Monday, January 9, 2012

NYT: Forcing up labor costs creates more wealth

It always is interesting to see how the "elite" media also seems to produce the most number of economic fallacies, and a trip to the New York Times, and especially its editorial page, never disappoints. In this editorial, we find that laws that force up the price of labor create wealth.

I would suggest you try this at home. If you get two bids for work and you are assured that the quality of work would be the same, take the higher bid because the higher costs will create more wealth. Yeah, you will be using more resources, economically speaking, to do what could have been done with fewer resources, but who are we to argue with the brilliant minds at the NYT?

8 comments:

Major_Freedom said...

"One study concluded that the decline in unionization since the 1970s is responsible for one-fifth to one-third of the growth in inequality in this country."

They say this like it's a bad thing. How is it bad that there has been a decline in the amount of this type of coercion-induced direct redistribution schemes?

Inequality of wealth is not inherently an evil. It's inequality in rights treatment and unequal enforcement of laws that are inherently an evil.

Even with the "union busting" that has made a dent in unions' ability to soak their employers using government threats of force, American wage earners are still WAY too expensive in relation to their skills, education and experience, compared to the rest of the world. And that is still taking into account the capital invested per American worker.

When you have millions of unemployed Americans ABLE to withhold selling their labor, because they refuse to sell at a lower price and the government either rewards people to do so (by giving them taxpayer money), and legally prevents those who are willing to do so, do so (by imposing minimum price floors on wages), then should it be so surprising that there is still double digit unemployment (not using government's fudged numbers)?

The idiots at the NYT just want to sell papers to victims of government who want to blame someone, and for most short sighted people, that means blaming only those they directly deal with, typically those in the market, meaning employers.

These victims find a writer in the NYT to be "on their side", and that's what brings in the money. Funny isn't it? The writer complains about employer greed, and yet his whole worthless writing career at the NYT is dependent on his own employer's greed, and what some (not me) would call depriving those same victims of even more of their money, by being hoodwinked into buying NYT "news"papers.

Anonymous said...

"They say this like it's a bad thing. How is it bad that there has been a decline in the amount of this type of coercion-induced direct redistribution schemes?"

I would be careful with this one... income inequality is not just about the cost of labor, but rather the total amount of what Dr. Anderson is discussing as "resources" that are spent (meaning for both labor AND management). If you are spending an increasing amount on management, and a decreasing amount on labor, regardless of where its line on the budget is, are you not still committing the same amount of "resources"?

If an increasing expenditure of company resources to employee compensation does not 'create' wealth, then it would hold true for management/executive compensation as well as at the labor level (unless there's a differentiation of the relative value of each employee's contribution).

So, given the rising wages at the top, and the stagnant wages at the bottom, it would stand that the company is still paying a rising amount of 'resources' for relatively the same amount of 'production'-- and I think that is a big contributor to the argument...

Major_Freedom said...

1/2

Anonymous:

"I would be careful with this one... income inequality is not just about the cost of labor, but rather the total amount of what Dr. Anderson is discussing as "resources" that are spent (meaning for both labor AND management). If you are spending an increasing amount on management, and a decreasing amount on labor, regardless of where its line on the budget is, are you not still committing the same amount of "resources"?"

Well, I think you're right, income inequality is not just about, or even necessarily about, the cost of labor. After all, wage rates can grow and income inequality can grow at the same time, if those at the higher end of the wage scale experience an increase in wages larger than the increase in the wages at the lower end of the wage scale, ceteris paribus, or if the incomes of capitalists grows by more than the increase in the wages of those in the working class.

I was actually only taking for granted the article's presumption that inequality has risen on the basis of less union activity in the country, and then I addressed that.

Your point about "resources" here is I think misplaced though, because the argument is about inequality within a given supply of resources, and not about the given supply of resources itself. Yes, the same resources would be utilized regardless, but the complaint is that those resources are "allocated" differently in such a way that we see a higher inequality among individuals rather than lower inequality, the latter of which is presumably "better".

"If an increasing expenditure of company resources to employee compensation does not 'create' wealth, then it would hold true for management/executive compensation as well as at the labor level (unless there's a differentiation of the relative value of each employee's contribution)."

