Opinion

The Great Debate

Double-edged sword in pay cuts

June 5, 2009

Christopher Swann– Christopher Swann is a Reuters columnist. The views expressed are his own –

This recession is introducing many Americans to a novel experience — the pay cut.

Fifteen percent of employers surveyed by the Society of Human Resource Management reduced pay in the past six months — a threefold increase from earlier this year. Companies like Hewlett-Packard, Caterpillar and the New York Times have taken the pruning shears to wages.

Real pay cuts — when wages fail to keep pace with inflation — are commonplace in recessions, but you would have to look back to the 1930s for the last example of widespread cuts in nominal wages in the United States.

Since Keynes, many economists have treated nominal wage cuts as a virtual impossibility. In 1999, Yale economist Truman Bewley wrote the optimistically titled “Why Wages Don’t Fall During a Recession.”

Wage cuts cause huge resentment, damage moral and raise the risk of losing star employees. Bewley found American firms prefer to lay people off to “get the misery out the door”.

The notion that pay is rigid on the downside has been a cornerstone of much post-war economics. This assumption is now proving about as true for wages as it was for houses.

Pay cuts are threatening to make the leap from anecdote to generalization. The Employment Cost Index is already showing wages growing more sluggishly than at any time since 1983.

Downward pressure on salaries is intensifying. While job losses slowed in May, the unemployment rate jumped to 9.4 percent — the highest since July 1983.

Even this may not fully capture the current oversupply of labor. The U6 unemployment rate — which includes people working part time because they can’t find permanent positions — climbed to 16.4 percent.

With so many workers waiting in the wings, wages nationwide may start to fall over the next couple of years.

The United States would be following the path of Japan in the 1990s — the most recent example of absolute pay cuts in a modern economy. The impact on consumers could be worse than focused layoffs — spreading the pessimism over a broader base.

The Conference Board’s measure of consumers’ income expectations has dipped to the lowest level in its 21-year history.

Alpine levels of household debt — which has doubled to 134 percent of disposable income since 1985 — put consumers in a particularly vulnerable position. Lower wages make it harder to service loans and increase the incentive to defer spending.

As demand ebbs, companies cut headcounts and remuneration further. If companies use the money saved to grab market share by reducing prices the final piece of the deflationary jigsaw slots into place.

Pay cuts, far from averting layoffs, could increase them.

If the trend toward pay cuts increases, the economic consequences will be profound. The damage may be deeper than merely the erosion of spending power. Breaking the taboo on wage cuts greatly heightens the threat of a deflation mentality.

Comments
46 comments so far | RSS Comments RSS

There are two huge 8000-lb gorillas in the room that few writers seem to notice.

[1] One is the approximately $9 billion annual cost of services to illegal aliens. Let’s pay more for tomatoes and gardening services, and deep-six ALL services to those who are not legal citizens.

[2] The other is the cost of the outlandish retirement and health benefits that our beloved legislators have chosen to give to government employee unions — in return for huge annual “gifts” to fill their war chests. Let’s put retirement benefits, job security, and health programs for our civil servants on a level equivalent to that which the private sector endures.

The negotiations should BEGIN with these two huge annual cost categories. If the legislators won’t ante up on these budget-busters, it’s time for the courts to step in.

Posted by mike | Report as abusive
 

“real pay cuts” have been common for just about every American worker for the past two decades, whether there was a recession or no, whereas top-end earners are suddenly screaming bloody murder because they can no longer justify their bonuses at everyone elses expense.

One of the components of this crisis, and one that is continually ignored, is the creeping marginalization of the middle class as a buying force. In a consumer-driven economy, it is not a few extravagant spenders that are the driving force, it is a large number of moderate spenders.

Since the purchasing power of these moderate spenders has been dropping, and instead of tackling the problem with progressive social policies designed to increase quality of life and efficiency we have tried to shore up that purchasing power by offering these people easily attainable debt, it’s unsurprising that the system has dried up.

These problems have been here for a long time and we have repeatedly stuck our collective heads in the sand and refused to deal with them.

