrons.

Not always. I created my job for nothing! Well, to be fair, it cost $58 dollars in capital. And I didn't have a day job either. :)

[quixotecoyote]

Not always. I created my job for nothing! Well, to be fair, it cost $58 dollars in capital. And I didn't have a day job either. :)

I have a plan that could work like that, but I'm not willing to risk putting the burden on my wife if it fails. I'm trying to get a job that will let me have the hours I need.

[NewtonTrino]

I create jobs for other people. Shouldn't I get some sort of discount on my taxes for creating economic activity?

[Malerin]

I create jobs for other people. Shouldn't I get some sort of discount on my taxes for creating economic activity?

I run a succesful day care service in my classroom, which allows for many families to have both parents working. Where's my discount?

[Puppycow]

I create jobs for other people. Shouldn't I get some sort of discount on my taxes for creating economic activity?

No, but you do deserve appreciation. Thanks! :)

[drkitten]

If all the unemployed people were super intelligent and creative, they could create their own jobs, but I don't think that's very realistic for most people. Most people are not smart enough or creative enough to become successful inventors or novelists or artists.

So theoretically there may be an unlimited number of jobs, but only in an imaginary world where everyone is an Edison or a Picasso or the like.

Not even then. The "everyone is a novelist" fantasy fails for the same reason that Ponzi schemes do. Not enough market. Put bluntly, you can create your own job, but the market has to create clients for you -- and without them, your "job" isn't worth squat.

There are about twenty million unemployed people in the USA today (-ish); imagine what would happen if all of them decided to "create their own job" and write a novel. Twenty million novels hitting the publishers at the same time. Twenty million novels hitting the Internet at the same time. How many of those novels would you read? That's two hundred million hours of reading; more than twenty-two thousand years. Google books doesn't have that many books on it; how much of Google books have you read?

Even when you're talking about "making your own job," you need to find a way to take time and money away from other people and other jobs. Most of us don't have copious reserves of time and money; if you want to sell me a new board game, I'll have to find time to play it, which means I'll spend less time (and money) on my PS3. If you want me to go to your concert, I won't be able to go to the basketball game that evening. If you want me to buy your new sculpture, I'll need to forego the end table for the living room, which will put a dent in the carpenter's business.

Sure, you can do anything you like and call it a "job," but unless there's someone who's actually willing to pay you to do it, it won't help you and it won't help the economy.

[lomiller]

I create jobs for other people. Shouldn't I get some sort of discount on my taxes for creating economic activity?

Everyone creates jobs and economic activity. If you happen to run your own business you also create products/services that people want. If you happen to make a profit and take money out for personal use you pay taxes to recompense and support the society that allowed you this opportunity to begin with.

[pgwenthold]

Again, if union policies were solely to blame, then why did the general public insist on anti-age discrimination laws?

Because of the culture of seniority raises, as opposed to cost-of-living or merit pay. I never said they were _solely_ to blame. Just that their policies of seniority raises necessitates anti-age discrimination protection as well.

[drkitten]

Because of the culture of seniority raises, as opposed to cost-of-living or merit pay. I never said they were _solely_ to blame. Just that their policies of seniority raises necessitates anti-age discrimination protection as well.

:notm

It's not "their policies of seniority raises." It's the culture's.

This is very easy to see -- the people who need the anti-age discrimination protection are the people who aren't protected by the unions, but who want/expect that same policy. The same union contracts that mandate seniority raises also typically mandate seniority-based layoffs (i.e. you can't lay off older workers first).

I know a lot of Republican talking heads would like to blame "the unions" for everything that takes a dime out of their pockets, from health care costs to college tuition to fixing potholes in the streets. But that's exactly how you can tell that they're Republican talking heads -- what they say has no basis in reality whatsoever.

... but the least you can do is restrict your own arguments to reality-based ones.

[drkitten]

Everyone creates jobs and economic activity.

Yeah, I've never understood that, myself. I have a lawnmower; you have a lawn that needs to be mowed. Someone else with neither a mower or a lawn comes in and resells my services at a 100% markup, and that person has "created" a job?

[lomiller]

Yeah, I've never understood that, myself. I have a lawnmower; you have a lawn that needs to be mowed. Someone else with neither a mower or a lawn comes in and resells my services at a 100% markup, and that person has "created" a job?

Arguably the middle man has actually destroyed a job. Presumably their business model works because it’s better for the person doing the cutting to specialize in cutting and get someone who specializes in sales to find customers. It now takes fewer people to provide this service to all the people who want their lawn cut, reducing the number of jobs.

[drkitten]

Arguably the middle man has actually destroyed a job. Presumably their business model works because it’s better for the person doing the cutting to specialize in cutting and get someone who specializes in sales to find customers. It now takes fewer people to provide this service to all the people who want their lawn cut, reducing the number of jobs.

Or the business model works because the amount the landowner is willing to pay for a nice lawn is higher than the amount I'm willing to accept to do the cutting; in which case, the middleman is essentially exacting a tax.... and thereby reducing the total number of laws cut, which in turn destroys jobs.

[NewtonTrino]

Everyone creates jobs and economic activity. If you happen to run your own business you also create products/services that people want. If you happen to make a profit and take money out for personal use you pay taxes to recompense and support the society that allowed you this opportunity to begin with.

