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Increasing salaries by itself does not increase economic growth. Higher wages however, are not a bad thing. Growth should be balanced - a linear connection between profits and wages is ideal, as both a system in which labour costs strangle companies and one where workers progressively lose income while the rich enrich themselves even more are bad for the economy (one could argue that the second isn't, but one must also look at wealth in a greater sense than money itself).
Wages exceeding market rate are therefore unideal, and wages below market rate also undermine the system. A healthy state balances the two, and an important factor in this is unionized workers.
Now deunionizating is happening all over the world, not because the corporations are crushing them, but because increasing individuality means less and less workers join the unions. A big factor in the future is how this is going to be solved.
I'd also like to say that the American automobile industry failed largely because it didn't compete with other manufacturers on fuel-efficiency and therefore couldn't export to Europe and Japan, while those cars still were imported to America. The conservative attitude lead to america now having lower fuel efficiency standards than China, of all countries.
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On March 03 2009 20:58 Choros wrote:Show nested quote +On March 03 2009 18:26 cUrsOr wrote:
isnt china, economically, one of the most protectionist nations ever? didnt they vigoursly defend against imports for like the entire 20th centruy? so wouldnt their economic growth actually be an arguement against free trade? Yes I would agree on this. Show nested quote +
and isnt the crushing of our economy, in some ways, simmilar to that of latin american countries that recieve our cheap food imports?
What is happening in the American economy is very very similar to what happened in South American countries and for the same reasons. Argentina is a good example of this. American economists when to Argentina and directed their economic policy. They told the government to fire most their teachers nurses and public sector workers in general, they reduced unemployment benefits to zero, they completely stopped any infrastructure investment. Basically they followed a small government philosophy aggressively. Then they opened up to free trade, deunionised their labor market (by simply executing and torturing union leaders) and privatised all government industry. The consequence was a dramatic deterioration in the levels of employment (govt fire workers > less demand > more job losses > falling govt revenue > cut spending > less demand > more job losses) wages immediately started to plummet further reducing demand and accelerating the recession, free trade lead to the destruction of many industries making things even worse. They then used expansionary monetary policy to try to create demand but all this did was create very high inflation (I would agree that it is unlikely we will see an inflation crisis in the United States). This is very similar to what is happening in the United States today, same policies, same consequences. The only difference is that monetary policy has worked very well to cover up this decline, and these policies were carried out much slower leading to a much slower decay.
There really are no good arguments against free trade. If you block free trade, you are propping up inefficient industries at the expensve of everyone else in the country, thereby decreasing real wealth. Broken window fallacy, look it up.
What is currently happening in the American economy is not at all the same as any situation in South America. Following a "small government philosophy aggressively" would likely include A) not killing/torturing random people, B) Not having a central bank vastly inflating the money supply, and C) not creating what Robert Higgs termed "regime uncertainty." This is not small government at all, and a totally fallacious argument. Government cannot generate real wealth as you seem to imply, and any demand they might "generate" by employing people is at the expense of the real economy, and with disregard to an actual price system. Government has no money of its own, it can only take other's money and spend it on less efficient usages of resources than would have normally been done. The fact that reducing spending would "cause" a recession in your eyes should only serve to demonstrate the government was far too big in the first place, and therefore created a bubble that needs to be corrected before real economic growth can resume. I will grant that this is somewhat similar to the situation America is currently in, but America's bubble was caused by a much different situation. Recessions normally stimulate recovery due to the lowering of prices, allowing people to buy more with the money they currently have, and therefore increasing demand. In Argentina's case, however, they implemented a bunch of price controls, thereby decreasing the likelihood they would ever recover.
You would do yourself so much good if you read Economics in One Lesson by Henry Hazlitt.
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On March 03 2009 16:21 cUrsOr wrote:ya globalization!! more cafta and ftaa... if they are lucky, all of latin america will end up like mexico. if only we can find a way to keep em all from fleeing to the US 
Fun fact: Mexico's GDP is on par with Chile's and higher than all other latin american countries.
EDIT: Maybe on par with Venezuela's too. We'll see how long that lasts tho.
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On March 03 2009 13:26 Cambium wrote:
lol, it's really easy to tell those who've taken econ apart from those who have not
I was going to respond to cursor, but ahrara_, you covered all the key points i wanted to use and hence said exactly what I wanted to say
^^
(i've actually got an econ midterm tomorrow on international trade lol)
International Trade? What models did you guys cover, my professor is being a jerk and TAs horrible and now I am sitting here having no idea how much of the math am I supposed to know at all :p
That said, this thread jumped a ton while I slept 0.o, I'd like people to clear up one thing though on their usage of "Real wealth", especially in regard to trade. Normally the term of real wealth/income in terms of international trade, far as I've seen, is referring to the nominal income without taking into consideration of welfare, which would be denoted by relative price of goods. In turn, real wealth may increase or drop in the country and purchasing power still increase. I am getting the sense that the majority of you are speaking of real wealth/income as if it is represented by purchasing power (which it isn't), if so, please label it clearly.