Posted by Andy | Report as abusive
 

I can only shake my head and sympathize with today’s middle class workers. My working career was in the 50s, 60s, 70s and 80s when pay and benefits were good for the American worker and included medical insurance, retirement plans, savings plans, etc. Pay cuts? Never.
In the 50s and 60s we built the infrastructure of this country including the Interstate highway system. We suburbanized the whole country and built the strongest military in the world. Meanwhile the economy kept growing and growing which implies more and more money being generated and circulated.
So what happened beginning roughly in 1980 when all the wealth began to pile up at the top and the middle class began to lose ground? Well, apparently it was tax cuts aimed at the top, outsourcing, robotics, free trade, technology and a globalized economy. Say goodbye to what was once the greatest country on earth with the highest standard of living for the average American. It’s all downhill from here on and nobody, but nobody will be able to stop it. Wealth = Power. Power rules worldwide.

Posted by Ray | Report as abusive
 

As an Airline employee this pay cut issue is very real. Our company has put us on a pay freeze since 9/11 and also made us take a percentage cut in 2004. I am making less now than I was in 1998. 10+ years of hard earned wages thrown out the window never to be returned. We have never been bailed out. We have never been assisted by Obama and his group. All we get is our company telling us to “do more with less”. Talk about bad attiutdes in the work place. 401K is dessimated no retirement pensions offered for help, nothing. The nations transportation industry is in great peril and nobody can see it…. Yea we are making less to give the public cheaper tickets, but at what cost.

 

As a lower mid-range wage earner, the 5% paycut I took in February followed the pay cut I took in December of 2008 and the pay cut I took in December 2007. In the meantime, my co-workers and I lament the huge amount of wasted money being spent by our company.

Morale is at it’s lowest point in as long as anyone in the company can remember. People are fleeing like rats from a sinking ship. Anyone with talent and a solid resume’ that COULD go… has gone.

What we are left with are the few talented and loyal workers who are trapped by circumstance/fear and the losers who just show up for the paycheck and never should have been hired in the first place.

Posted by Pandora | Report as abusive
 

A large percentage of American Labor has been experiencing wage reduction for 28 years. The increases in affluent class incomes have STATISTICALLY canceled them out, but they have happened. Now it is time for the rest of the country to get used to it too.

Posted by cordell | Report as abusive
 

1. The Cost of health care is very high in USA compare, govt. should allow the foreign doctor to practice(from India, China) in USA to reduce the cost of health care and reduce the burden of the same from Corporates as well as of taxpayers money.
2. Reduce the cost of medicines for people under health Care Benefits by using more & more generic drugs than proprietary drugs.
3. Reduce the imports of basic goods so that local people get more jobs.

Posted by raj | Report as abusive
 

I agree with mike’s comment, and would like to add that the 1/2 to 1 million (no one really knows) foreign H-1B and L-1 visa workers currently working in the U.S also lowers wages in some fields. Many H-1B computer programmers and systems analysts work for a rate of $25 an hour, which would not have been tolerated by U.S. tech workers before (with the exception perhaps of some kids just out of school). You can verify this by reading the article at the following link:

Computerworld – The use of H-1B workers by U.S. companies is decreasing wages for computer programmers, system analysts and software engineers by as much as 6%:

http://www.computerworld.com/action/arti cle.do?command=viewArticleBasic&taxonomy Name=government&articleId=9131729

Posted by Findleton | Report as abusive
 

It may be that employers are actually trying to be “nicer” to their employees than in the past. Laying someone off is more traumatic to an employee than a salary reduction. However it raises the possibility of a more inefficient workplace, a reduction in productivity as unneeded employees are allowed to stay on the job. What is sort of scary is that if one employer can get away with it, then other employers will follow. It could become a new standard.

Posted by Juan Way | Report as abusive
 

A columnist with a brain – that’s novel …

It’s kind of refreshing to read an article by someone who actually appear to appreciate facts instead of surging emotions and “politically” correct content geared towards enhancing your standing with the “grand old party”.

Posted by Emanon | Report as abusive
 

Why this is a surprise is beyond me. The decrease in wages in the U.S. is simply part of The Race to the Bottom. It will not end until some sort of parity is reached with the 3rd World countries with which we compete.

