Thursday, September 13, 2007

Magical Free-Market Thinking

The free market is only the "OS" (operating system) of the economy. Believing the free market inherently possesses the necessary checks and balances needed to bring to an end the age old drama of who's going to eat whose lunch -- as people of whatever politics on this side of the Atlantic tend accept on faith -- amounts to magical thinking.

Adam Smith's preindustrial free market consisted largely of skilled artisans and small entrepreneurs, tending much more towards fair play on the part the "hidden hand". The advent of less skilled (if 100 times more productive) workers who depended solely on management for capital changed the default program to the-race-to-the-bottom.

In the better paid world beyond our seas, a non-controversial answer has evolved to the race-to-the-bottom: sector-wide labor agreements or some equivalent (like the French/Quebecan rule that non-union firms must work under conditions contracted by union firms). According to Richard B. Freeman in his new book America Works, such bargaining setups typically reduce management's resistance to unionization in the knowledge that competitors will have to pay out whatever raises they have to pay out, neutralizing competitive disadvantage.
It could be surprisingly easy to raise Americans to race-to-the-bottom consciousness with two economic markers that all can the first time they hear them. First, get across a more realistic estimate of Americans in poverty today: 25%? -- based on the more realistic poverty standard of six times the price of an emergency food diet, instead of only three times (the reader should know what I am talking about).

The next simple stat that should amaze all -- if the media ever reported same -- is that the federal minimum wage paid $9.50/hr in 1968 ($1.60/hr, adjusted CPI-U)! Emphasize the point by asking how 1968 Americans might have explained such a catastrophe had someone somehow been able to predict such a "crazy future" to them -- that the federal minimum wage would retreat to 1939 level ($.30/hr, adjusted to $4.50/hr w/no tax) by the time average income doubled. Would 1968 folks have guessed a small nuclear war, multiple depressions, a mini-ice age, plagues?

None of the above are necessary. The race-to-the-bottom will do it accomplish the same thing just as surely.

The perfect fit to 25% of Americans in poverty is 25% of the American workforce -- until early this year -- earning less than that 1968 minimum wage. (This also ties in with 25% of Americans earning less than modern Europe's minimum wage ($9.50/hr at exchange rates -- not counting paid holidays and health. New*).

Would that the progressive media always (!) included the doubling of overall income with the news of the minimum wage dropping almost in half over two generations -- so folks would completely catch on.

Many entitlement programs are triggered at double the official poverty line these days. Everybody in the know knows. Why go on reporting poverty at half the actual rate? Isn't that like reporting half the war (on poverty) casualties? Do progressives want to go out of their way not to get their story across?
I am so afraid that Hillary will get elected (instead of Edwards or Obama) for the same reason I was afraid of Al Gore. I can just see her putting an inflation adjustment on the (by then below Ike era: $7.50/hr) minimum wage, signing the union card signing law and then trying to rock (by then half-awake) American labor back to sleep to make all quiet on her applause meter. I'd almost rather see a Republican get elected to carry on in the fine labor promoting tradition of G.W. Bush: acting as American labor's Pearl Harbor: now that we know the simple answer to labor's woes (sector-wide agreements) and how to sell it (at least I know :-]).


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