With the deunionization issue, I agree with Piretes basically in that the American automobile industry is a faulty example to cite, at best we can bring up the dismal performance in 2007, but even that is already jarred by other factors. Marketing direction and external conditions has done far more to harm the big three, though the burden of UAW hardly helped. Though to be fair, some bits of the deunionization around the world is happening because of government policies, and this could be a fair chance to strike at the various unions that has long had a bad reputation.
On March 04 2009 00:21 warding wrote:Show nested quote +On March 03 2009 16:21 cUrsOr wrote:ya globalization!! more cafta and ftaa... if they are lucky, all of latin america will end up like mexico. if only we can find a way to keep em all from fleeing to the US Fun fact: Mexico's GDP is on par with Chile's and higher than all other latin american countries. EDIT: Maybe on par with Venezuela's too. We'll see how long that lasts tho.
A major benefit of Mexico being next to the United States, in terms of growth potential it doesn't come close to how impressive other SA countries are.
On March 03 2009 18:26 cUrsOr wrote:
isnt china, economically, one of the most protectionist nations ever? didnt they vigoursly defend against imports for like the entire 20th centruy? so wouldnt their economic growth actually be an arguement against free trade?
and isnt the crushing of our economy, in some ways, simmilar to that of latin american countries that recieve our cheap food imports?
Not quite, we can start a protectionism war and make everyone suffer, the trade imbalance with China has had its shares of helping us in that China is practically an interest inelastic saver and dumps the money back to us. So really, I wouldn't cite it as an example of argument against free trade so much as I would say that there is no real differences here from how we worked with the Tigers in the past, the benefits derived are different, but allowing them to do pretty much as they will domestically isn't.
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On March 04 2009 00:04 tec27 wrote:
There really are no good arguments against free trade. If you block free trade, you are propping up inefficient industries at the expensve of everyone else in the country, thereby decreasing real wealth. Broken window fallacy, look it up.
I agree. Free trade has been a big reason for the huge wealth we know in western countries today, and it gives developing countries alot of chances. Total free trade would help these countries anymore. Currently the US and Europe are really strangling the African agricultural sector with our subisidized products, not letting the market mechanism do it's work.
On March 04 2009 00:04 tec27 wrote:
Government cannot generate real wealth as you seem to imply, and any demand they might "generate" by employing people is at the expense of the real economy, and with disregard to an actual price system. Government has no money of its own, it can only take other's money and spend it on less efficient usages of resources than would have normally been done.
Well I think you disregard the benefits of government quite naively here. An ideal government keeps the market system running by building infrastructure and educating people to a high standard, as well as providing a decent standard living to everyone (something the market cannot do). Government has it's limits, but denying that is can create wealth means you either see a) wealth in the most narrow sense of the word, i.e. profit, or you b) have never seen a good working government - try Scandinavia. Government employment is not at the cost of the system - some thing are simply better if they are controlled and sheltered from the market - education as the biggest example, and I would argue healthcare (something failing horribly in the US because of the market)..
You might do yourself good if you took some more consideration for the reality instead of dreaming about a perfectly working market system.
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On March 03 2009 18:26 cUrsOr wrote:
isnt china, economically, one of the most protectionist nations ever? didnt they vigoursly defend against imports for like the entire 20th centruy? so wouldnt their economic growth actually be an arguement against free trade?
and isnt the crushing of our economy, in some ways, simmilar to that of latin american countries that recieve our cheap food imports?
Jesus Christ you are a dumb fuck. You are a dumb stubborn fuck that can't read. All I can do is insult you now because making logical arguments gets me nowhere. You neither acknowledge what I have to say nor bother to do anything about your painful ignorance of economics. I've addressed everything you've posted more than once already. What makes you think you can post in a thread full of people with mental capacities far exceeding yours? And the rhetorical questions, jesus christ. The only poster I know who has earned the right to fill an entire post with that kind of mind-numbing shit is Moltke. And you are not Moltke.
On March 03 2009 17:05 SnK-Arcbound wrote:
Ahara, would you update your original post with what you think about the new bailout.
And also about the economy in 1981 and the great depression, and perhaps 1921 if you can find anything about it.
If you're full of shit, it would become quite obvious in your opinions of the other three economic crisis' from our history.