Reaching this parity in the name of “Competiveness” will require rolling back government spending on infrastructure like roads, etcetera, and of course, removing environmental regulations and any other obstructions to doing business on the cheap.

It’s all to be expected.

Perhaps Mr. Swann would be interested in writing a piece about it.

Good luck to one an all,
Rip

Posted by Riposte | Report as abusive
 

The only gorilla in the room that most writers exclusively ignore, is that capitalism is a failed system that can only bring poverty, repression at home, and war abroad.

The sooner we start dealing with that reality, the sooner all those who work for a living, excluding the parasites who own and control everything, the sooner most of us will see the light at the end of the tunnel…Then we will have a meaningful struggle over what needs to be done.

The author of this piece points to symptoms of the crisis, but not to solutions.

Posted by Larry | Report as abusive
 

When they cut your pay there other ways of making up for it….. office supplies, equipment ect. The corporate heads should maybe have 100.00 cut from their 500,000.00 salaries

Posted by Mr. Truth | Report as abusive
 

This is something I figured would happen given the job market presently. Luckily, the wage cuts will probably not last all that long as hiring will begin again. Also, having lived in a place that had extremely high unemployment for the short term (Pueblo, CO in the late 80′s; CF&I Steel just about went under) I watched the effect of having a lot of job applicants available.

Posted by Brian Bigelow | Report as abusive
 

I was referring to the article by Christopher Swann when I submitted the Amen.

Posted by Ken | Report as abusive
 

Article was wrong in stating, “the trend toward pay cuts increases, the economic consequences will be profound. The damage may be deeper than merely the erosion of spending power. Breaking the taboo on wage cuts greatly heightens the threat of a deflation mentality”.

One need only look at the banks and WS that get billions from us, and bonus’s that suddenly dropped off the media radar, as possibly “the check(s) in mail all arrived at Congress and R/D hqs… But have noted that now banks scrambling to “adjust executive compensations” to high salary to compensate for other bonus money, and WS is into same game.. some even go so far as to rush to pay off “loans” so that “We can then pay higher compensation to attract and keep the best, blah blah”. Note it was the same “best” that busted systems and in other industries got into frenzy to drive up stock prices as part of their bonus, as we now find at the expense of the commoners, their workers.
So when “pay cuts” discussed, be sure to exempt the
“invaluable C//’s.. and of course, the carious celebs, media messiah’s, experts and the tenured in hallowed halls of higher educations and Congress-et all elected and staffers (they never get non voted raises, only Cost of living (at our expense) raises.. One would not want to dirty their wage increases in same paper as adhering to the need for pay cuts for the commoners..
The new USA economy might be summed up as “let the other 95% eat cakes, smaller and smaller cakes(?)”!

Posted by Bill | Report as abusive
 

$9 billion services for illegal immigrants, an 8000 lb gorilla? Hardly.

Compared to GDP, the deficit and the Wall Street bailout, these numbers are not even 8 grams mosquitoes.

Legalize immigrant workers who invested years of sweat equity in this country and let them pay taxes. And clamp down on so-called conservatives who speak from both sides of their mouths and hide their money in off-shore accounts.

Posted by Adham R | Report as abusive
 

With pay cuts and a big unemployment problem, how about freezing all H1B visas and blocking any renewals? If “our” precious companies move operations overseas, they should not be permitted to move back, nor should they receive *ANY* services, protection or other access to services available to domestic organizations. The Marshall Plan is over. Also, we could make *ANY* immigration illegal until unemployment falls below a trigger level. Or do those of us already here who call ourselves Americans not deserve protection for the Government?

Posted by Texas Tom | Report as abusive
 

On the one hand the government takes tax dollars that are supposed to be used in the interests of the citizen and gives that money to the banks.

The banks in turn come calling the citizen tell them that their interest rates will be going up and that they have to come up with the money or loose credit. And by the way. Your house value is going down and your payment will go up and you will have no job from which to get the funds you need.

Government and business want us to invest in them. But as the root of the economy no one invests in the working American. Because the working American has to EARN their money.

