Tag Archives: trade

Surprise! Henry Ford was Right. You’ve Got to Pay People!

Op-Ed Columnist – Revenge of the Glut – NYTimes.com.

In the article link above, Paul Krugman puts the blame for our economic mess on a glut of savings that has outstripped business’ interest or ability to invest it in productive things.

Far be it from me to refine Paul Krugman, but I will try anyway.

We’ve seen this glut of savings bouncing around the world and failing to be productively invested for over a decade.  This glut is what created the Internet bubble.  When that bubble collapsed, it created the housing bubble.  When that bubble collapsed it created the commodities bubble.  When that bubble collapsed it created the Treasuries bubble.  The Treasuries bubble hasn’t collapsed yet, but it will.  Warren Buffet knows it, and now the rest of us do too.

Because business has been unable to justify investing this savings in production capacity it has bounced from asset class to asset class looking for a productive, profitable place to land.  Interestingly, I guess because of the global communications efficiency we have now, it is moving largely as a single mass.  When it felt like Internet stocks were the place to be, way too much of this excess savings went into them, thus creating the bubble.  When that bubble popped, this money moved, en masse, into housing stock and real estate.  When this bubble burst, way too much of it went into commodities futures.

Meanwhile, free trade has increased the global supply of labor drastically.  In the world of Henry Ford, new labor markets would create new consumption markets because Henry Ford knew that, whatever the availability of labor was, if he didn’t pay his workers enough to buy the products they made, nobody would be able to afford them and he would never achieve scale.  In our free trade environment, investors have taken full advantage of the labor glut to lower labor costs.  In fact, they have gotten so low that only a small portion of the new labor market actually has the ability to consume what it produces.

Businesses can’t invest in capacity to meet the needs of the millions of laborers with pent up needs and wants but with no money, and has already produced too much capacity to meet even the most exotic of needs of the relative few people who do have money.  The only way to create new markets now that justify building productive capacity that will actually put the excess savings to work is to increase the wages of the global labor force to the point that it can actually consume what it produces.

In a laissez-faire, free-trade, purely competitive environment it is impossible for businesses to do this on their own.  Any company that attempts to “do the right thing” will end up at a price disadvantage, lose market share, and eventually go out of business.  The only way to do this is to force a floor on labor price, either via minimum wages or strengthened unions, so that all businesses are forced to “do the right thing” without giving any of them a competitive advantage.

Traditionally, we would see such a move as being inflationary.  It would be if we were working with a closed system that was not going to increase the supply of goods.  But we aren’t, and that is just the point!  If the wage increases go to people who can create NEW demand that justifies new supply, the demand will justify new investment that will sop up the savings glut.  In the end we will not only achieve greater financial stability and solve the chaos this bubble of unspent money is creating, but we will increase the quality of life for hundreds of millions of people around the globe… which I think everyone has to agree is a good thing!

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Filed under economy, Politics

Oy, my liberal friends… oy.

Being more liberal than most, I think I can get away with complaining about my fellow liberals for just a minute or two.

Change.org has been running a competition to generate 10 ideas to present to the Obama administration this Friday at the National Press Club.  Over 7,000 ideas were submitted by anybody who wanted to submit them.

Through November and December over 250,000 votes were cast on the site and the top three ideas in each of 30 categories made it to “the final round”.  Since January 5, voting has been open among just these finalists.

Here’s my complaint.

  • The top idea (and the fourth top idea) so far, by a pretty wide margin, is legalizing pot.
  • The third most popular idea, I assume because there’s an organized lobby with e-mail lists and whatnot far beyond what you would ever think, is a proposal to make it easier for small, crafty toy makers like you see in art fairs to avoid new toy safety regulations that are coming out.  WTF?
  • The fifth most popular idea is to “make the grid green within 10 years.”  Nothing about how to do this.   That’s it.  Just “make the grid green within 10 years.”
  • The sixth most popular idea, apparently bubbling up from the fans of ideas one and four, is to “Appoint Secretary of Peace in Department of Peace and Non-Violence”.  You can’t make this stuff up.
  • Health care reform, a noble idea indeed, is sitting in two slots: number 2 and number 9.

I mean, I agree that pot should be legalized, the drug war ended, those convicted of crimes that never should have been crimes should be pardoned and they or their estates should be given reparations.  I don’t think it is the single most important thing that should be on our national agenda.

The idea of making the grid green is obviously a good one, on everybody’s mind, but that’s all it says about it!  That’s not an idea.  There’s not a single suggestion of anything we might do to get there.  Had I known people would vote in such numbers for something like that I would have entered one to “Give each American a check for $20,000” and I bet I would have beaten even the pot guy!

Anyway, it’s been a fun exercise and a lot of great ideas have indeed surfaced.  It’s a bit of a shame that half the ones presented at the National Press Club will be duplicates, limited to a tiny special interest group, pies in the sky, and/or will confirm the media’s impression of liberals as latte sipping, granola eating, pot smoking former hippies.

And not to leave off a pitch, you should click over there and vote for adjusting our trade policies so they don’t create unfair economic advantages for countries that don’t care at all about the environment, worker safety, living wages, etc.  You can vote for up to 10 ideas so, while you’re at it… find 9 other good ones to support.

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Filed under economy, Politics