I've been meaning to update the original post for ages, but I'm in the middle of the semester and the original post took something like 5-6 hours to write. It also absorbed about twice as much time as that responding to questions and criticisms and various PMs. I'd really like to get around to it eventually.
Another reason I want to update it is because in retrospect I was quite wrong about a lot of things and my ignorance of economic theory is quite transparent. I've expanded my knowledge of the field considerably since then and I'd hate to be judged based on that one post.
tec27: I think you should expand your understanding of economics past Economics in One Lesson. That book was never meant to explain more profound economic theory, only as a learning tool. Real world economic problems are more infinitely more complex. Everything Hazlitt describes only occurs in the long run, which is what your entire argument is based on. Short-run issues and market failure are things he does not cover (and things you badly need to read up on). For the record, that book was the first book I read on economics and I recommend it to my ignorant friends everywhere.
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Jesus Christ you are a dumb fuck. You are a dumb stubborn fuck that can't read. All I can do is insult you now because making logical arguments gets me nowhere...
I really don't think you are helping your case. You admit errors in your original post and confess your own economic ignorance, yet completely bash somebody because they are in a differant place on the learning curve. For the most part this has been an interesting thread, and post like this only diminish its worth. I would think that would be of interest to you considering you created it.
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Dang, I have been missing out on some good stuff in this thread.
Have to fix a water leak in my lawn today then I will join in.
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ahrara_ I appreciate your effort and time you've put in to generate a very interesting debate (and to educate a few people). I don't think cUrsOr is an idiot though. He may be uninformed, but even moreso is the general population. It's useful for him and others who might have similar views to post his thoughts on the subject, as long as he remains openminded.
On March 03 2009 19:41 PobTheCad wrote:
the strange thing being that if the current system manages to survive then in 10 years the govt will be privatizing these banks and other things they have bought out , only to need to nationalize them the next time we have a crisis of this scale (usually every 60 years or so)
Economics isn't that exact, depressions don't happen on a schedule. Another major recession may happen in just a few years if our recovery from this one isn't sound, it may happen again in 10 years, it may never even happen again. We simply don't understand economic growth and recessions well enough to predict when they will happen in the future.
Increasing salaries by itself does not increase economic growth. Higher wages however, are not a bad thing. Growth should be balanced - a linear connection between profits and wages is ideal, as both a system in which labour costs strangle companies and one where workers progressively lose income while the rich enrich themselves even more are bad for the economy (one could argue that the second isn't, but one must also look at wealth in a greater sense than money itself).
Wages exceeding market rate are therefore unideal, and wages below market rate also undermine the system. A healthy state balances the two, and an important factor in this is unionized workers.
Now deunionizating is happening all over the world, not because the corporations are crushing them, but because increasing individuality means less and less workers join the unions. A big factor in the future is how this is going to be solved.
Market rates are, by definition, decided freely by the market. If it's market rates what you want (and monopolistic or monopsonistic market prices are market prices) then you wouldn't really need any state or unions to achieve them. I don't think this is what you're arguing for, though.
And here's where we are stepping out of positive economics towards normative stuff. This discussion isn't more about 'what is', being instead of 'what ought to be'. I believe I have much less of a problem with income inequality than you do, not because one of us has a better understanding of economics, but because we hold vales/beliefs/morals whatever. We should keep this discussion out of this thread though.
I'd also like to say that the American automobile industry failed largely because it didn't compete with other manufacturers on fuel-efficiency and therefore couldn't export to Europe and Japan, while those cars still were imported to America. The conservative attitude lead to america now having lower fuel efficiency standards than China, of all countries.
http://www.willwilkinson.net/flybottle/2008/11/17/making-sense-on-detroit/
How could they possibly compete like that?
a few thoughts on the trade debate
- The fact that Asian tigers were protective of their industry and later enjoyed phenomenal growth does not lead to the conclusion that protectionism was essencial to their success. Likewise, China is still protective of its industries, but one can't conclude that protectionism is helping their growth. At the same time all these countries were enjoying a greater openness to the world economy, and I would point that as the desive factor to their growth.
- One of the problems of 'strategic protectionism' or the so called New Trade Theory, is that it suggest we give bureaucrats the role of deciding which industries to foster and protect. This is problematic first because they SUCK at it, and second because they tend to protect industries based on lobbying power.
- At best, strategic protectionism may apply to emerging economies, but not to established, developed economies. Let's just keep that clear.
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On March 03 2009 14:17 Jibba wrote:
What if your foreign competitor actually produces everything in a free trade zone in your country and because of economies of scale (competitor is bigger, bigger = cheaper) can sell at lower prices? If a US company sets up a T-shirt shop in a South American country with heavy free trade policies, how much of the profits are actually being invested back into the country?