We won’t get another round of stimulus because the banks can make more interest off of you if this can be dragged out further. The worker needs the bailout more than anyone else. Companies take on the risk of failure when they enter the market place. If the consumer had been bailed out there would be no need to keep bad companies alive.

 

Our elected representatives have chosen to neglect the interests of the individual citizen in favor of the business/banking sector’s interests. You are allowed to be evicted, go without health care, and be gauged at the pump, while your employers, their “top talent”, and your elected officials rest in relative comfort, knowing they will not suffer as you do.

The “audacity of hope”? Audacity indeed.

 

The great global agenda (the leveling) is off and running…..the elites have all of this figured out….reduce the worlds pay rate and or jobs and labor can be farmed out anywhere a CEO of a company wants world wide…….of course the North American/European/Japan will feel the most pain as their wages drop and the third world countries will reap the benefits of this by increasing their living standards for a time………..but America keeps the world in the game and has always done this as 70% of it’s GDP is predicated on the spending consumer….if jobs are lost or their wages cut……… spending on material things and keeping companies viable will surely have an effect on production rates and thus dropping wages even further……(defationary spiral)..this would have the desired effect that the globalist elites desired….. causing unrest and chaos…….the ruling of the masses would be aligned with the global agenda…….with a slogan of “one world…one government…one people”…..food for thought

Posted by Mr. Anderson | Report as abusive
 

In a Global economy, America, England, France, Germany, and a couple other countries are nothing but small, overpaid, populations. WTO, IMF, and China, all using slave labor, have leveraged the rest of the world against the ?U6?, and are putting the screws to us in an economic war.

Rome crumbled because of it inability to pay its Legions.
Someone is following that pattern because they know we(?U6?) can not be beaten Militarily, but economically is a different matter.

People who rule Large Countries are agressive and egomaniacs, they have to be, how else did they get to where they are in Power? China wants to be a Superpower, America and her Allies stand in the way, can’t beat them with the Army, but they are trying economically.

Posted by C. D. Walker | Report as abusive
 

Mr Anderson.

It’s unfortunate that you’re most likely correct. Rather than working as our representatives should, they will instead engage in making us just as poor as the rest of the world so that we can all have that “level playing field” we’ve been asking for.

The flip side of the picture you paint is that people could rise above it by recognizing their condition and simply deciding not to participate in the game any longer. But that would require people to be aware of the fact that they’re getting screwed.

Still, it’s interesting to think what would happen if everyone in the working class decided to just go and take some time off and not go to work for a few weeks.

It would be funny and profound to see the working class just give their employers the finger and take a month off.

 

BENNY!!!

Don’t you think we have enough people not working in this country?

I propose a simple shift in policy, economic, and foreign.
Instead of buying “Products” from China, we simply (and I mean NATO) start forcing “Business” to create manufacturing jobs in NATO countries. America and her NATO allies do not need to rely on Communists to make our “Products”.

It is really simple, like a group of Children playing. If a couple or Kids (nations) are bad apples, what is the responsible thing to do? Ignore those bad apples!

Hopefully ignoring them will force those bad “Kids” to reform, if not, well, it ain’t no skin off our backs.

(or money our of our wallets)

Posted by C. D. Walker | Report as abusive
 

I would submit that all of the commentators have made the case that we are in a depression. Real unemployment is probably near 20%. Lower wages will quash demand. The inevitable inflation to come from government debt will further depress demand chalking up more failed businesses and even higher unemployment.

Resources are finite. As they become scarce (which many are already)prices will be driven up over time. The notion that a functioning economy has to post growth may in the future prove to be an elusive goal. We cannot wait for a recovering economy to address climate change and the human suffering it brings.

The resources nations devote to war should be used to aggressively curtail hot house gas emissions all over the world now. Planning should begin immediately for the influx of refugees that rising sea levels around the world will displace in the coming decades. If we do not we will be fighting wars over water and land, not just fossil fuels.

Posted by Anubis | Report as abusive
 

The government wants you to blame industry. Industry says that if government would just keep out things would be fine. But neither one gives a damn about you or your family. The government took your tax money and gave it to the banks.