So I get to pay more for the privilege of creating economic opportunity for others by creating these jobs. Yay! Anyway all it means is that both the portion I pay and the absolute amount of my contribution is higher than the average person. I'm just saying I should get some special benefits for this. Like maybe a quick line at the DMV or pre-access to reservations at national parks or something ;)

[lomiller]

So I get to pay more for the privilege of creating economic opportunity for others by creating these jobs.

You are not creating the jobs, the jobs exist because people are willing to pay for something. You just happen to be the beneficiary of that.

If they do not buy your product, they will probabaly buy a similar one from someone else or buy something else entirely, either of which will also create jobs.

[NewtonTrino]

You are not creating the jobs, the jobs exist because people are willing to pay for something. You just happen to be the beneficiary of that.

If they do not buy your product, they will probabaly buy a similar one from someone else or buy something else entirely, either of which will also create jobs.

On the face of it that doesn't make sense. You are saying that there is no room for innovation and market growth.

[lomiller]

You are saying that there is no room for innovation and market growth.

Where did I say there was no room for innovation or growth?

[NewtonTrino]

Where did I say there was no room for innovation or growth?

You are not creating the jobs, the jobs exist because people are willing to pay for something. You just happen to be the beneficiary of that.

Right there. I am not creating jobs, they just "exist". Sorry, but that's patently simply untrue. I can come up with new products, create new demand, increase the size of the market and through these mechanisms create jobs.

[lomiller]

I can come up with new products, create new demand, increase the size of the market .

And you think that if you don't do this people would spend that money on nothing at all?

[NewtonTrino]

And you think that if you don't do this people would spend that money on nothing at all?

Why not?

I just ordered $650 worth of wine and if it wasn't that particular wine from that particular winery I wouldn't have spent the money. It wouldn't necessarily get spent on anything else.

[lomiller]

I just ordered $650 worth of wine and if it wasn't that particular wine from that particular winery I wouldn't have spent the money.

You would have just buried the money in your back yard if you couldn't get that exact wine?

[drkitten]

Why not?

I just ordered $650 worth of wine and if it wasn't that particular wine from that particular winery I wouldn't have spent the money. It wouldn't necessarily get spent on anything else.

Then you would have "spent" it on a savings instrument of some sort.

Unless the alternative was lighting it on fire or putting it into a blender, you would have spent it on something.

[NewtonTrino]

Then you would have "spent" it on a savings instrument of some sort.

Unless the alternative was lighting it on fire or putting it into a blender, you would have spent it on something.

What does this have to do with the original point anyway?

Lol is claiming that you can't grow the economy or create new jobs. Everything is static somehow. Wrong. The money supply grows via the fed and new wealth is created through labor and literally digging things out of the ground. One can in fact create new jobs, new products and grow the economy.

[drkitten]

What does this have to do with the original point anyway?

It supports the idea that there are a lot of dumb ideas out there about economics.


Lol is claiming that you can't grow the economy or create new jobs.

Not quite. He's claiming that you can't grow the economy or create new jobs; that your personal specific claim that you've "created jobs" is false. People may in fact work for a company that you own, or even that you started -- but does that "create" jobs or just move them around? And does it destroy jobs in the process of moving them?

I must say that I find his take on this particular issue much more credible than yours, in part because you have so little idea of what "creating a job" actually means, or of how substitutions work in personal economy....

[lomiller]

Not quite. He's claiming that you can't grow the economy or create new jobs; that your personal specific claim that you've "created jobs" is false. People may in fact work for a company that you own, or even that you started -- but does that "create" jobs or just move them around? And does it destroy jobs in the process of moving them?

That’s pretty much it, other then the fact I’m trying to point out that you can’t really understand employment by looking at individual employers or jobs.

In this very limited context “destroying” jobs isn’t always a bad thing because it may be the flip side of productivity gains. If you can handle the social and economic disruption caused by needing fewer workers to produce more products/services the end result in more for everyone, but I don’t think you can see how to manage that examining the issue on this scale.

[MikeMangum]

And you think that if you don't do this people would spend that money on nothing at all?

Hint: money is not wealth; money is a medium of exchange which can be used to purchase wealth. The two are not the same thing.

ETA: to clarify, if someone comes up with a new process, management structure, distribution method, etc. that allows a company to create and sell a product at market for a lower cost while still making a profit, they have just created jobs and created wealth. Enough of those changes (which are usually small, incremental changes) added together and people are able to buy more goods and services with the same amount of money. So instead of just providing a job to the butcher, now that meat is cheaper the consumer can also afford to buy more shoes, causing an additional cobbler to be employed.

[lomiller]

Enough of those changes (which are usually small, incremental changes) added together and people are able to buy more goods and services with the same amount of money.

True but there won't be any more people employed in producing those goods, which is what's being discussed.

[MikeMangum]

True but there won't be any more people employed in producing those goods, which is what's being discussed.

This is where most people would post some cutesy facepalm picture.

Somehow productivity increased at the butcher, or the farm, or the transport system between the two so that now the meat costs less and a consumer is able to buy the same meat he could not previously and in addition that consumer can now purchase other goods that he did not previously purchase, or purchase them in greate quantities than than he could previously purchase.

Multiply that by millions of people. Now, simple question: where did those additional goods, that were not purchased previously, come from? The manufacturing fairy?

[lomiller]

This is where most people would post some cutesy facepalm picture.

Somehow productivity increased at the butcher,


Facepalm indeed…

We are discussing someone’s very specific claims about creating jobs that wouldn’t exist otherwise, we are not discussing productivity.

Please read the thread before posting random musings that have nothing to do with the topic being discussed.