If US company sets up a T-shirt shop in an SA country, the shop itself is helping the SA country. It's a capital inflow (credit) for that country and it generates employment opportunities. US benefits by collecting interest and/or dividends. This is how both countries mutually benefit from each other.
It's impossible to produce "everything" and sell at a cheaper price than domestic price indefinitely (like you suggested) because it would drive down the worth of the currency of the importing country, which in turn, will lower import. This is how it works:
1. Import rises dramatically because everything is produced overseas because it is cheaper
2. Demand for currency rises (importing more), and demand for local currency lowers (there's more of it in the currency market)
3. Currency of exporting country rises (since there is a higher demand for it, since we've increased import from that country, i.e. increased its export) and currency of the importing country depreciates
4. Everything costs more to import purely due to the appreciation and depreciation of currencies
5. Import is forced to decrease
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There are only a handful reasons to restrict trade, and all the ones listed in this thread are not it.
Some of these have come up repeatedly and should get addressed.
1. It increases competition and lowers our (American, say) wages, and/or employment opportunities.
But, why should you get paid more than someone in China without being more productive? If you are doing the exact same work, and someone in China can do it cheaper, does it not make sense to ship the work to China?
So your solution is to restrict or end free trade. It's never a problem to create jobs for everyone (look at USSR) and maintain a country especially if its large and has a ton of resources (like America), but would the workers be happy? At the end of the month, you get your paycheque, you cannot buy anything except that what is locally produced, which restricts you from buying what you want. As a result, restrictions produce jobs without offering real rewards.
The goal of the economy is to please consumers, not to protect workers. You should get that around your head. Consumers drive the economy, not workers. Consumers maximize their welfare when they have the maximum freedom of choice to buy products wherever produced (and also, as a consumer, you will NEVER say something is too cheap).
2. To increase national output
Okay... if you import less, ceteris paribus, your national output will increase, which, in theory, is good for your economy. But this lowers the standards of living. For example, you export $100 worth of goods, and import $50 worth of goods, rest you get in "cash" (aka, IOUs). You essentially lost $50 worth of goods. If you didn't know, US runs a HUGE trade deficit, as in, they import much more than that export, this is one reason why standards of living is high.
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On March 04 2009 02:30 warding wrote:
- The fact that Asian tigers were protective of their industry and later enjoyed phenomenal growth does not lead to the conclusion that protectionism was essencial to their success. Likewise, China is still protective of its industries, but one can't conclude that protectionism is helping their growth. At the same time all these countries were enjoying a greater openness to the world economy, and I would point that as the desive factor to their growth.
Dude it is well known that protectionism and a strong state are really important for developing countries.
Seriously make a comparison between African and Asian countries ...
Ok you can argue thats also linked to corruption problems or wars but still... When a country has no natural competitive advantages ( hi Japan ) he has to create his own. Thus the need for a big state and protectionism to help the growing industries.
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On March 04 2009 03:22 Cambium wrote:
But, why should you get paid more than someone in China without being more productive? If you are doing the exact same work, and someone in China can do it cheaper, does it not make sense to ship the work to China?
Because they haven't the fair Labor Standart Acts.
Miners die everyday in China ( or elsewhere in "low standarts" countries, let's not start a flame war about China :D ) because of pathetic safety measures.
Some people want an higher life expectancy thanks.
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im not attacking the OP about a bailout plan that has been bashed by numerous nobel prize winning economists. im not going to resort to childish name calling and immature personal attacks.
i saw this thread, and i saw that is, imo, highly skewed towards the big-business models of absoulute free market ideology. i think more needs to be said about places like bolivia, argentina and venezuala, where the "anti-globalization" (i hate that term) movements have really manifested themselves (and for good reason).
i dont know why, to me, it sounds like 90% of the argument on this page comes directly from the IMF and NAFTA websites. maybe thats just the way economic education/study works? i dont know.
i could easily turn my rhetorical questions into statments if you like. im sorry if any opinions different than yours appear in your thread. i really think your lucky you havent seen more.
we could pretend the verdict is already in on globalization. but its not. anyone who is interested in a better read about what has happens in mexico (being that, as i said before, a large GDP says nothing about "quality growth) can read http://www.nber.org/books/harr06-1
"we are argentina, you are enron"
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cUrsOr you are not making bad points per se, and you are not really decreasing the level of the debate with your opinions, but you simply state them in such a manner that no one will take you seriously. Use capitals for one, and furthermore the rethorical questions were very annoying.
