Wednesday, August 29, 2007

Who's going to eat whose lunch?

The poverty line in this country is set at three times the cost of an "emergency" diet (wherein you may not purchase a can of beans, only dried beans). I move that the federal government move immediately to a poverty standard of six times an emergency diet which is much more in keeping with 2007 basic needs (eg., $40,000/yr for a family of four).

Market failure implies that markets are for some (as far as I can see) unexplained reason expected to produce "fair" outcomes. The "free market" should be seen as analogous to the operating system of a computer -- as the OS of the economy -- upon which may be imposed any fair or unfair checks and balances program.

The first such "program" imposed by industrialization in nineteenth century England was the race to the bottom. Individual weavers who made a decent living were replaced by 100 (?) times more productive steam loom operators who were reduced to, not just-enough-to-stay-alive income, but the lowest form of just-enough-to-stay-alive income: staying alive on oat cakes three times a day because they could not even afford wheat bread.

The idea that the biggest ongoing drama in human history -- who's going to eat whose lunch -- is going to be automatically fairly resolved by an unfettered free market is what psychiatrists might characterize as "magical thinking".

25% of Americans live below a realistic poverty line (double the official line -- see the 2002 book, Raise the Floor). I am willing to admit 25% below without assistance (food stamps, etc.).

This ties in neatly -- until the recent slight increase in the minimum wage -- with 25% of labor earning below the modern European minimum wage level (generally $9.50/hr). Of course in Europe that is accompanied by full medical, 4 weeks paid vacation, etc., etc., etc.

Which fits in with a New story in the "Globalist" : "The OECD recently updated its definition of 'the middle class' " -- now focusing on "the average worker" rather than on "the average production worker" -- the recalculation:

"A British middle class family with two children and two incomes of 100% and 67% of average wages still earns 40% more (in PPP terms, net of taxes) than their U.S. counterparts ($65,000 compared to $45,500). In fact, U.S. families in this category rank only 15th in the OECD."

Which also ties in with -- until the slight increase -- 25% earning less than the 1968 US federal minimum wage.

We have a near 1939 minimum wage ($4.50/hr -- no taxes) -- we have a prohibition (drugs). We have created a new organized crime base -- this time it black and Hispanic rather than Irish, Italian and Jewish.

I read Wilson's 1997 book, When Work Disappears at the same time I read Venkatesh's 2002, American Project. Wilson's study wrapped up (if I remember correctly) while the fed minimum wage was still about $7/hr. At this point the projects which had once been a place of hope (when factory work had yet to disappear and the minimum wage was closer to $10) had become crime ridden but not yet the gang controlled Hell that accompanied the minimum wage drop to $5/hr. Better to make "all of" $10/hr selling drugs.

If work paid in America like it pays in labor controlled Europe (I'm no big lefty, BTW) poverty in America would not exist any more than it does in Europe. (Minority schools would work too if the parents worked; a.k.a., were paid enough to work -- forget worrying about the teacher's union).

A $500/wk minimum wage would add less than 4% to cost of GDP output (going from the $5.15/hr level!) -- about how much we grow per capita every two or three years -- up from $380/wk in 1968; following 100% increase in average income since. All we ever had to end poverty in America, it turns out, was to pay people what we could afford to pay them.

Friday, August 10, 2007



Alan Greenspan's midbrain (a.k.a., seat of murky human emotions):
if you don't empathize with labor sufficiently you it is easy to miss how vulnerable the labor market is to distortion -- and to turn out lopsided economic theory -- no matter how smart everybody thinks you are.

One kid has enough money to buy ten packs of Cool Aid; the other is willing to put in the hours at the stand (they both get their daily needs at home). These two kids have to get together on the price of a drink. Very possibly one will want to put in fewer overall hours for more overall dollars by setting a price for his labor that reduces the number of hours the stand can stay open profitably.

But if these two are not kids; if they must provide for the daily demands of biology (and sociology), then, the one who lives paycheck to paycheck may not have the option to freely pull his labor off the market like a house seller who withdraws until prices rise enough to suit her. If the Cool Aid provider is under less such pressure (capital typically is or it would not possess capital) or can simply switch his offer to any number of other unorganized labor providers, the capital provider may be in a (market warping) position to offer what little it takes to barely keep labor alive while the limit for his profits is the sky.

Economists who insist that the oldest drama of mankind (who is going to eat who's lunch) can be resolved by unfettered markets are guilty of "magical thinking". They show themselves only smart enough to perceive market warping when occasioned by as giant an octopus as Standard Oil of as colorful a character as John D. Rockefeller -- but not equally perceptive at detecting market distorting on the everyday (e.g., fast-food) scale -- deep down because they may just not care.

Thus does the unsympathetic ideology of their mid-brains warp the forebrains of Alan and the Chicago Boyz and Republican politicians into producing pathetic economic theory. (Our same literally pea-sized limbic system has a million lawyers rising for the judge without making the connection that they don't have to salute the flag.)
Our progressive friends tend to miss a couple of vital pieces of the puzzle too. Their problem I suppose being a lack of practical upper-middle class contact with folks at the bottom half of income.

Thus does their "only so many percents of inequality caused by lack of unions" not square with New York City cops in a super strong union making only the same pay today that their predecessors made thirty years ago -- even as average income in America jumped two-thirds. Nor do their charts explain why cab driving in Chicago (my job for over twenty years beginning in 1980) now pays less than half as much per hour -- even as average income jumped by half in America.

All the while in Dublin, Ireland you cannot get a cab to take you home on Saturday night because the common ethic over there is so weighted to labor's advantage that they wont make seemingly common sense adjustments for fear it might take any bite out of labor's living.

Can those academic calculations extrapolate how much pain would have been avoided in this country if the minimum wage had managed not to drop back from 1968's $9.50/hr -- or if it had kept on climbing to $12.50/hr (I am not necessarily saying $12.50/hr with European vacations, etc -- workaholic Americans would likely work somewhere else on vacation; at least at the minimum wage level).

It seems more about the attitudes (which are mostly based on the accuracy of common knowledge) than anything in our friendly economists calculations.
The "25's ways" to hike American labor expectations:

25% of Americans now earn less than the (cash) minimum wage of Europe (throw in paid vacation, holidays, maternity leave, sick leave, severance AND full medical coverage and that might make 35%);
25% of Americans -- not surprisingly considering the first "25" -- now live below a realistically calculated poverty line (not the ridiculous federal line which is set at three times the cost of an emergency diet -- which doesn't allow canned beans, only dried -- before taxes).

$250,000 is the level of the better paying medical specialties (family doctor pay -- $150,000 -- actually shrunk 10% from 1995 to 2003 even while AVERAGE income rose 12%);
$250,000 is now the AVERAGE income of the top-fifth of families -- IF WE SPREAD THE WEALTH GOING TO THE TOP 1% across the top 20% --according to US Census figures (Census numbers must be adjusted for top-coding income over one million dollars out of the family survey or "only" $176,000 average income shows for top-fifth families).

New story in -- just in the "Globalist" :
"The OECD recently updated its definition of 'the middle class'. It now focuses on 'the average worker' rather than 'the average production worker'."
New recalculation:
"A British middle class family with two children and two incomes of 100% and 67% of average wages still earns 40% more (in PPP terms, net of taxes) than their U.S. counterparts ($65,000 compared to $45,500). In fact, U.S. families in this category rank only 15th in the OECD."

When is America's media -- or John Edwards -- going to tell the people the true story about the squeeze on American labor (unique in the first world). To paraphrase Tony Montana's drug boss: if America's business and labor would just work together the right way the only problem for labor would be "what to do with all the f...... money."