The banks keep your tax money and then expect you to pay them what you “owe” plus interest. You get this? You keep them alive, they financially rape you.

The government cries foul and pays lip service to your plight. All the while allowing industry to defraud you so they can collect their campaign contributions.

Only citizens speaking in unison can keep them honest.

 

“Anubis” brings up a point…”We cannot wait for a recovering economy”………..what are the people expecting a recovered economy to look like???……back to the way it was with people spending and spending into oblivion???? (massive debt)……….the Government is using the tax payer (the very person in debt) to bail us out with massive spending to try and get our economy back!!……that old economic model is flawed and started declining in the 60′s….America does not make anything the world needs any longer on a massive scale…a new economic model will ensue and many people will be kicking and screaming but will eventually adapt to it……….the service economy can only last as long as the good paying manufacturing etc. etc. jobs last …..you want fries with that?

Posted by Mr. Anderson | Report as abusive
 

Benny.

The reason the banks get American “tax money” is because Americans started defaulting on the money they owed to the banks.

Americans tried to borrow for a dream they couldn’t afford. Now the government has to deal with the effects, and stop it from happening again.

Posted by Anon | Report as abusive
 

Anon.

I do understand the point you’re making. And I do understand the importance of helping them out.

I take issue with the idea that the government could have fixed this problem by insulating the consumer but refused to do so. The reason the bad loans were made is because government tried to force banks to invest in the public by making home loans more available to the poor.

Investing in the public is the governments job. The banks decided to make the best of the government orders to make these loans and got addicted to the profit of high risk lending.

I advocated that that government should do away with its social programs and take the money that would have gone to those programs and divide it up and disburse it to the public as a financial safety net.

I have been told that this is socialism and that this is a bad thing. And yet the public thinks nothing of giving their money to failed and failing business and governments.

So how is it bad to give money to the public as a financial safety net, but still okay to give money to failing businesses and government institutions.

If both government and business both draw upon the consumer. Then why is investing in the citizen considered to be such a bad thing?

 

Benny. The global crisis was a combination of factors.

1. Subpar loans.
2. Seriously overdue recession.
3. Internationally linked economies.
4. Overheated sharemarket.
5. Banks with too much debt, and not enough liquidity.

Individually, they would have not been an issue. But because they all existed at the same time, we ended up with a serious problem.

But that’s economics for you. There is always a recession, so you deal with it. The market will eventually regrow. And the next time round, the banks will be a bit smarter with their liquidity-to-risk ratio.

The only thing I can guarantee is that in ten years, the next recession will be the same as this one. An easily explained group of causes, crossed with lousy timing.

Your idea is just about using the crisis as a reason to change the system into something else that you prefer. It has nothing to do with the matter at hand.

It is the same as a person saying ‘look, a rainstorm is coming. We need to buy a new car’. The person always wanted a new car. What he needed was an excuse.

The system is not flawed. It is working as designed, and as predicted.

Posted by Anon | Report as abusive
 

And the point I’m making Anon is that the cycles of boom and bust can be softened on the consumer if these ineffective social programs are done away with and a real financial safety net is instituted instead.

You are correct that the system is working as designed. And the design is flawed. The citizen (consumer base) is the very earth from which innovation and industry are grown. How can any economist expect industry to continue to grow if the consumer base is never invested in?

That’s like expecting farm land to continue to yield produce while you constantly exploit it without giving anything back.

It doesn’t work. You don’t water a plant from the top. Giving money to business and industry at the expense of the citizen is corporate welfare.

Anon says:
“Your idea is just about using the crisis as a reason to change the system into something else that you prefer. It has nothing to do with the matter at hand.

It is the same as a person saying ‘look, a rainstorm is coming. We need to buy a new car’. The person always wanted a new car. What he needed was an excuse.”

You describe the problem in economic language but gloss over the fact that this economic theory you swear by requires conditions that leave the consumer drained and disenfranchised.
You cannot justify this requirement so you say that this is just how the system works and that we have to deal with it.

I reject your logic and any reasonable person would also. No system is ever as important as the people it serves. What you actually fear is that people given an equal share of government tax revenue would loosen the control that both the business sector and government currently has on the average working American. Putting more buying power in the hands of the public would free them from this kind of cyclical suffering. And you and yours don’t want that to happen.