That "unless" is, in the free market, settled by way of market forces, where consumers reward those who are better at managing resources, and punish those who are worse at managing resources. Over time, resources come into the ownership of those best fit to own them, and accordingly their incomes rise by more than those who are not fit to own them, whereby we can say that there is a difference in economic productivity between Mr. X the manager owning resource R, and Mr. Y the worker owning resource R.

So I don't think it's correct to say that "management compensation increasing also does not 'create' wealth" necessarily follows from "increasing company expenditure on employee compensation does not 'create' wealth". That would imply a pronouncement that it doesn't matter who makes more or less, because it's all a wash because we're holding resources a given by stipulation. I don't think anything interesting follows from holding resources constant as an assumption, and then finding out after some twists and turns that wealth isn't being 'created'.

Major_Freedom said...

2/2

Anonymous:


"So, given the rising wages at the top, and the stagnant wages at the bottom, it would stand that the company is still paying a rising amount of 'resources' for relatively the same amount of 'production'-- and I think that is a big contributor to the argument..."

Well, when you hold production constant, then you can't end up with a conclusion of anything other than no change in production, unless of course you violated your own assumption.

I think the take away from Anderson's post here is that it is a myth to believe that government "help", meaning SWAT teams, in coercing employers to increase nominal wages and compensation beyond what they would agree to unhampered, can create wealth.

The myth the NYT is peddling is founded on the fallacious doctrine that when companies are coerced into paying more wages, then it's all to the good, because workers will then have more money to spend, and when they have more money to spend, that allegedly boosts "national income" and aggregate demand, and when aggregate demand is boosted, that allegedly boosts employment and output.

Typically, the mere stating of it is usually enough for people to see the absurdity of it, and so the neoKeynesians and New Keynesians and PostNeoShammaLammaDingDongDammitWhyDoWeKeepGettingRefutedWe'reRunningOutOfAdjectives Keynesians, have come up with a new absurdity to replace the last, which is that somehow, magically, workers earning more money is "more stimulative", because their marginal propensity to consume rather than "hoard" is allegedly higher, and because of that, more "spending" takes place, and because more "spending" takes place, doesn't matter on what when they talk about aggregate demand, and they'll leave it at that if you don't press them, but if you press them, they'll say it has to be "spending" on roads and bridges, roads and bridges, roads and bridges, roads and bridges, roads and bridges, roads and bridges, roads and bridges, roads and bridges, roads and bridges, and that is supposed to generate employment, output, and the fountain of youth, because now the argument is that with more physical "INFRASTRUCTURE" in place, that is what is actually responsible for boosting output and that is what they meant all along by saying "it's all about aggregate demand."

Then when you again correct their absurdity that they are ignoring opportunity costs and scarcity, and economic calculation, that's when they retreat to silly ethical pronouncements over "children" they themselves don't help by their own volition, but you are expected to feel guilty in not going along with their fascist wealth transfer scheme, and any excuse will do. If it's not the children, it's the elderly. If not the elderly, then those unemployed. Anything to pretend that to be against their fascism is somehow our moral failure.

Kevin said...

Another analogy:

You have two contractors, but the more expensive contractor has lobbied for a law that the other contractor cannot undercut the former's prices. So between the two, you pick the contractor for whom you get the better product (the one who was originally more costly because he had a better product). In this case, the lower quality (or less experienced) contractor is stripped of his competitive edge. In the labor market, this scenario ends up impacting the inexperienced (like high school kids) and those set back by subcultures that don't value thrift, diligence, and responsibility (in no small part because they are highly subsidized by "compassionate" government handouts).

Chad said...

I think the liberal thought pattern is so one dimensional it's staggering. As Sowell would put it, they don't think past step 1. The myriad of consequences caused by their short-sighted policies are ignored because it helps them feel morally superior.

I almost think they'd claim wealth creation solely on the fact that higher wages produce more tax revenues.

Major_Freedom said...

"I almost think they'd claim wealth creation solely on the fact that higher wages produce more tax revenues."

Don't look now...but I hear the marginal propensity to consume monster approaching.

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