Warding good catch on the automobiles. I didn't know that they were that well rewarded. I think it shows how skewed the union system in america is. It ruins some sectors and has little effect on others (office jobs hellyeah).
Indeed I am not arguing for 'market rate' wages. I meant to say equilibrium rate, if one could call it so.
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Ok you can argue thats also linked to corruption problems or wars but still... You cannot ignore the social effects of an economic policy when determining its effectiveness. If your policy is hyper effective, but no one will suffer it, good. If its 'hyper effective' from an economics point of view but thousands starve to death and there are widespread riots which are more deleterious to the nation's fitness than the economic policy is helpful, you don't net anything in the end.
So yeah, his rebuttal can't ignore those problems, nor can any of the positions in this thread.
Those who have a background in economics should know that people think on the margin, and recognize that there are effects to policy which are social in nature which feed back into the economic condition of the country. Extrapolating policy from the west, in which nearly all countries have social safety nets, different legal systems, different government institutions, etc straight onto developing countries is a poor method of applying a model. Not only is it poor argumentation and logic, but it has severe moral ramifications because there are people dying over it.
The admission here is that economics isn't determinate, despite its models having worth. Wouldn't a better approach to the issue not be to try and 'shut out' those who approach the problems in a different manner, but instead include their concepts and variables into the framework you've already set up?
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You're right about the capitals. You're right about the questions. I get most of my information about the world from The Nation magazine, and I see peoples reactions to these policies. I see the revolts and read lots about organized labor. What amazes me the most, is that, I'm being very presumptuous here, in a tread with people that all make less than 100K a year- I'm facing arguments that have been devised by the richest people in the world. They all support that private ownership, and free trade are the best models for- everything. Like I said, it would probaby be easier just to go directly to the www.imf.org
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On March 04 2009 03:46 Boblion wrote:Show nested quote +On March 04 2009 03:22 Cambium wrote:
But, why should you get paid more than someone in China without being more productive? If you are doing the exact same work, and someone in China can do it cheaper, does it not make sense to ship the work to China?
Because they haven't the fair Labor Standart Acts. Miners die everyday in China ( or elsewhere in "low standarts" countries, let's not start a flame war about China :D ) because of pathetic safety measures. Some people want an higher life expectancy thanks.
That's another topic of discussion. But I agree with you completely.
In fact, "protection of life, health and safety" is one of the few accepted reasons for trade restriction.
Surely and inevitably, there are exploits in "free trade", but that's not what we are discussing. We are discussing the fundamental principles of free trade.
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On March 04 2009 01:47 TeCh)PsylO wrote:Show nested quote +Jesus Christ you are a dumb fuck. You are a dumb stubborn fuck that can't read. All I can do is insult you now because making logical arguments gets me nowhere... I really don't think you are helping your case. You admit errors in your original post and confess your own economic ignorance, yet completely bash somebody because they are in a differant place on the learning curve. For the most part this has been an interesting thread, and post like this only diminish its worth. I would think that would be of interest to you considering you created it.
You are probably right. I'll try to refrain from being an ass. The issue of free-trade is one of those issues, like abortion for some, that gets me heated.
On March 04 2009 03:47 cUrsOr wrote:im not attacking the OP about a bailout plan that has been bashed by numerous nobel prize winning economists. im not going to resort to childish name calling and immature personal attacks. i saw this thread, and i saw that is, imo, highly skewed towards the big-business models of absoulute free market ideology. i think more needs to be said about places like bolivia, argentina and venezuala, where the "anti-globalization" (i hate that term) movements have really manifested themselves (and for good reason). i dont know why, to me, it sounds like 90% of the argument on this page comes directly from the IMF and NAFTA websites. maybe thats just the way economic education/study works? i dont know. i could easily turn my rhetorical questions into statments if you like. im sorry if any opinions different than yours appear in your thread. i really think your lucky you havent seen more. we could pretend the verdict is already in on globalization. but its not. anyone who is interested in a better read about what has happens in mexico (being that, as i said before, a large GDP says nothing about "quality growth) can read http://www.nber.org/books/harr06-1"we are argentina, you are enron"
I suppose I owe you an apology for being an ass last night. I stand by the fact that you are woefully ignorant of economics. It is also frustrating when you keep insisting on the same arguments even after they've been addressed multiple times. Your posting is the equivalent of somebody who's only ever watched SC2GG commented games posting in a strategy thread and insisting everyone else is wrong. It's not like there aren't legitimate critiques of globalization and free trade. But it is extremely arrogant to insist on a worldview like yours without a foundational understanding of economics first.
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The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.
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EPT![[image loading]](http://www.willwilkinson.net/flybottle/wp-content/uploads/2008/11/wages.jpg)