Or perhaps you are one of my or my parents generation that has invested and sacrificed your own dreams and let your own talents wither and die in order to develop the skills that let you survive in this economy.

That doesn’t mean that things have to stay that way. If you suffered it’s because you chose to. That doesn’t mean that things don’t need to change.

 

Benny and Anon………buy Gold, bullets and start a garden…..Kennesian economics is toast….it will never work….it never worked during the depression………made matters worse….and again we go down the same path………..who needs history?

Posted by Mr. Anderson | Report as abusive
 

Mr Anderson,

Has what I suggested actually been done before? It’s a serious question.

Also, do you have any ideas that would work? Also a serious question.

Maybe I’m the only one, who knows. But I’m actually looking to find a solution. But the solution can only come from us. If it comes from the people currently in control, the solution will only serve the interests of the controlling parties.

 

Benny.

Did you ever get round to reading those economics books?

The flaws of your system have been pointed out. Both by me and by others. I won’t bother repeating them. I would probably be wasting my breath.

You are perfectly within your rights to simply say ‘I reject your argument’. But the rejection has to be based on something.

And to reject an economic argument, requires economic reasoning. Or as a minimum, some economic knowledge.

If you reject the statement “the sky is blue” because you don’t understand what blue is, you will look foolish. No matter how long and hard you try to justify your argument.

As for Mr Anderson? If this recession isn’t gone by the end of 2011, I’ll buy him a beer. To go with his crystal ball.

Posted by Anon | Report as abusive
 

The system is not working as designed Benny……if it were….it would let companies that don’t perform in a free market fade into oblivion…….if a consumer does not want a companies particular product….the company fails…….in the case of GM it is being propped up with tons of taxes payer’s money and still does not have that decisive market edge to sustain it in a true capitalist market…..

I agree with you that a real financial safety net system and we do have one called social security……but you and I know that is a ponzi scheme ready to go bust (can you say Bernie madoff style?)

Benny I would suggest to you to read Tom Woods book called “Meltdown”…in it he mentions and suggests to get America back on track the following:

1. “let them go bankrupt”….companies that do will continue to exist (capital equipment and it’s assets)……and the question of letting banks fail….do we really need banks? With the advent of the internet would be lenders and borrowers can find each other simply…..if a firm wants to raise capital and sell bonds over the internet issue stock etc etc.

2. “Abolish Fannie and Freddie”

3. “Stop the bailouts and cut government spending”

4. “End Government manipulation of money”

5. “Put the Fed on the table”…..Jim Rogers predicts the FED will be abolished in 10 years…he feels that we may at last be turning an intellectual corner and not a moment too soon.

Posted by Mr. Anderson | Report as abusive
 

Anon…I call em like I see em…….don’t forget the damaging affects of “ALT A” mortgages resetting (larger than the sub-prime mess) in 2011 and commercial realestate the second shoe that is about to drop by the economic Tsunami……..I like Bass Ale and I just sold my crystal ball on ebay for a 2009 gold double eagle coin….

Posted by Mr. Anderson | Report as abusive
 

Thank you Mr Anderson.

I will read the book and consider your words carefully. The real essence of my point is that citizens are the ones that need the safety net. And I believe that it should not be controlled by the government but rather by the people it was intended to protect.

By dividing the money that would normally go to funding horribly run programs, the government lives up to its promise of ensuring the individual’s rights to life, liberty and pursuit of happiness.

It’s true that things won’t change over night. But in the end if everyone from the business exec to ditch digger has an equal share in a real working financial safety net, then innovation is encouraged. Failure doesn’t mean giving up everything in your life that means something to you because of financial ruin.

My argument is one of philosophical approach and not one of a technical nature. We are going in the wrong direction. It is the individual citizen that fosters growth. It is the citizen that should be invested in.

I’m not suggesting that business be done away with. On the contrary. I’m suggesting that business be allowed to fulfill its function of bringing forth innovation to improve the quality of life. People can afford health insurance if they have a stream of income they can count on. Companies can lower rates when they know that everyone can pay. Government gets more tax revenue from consumption when consumers have a stream of income from which to draw. And educational institutions have a whole new market of potential students available to them.

If something as simple as a 5% national sales tax were the single source of tax revenue for the government, and 60% of that was returned to the citizenry, that would encourage more consumption, which would spur more business, which would increase tax revenue etc…

If my reasoning is incorrect please show me where I’m wrong. Again I cannot speak to the technical issues involved. But this approach would seem to provide the greatest benefit and the least drain on the system.

 

Benny…I think that Philosophies are for perfect worlds…..in a not so perfect world the words of F. Nietzsche (1844-1900) ring very loud “there are no facts, only interpretations”….. I think consumption economics that you imply is not the right route……..I think what would be effective is that the people start saving again….at this time Americans are saving about 5% which is significantly higher than the 0% or less we were doing that got us into this mess……America was built with an entrepreneurial spirit from capital from people’s savings……..this would get us back but I’m afraid the Government will not encourage this because they need people to spend………it’s a double edge sword only the people can change it by saving money

Posted by Mr. Anderson | Report as abusive
 

Mr Anderson,

I hope you’re right. I don’t see Americans being able to save in an environment that requires two incomes just to break even. But you’re quite right about the value of facts. Mind over matter I suppose. If no one minds, it doesn’t matter. :-)

And I completely agree that consumption economics is not the correct route. I hope I didn’t come across as being in favor of it. Rather my interpretation of the correct course of action comes from what I have observed of the open source software movement.

It’s based on the idea that if the means of production are available to everyone across the board then innovation is encouraged equally.

http://www.fsf.org/
http://www.linux.org/

This movement shows that productivity arises best when allowed to come from inspiration and a genuine desire to contribute and to excel in one’s field of endeavor. It illustrates the high quality and effectiveness that arises from community efforts to solve problems.

So at its core I suppose it’s more about the government actually showing a genuine level of trust in the American citizen. We hear lip service about the individual Americans innovative, pioneering spirits. We hear talk about how wealth should be earned. And to a point I agree. But on the one hand the corporate sector seeks to keep gains private. But when things go bust, the losses must be shared by everyone (socialized). How is socializing debt acceptable, but socializing profit unthinkable?

The direction I propose is about giving every citizen the means to become productive. And about giving business a genuine purpose again by making it profitable to serve the needs of the people in good faith.

Now I realize quite clearly that this sort of thinking will be dismissed out of hand by most people. Because most people still believe that there is a technical solution to the problem. But the problem is not technical. The problem is the way we think about things. We still have an “I wish you well. Just not better than me”, mentality that gives the illusion that our interests are divided. When in fact they are not. If we each have what we need, then we are not competitors. we are neighbors, or collaborators, or business partners.

This is the direction I believe would be best for the country. And if others believe that this is a good direction to go in, then it would seem that no matter what the effort, it would certainly be a better use of our collective energies than trying to find a conventional “solution” to this problem.

 

If I suddenly decided to take some open source software and tinker with it, you know what I would do? I would read a textbook on software programming.

Otherwise, I probably wouldn’t know what the hell I was doing. I could try to show off my skills, and perhaps fool some other non-programmers. But any competent programmer would know I was wrong, just by reading my code.

And if I was going to come up with an idea to replace the economy, I would read up on economics. For exactly the same reason.

Posted by Haha | Report as abusive
 

Haha,

The idea is that by having access to the code, you have the opportunity to practice. And that way you can actually become a good programmer if that’s what you want to do. Reading the book is important yes. But you can’t create a thing unless you’ve got something to work with. And that’s the idea I’m getting at.

In this economy you are expected to produce. But you don’t have anything to work with when you get started. And because everything is set up to keep you spending more than you take in, it can be near impossible to save up enough to have something to work with. Especially when what you save gets taxed to death.

Your standard of living will go down because there will be no money to protect you from hard times after having bailed out the business sector. Government controls the money so even if you think a bad business should fail, it’s not your choice. You can’t vote with your dollars effectively because the system is set up to keep most people in a paycheck to paycheck situation that compels consumption and stifles saving and production on an individual basis.

Your argument is that I don’t know the technicalities and so I have no room to speak. And yet for all of the speaking done by so called experts well… just look around you at the headlines.
They speak for themselves.

Our system requires financial inequality that forces people into poverty. No amount of technical crap speak can justify this. There is no way that economic theory can possibly prove that forcing people into destitution is good for society as a whole. And if anyone believes they can prove the good in forced poverty then I defy them to prove it.

We are going in the wrong direction. The economy grows from the bottom up. The open source movement demonstrates that giving access to the means of production encourages people to get involved and contribute. Prove me wrong. Otherwise your dismissal is just an empty post.

 

You speak of replacing the economy. But you have no economic knowledge.

You ask for people to provide flaws in your argument. So people help point out flaws to you. Economic flaws in your plans, which make them *unworkable*.

You don’t understand those flaws. So you dismiss them. Then you carry on, saying “my argument has no flaws”.

And then we end up back at step one.

So there is almost no point in continuing any meaningful discussion with you. You are not looking for debate or critisism. Just people to preach to.

The best I will give you is this:

Money is NOT a factor of production. Or a means of production.

Any attempt to evenly spread out profit will not work. Because while there may be tangiable returns, the returns will not equal the cost. The system will stagnate and collapse.

And all the preaching in the world will not change that fact.

Posted by Haha | Report as abusive
 

Haha

I said nothing about replacing the economy. I suggested that the government redistribute tax money that goes to poorly run programs back to the people.

You haven’t pointed out any flaw other than to say that I’m not an economist. Okay… that’s well established.

When I ask you to tell me how forcing poverty is good for society you tell me that I need to understand economic theory. So you tell me then.

Enlighten me. I’m not an economist so tell me how forcing poverty on citizens is good for them. I’m not pointing to economic technicalities. I’m pointing at the fundamental direction our economy is taking. We have people living in the streets, and pensioners having to compete with young new workers because the fruits of their sacrifices have been stolen and destroyed by others who control what the worker depends on.

How is homelessness good for society? How is it that people dieing for lack of money to buy health care is good? How is it that an economic system that requires these conditions in order to function good. I don’t need to know the language of economics to see the result of these ideas at work. And you’re really going to have to answer the question if you think you’re going to get anywhere with me. So don’t bother replying if you don’t have the head for this.

 

“The best I will give you is this:

Money is NOT a factor of production. Or a means of production.

Any attempt to evenly spread out profit will not work. Because while there may be tangiable returns, the returns will not equal the cost. The system will stagnate and collapse.

And all the preaching in the world will not change that fact.”

Do you have proof of this or are you just crunching numbers.
I can point to the open source movement as proof that when code is distributed the returns gained exceed the investment because innovation increases the usability of the code.

Unless you have something that proves money will behave in this way then you have nothing but an unproven theory. And so far the economy sucks so if that is the best you’ve got then maybe you need to read up on more of your theory.

 

Oh… and if money is not a factor in production then why are we having all of this financial crisis? If money is not a factor in producing anything then why not work for free? Money facilitates the exchange of resources. If you can’t exchange resources then you can’t produce to any significant degree unless you own most of the resources yourself which most people don’t.

By allowing people an equal base from which to exchange resources the innovators can innovate. Try telling the young person getting an education that the return on that investment is wasted.

You basically said in your response to me that people are not worth investing in. And THAT is the problem with this economy. You still value money for its own sake instead of valuing it for how it can serve the person.

 

I have nutted out the problem we have here.

-You ask for criticism.
-I provide it. Based on economic theory.
-You reject the criticism. Because you don’t understand economic theory.
-You ask for proof the theory is correct.
-I tell you that proof is in the economy.
-You reject that proof. Because you don’t understand economic theory.
-You ask for criticism.

And so on, and so on.

You are not in a capacity to understand the criticism being made of your position. So regretfully, I can not see any way to engage in any meaningful debate with you.

If you want your questions answered, then do the research yourself.

To start yourself off, type in “Money is not a factor of production” in Google and work from there.

Posted by Haha | Report as abusive
 

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