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Showing posts with label Adam Smith. Show all posts
Showing posts with label Adam Smith. Show all posts

Monday, February 10, 2014

Wal Mart Takes A Hit

Wal Mart is closing stores and has a dim outlook for the future. The primary reason for this is the reduced food stamp benefits to millions of Americans. Competition from other big box stores like Costco and Amazon (where they pay their employees a decent wage) are also causes for bearish view of Wal Mart's future finances.

I wonder if the execs at Wal Mart are going to get the message. If you pay your employees more money, they will spend more money, not simply at Wal Mart, but in the economy at large. This will, in turn, lead to more people being hired at other firms and then...spending more money at Wal Mart. This means that the execs make more money anyway.

Perhaps a review of Adam Smith is in order for them.

Friday, March 22, 2013

What Do They Do?

Someone asked me in comments a while back just what exactly right to work laws do to a state's economy? Well, here's a pretty good summation. Here's the one that jumped out at me.

2) Under right-to-work laws, workers reap fewer gains from economic growth. Supporters of right-to-work laws often argue that they’ll help attract more businesses to a state. Opponents retort that weakening unions will lead to an erosion of wages. (A large Economic Policy Institute study from 2011 found that, after controlling for a host of factors, right-to-work states have lower wages on average than pro-union states.) 

Both arguments might be correct. One careful study conducted by Hofstra’s Lonnie Stevans in 2007 found that right-to-work laws do help boost the number of businesses in a state — but the gains mostly went to owners, while average wages went down. ”Although right-to-work states may be more attractive to business,” Stevans concludes, “this does not necessarily translate into enhanced economic verve in the right-to-work state if there is little ‘trickle-down’ from business owners to the non-unionized workers.” 

So business owners gain, and workers lose. One possible retort is that these states could simply set up new safety-net programs to compensate workers who are hurt. But that leads to another question: Without strong unions in place, who will push for these policies?

So, more business comes to the state but the gains go right to the owners. Paging Joseph Stiglitz!

What continues to amaze me is how the Right, supposedly "classic liberals" influenced by Adam Smith, vociferously fight for more wealthy for the modern day version of the aristocracy. Somewhere Klemens von Metternich is applauding....


Monday, March 04, 2013

On Siglitz: Part Six

The sixth chapter of Joseph Stiglitz's The Price of Inequality is called, "1984 is Upon Us." In this section, Stiglitz details how many of the wealthy in this country try to frame the discussion in a way that benefits their interests, realizing that, in democracy, they cannot simply impose their rules on others. He posits that, in one way or another, they have to "co-opt" the rest of society to advance their agenda. They do this using their own, more subtle version of "newspeak."

An example of this can be seen in how our society responds to the word "socialism."

In American parlance, "socialism" is akin to communism , and communism is the ideology we battled for sixty years, triumphing only in 1989 with the fall of the Berlin Wall. Hence labeling anything as socialism is the kiss of death. Medicare is a single payer system-the government pays the bill, but the individual gets to choose the provider. Most of the elderly love Medicare. But many are convinced that government can't provide services efficiently that they believe that Medicare must be private.

Hence the famous "Keep your government hands off my Medicare" line. The irony here, aside from the obvious, is just how much socialism there is in this country that hasn't delivered the promised tyranny we now daily from the Right and, in fact, has been enormously beneficial to our country. Even famed "unbridled capitalist" Adam Smith wrote, in The Wealth of Nations, that the sovereign has

The duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a greater society.

Here, Smith champions elements of socialism and states that they are essential to any successful society. They have certainly worked out very well for us as we are the greatest nation this world has ever seen.

So, the dichotomy here is very frustrating given how the framing of American parlance operates. When we start discussing economics and the high level of inequality we have in this country, we see it again. As Stiglitz notes

Mainstream economics assumes that individuals have well defined preferences and fully rational expectations and perceptions. Individuals know what they want. But in this respect, traditional economics is wrong. If it were true, there would be little need for advertising. Corporations use recent advances in psychology and economics that extend our understanding and preferences and beliefs can be shaped to induce people to buy their products. 

Exactly right. One of the major problems I have with the whole "people act in their own enlightened self interest" meme is that..well...people don't. They are often foolish, emotionally unintelligent, and behave poorly, even engaging in criminal activity. That's why "leaving it all up to the free market to sort out" doesn't work given that the powerful people who run many of these markets can be characterized as all the above.

More importantly, people who don't really know what they want and aren't rational can be easily manipulated. Because of this simple fact, Stiglitz notes that most Americans have no earthly idea how much inequality there is in this country. They believe there is less economic inequality than there is, they underestimate its adverse economic effects, and they overestimate the costs of taking action.

In a recent study respondents on average thought that the top fifth of the population had just short of 60 percent of the wealth, when in truth that group holds approximately 85 percent of the wealth. Interestingly, respondents described an ideal wealth distribution as one in which the top 20 percent hold just over 30 percent of the wealth. Americans recognize that some inequality is inevitable, and perhaps even desirable if one is to provide incentives; but the level of inequality in American society is well beyond that level.

I've brought up this study before but I think it should be revisited given the context of Stiglitz's argument. People don't have any idea just how much the wealthy have in this country. Of course, any discussion about it results in Orwellian screeches and howls from the Right about "Marxism" and "class warfare." Yet this sort of wealth concentration at the top is exactly where liberal economic theory was born. Men like Adam Smith and Samuel Stiles bemoaned the hoarding of wealth by the aristocracy through mercantilism and other protectionist practices. In many ways, Stiglitz has argued the same thing in previous chapters by pointing out the endless cycle of rent seeking, incompetent government action and government inaction. Regardless of the times or the mechanism, the wealthy are continuing to do what they always do: consolidate power.

Now, this is usually the point when people ask, "how much inequality is bad and how much is good?" Well, before we do that, we have to get back to the perception problem.

Not only do Americans misperceive the level of inequality; they underestimate the changes that have been going on. Only 42 percent of Americans believe that inequality has increased in the past ten years, when in fact the increase has been tectonic. Misperceptions are evident, too, in views about social mobility. Several studies (here, here, and here) confirmed that perceptions of social mobility are overly optimistic.

So, we need to solve the problem of awareness first before we can detail any sort of serious metric regarding acceptable or unacceptable levels of inequality. That means we have to combat the 1984ish messaging we see every day from the 1 percent.

After we've done that, the best place to start is the most commonly used measure of inequality: the Gini-coefficient. There is also the Theil index, which has more sub group and sub region development, the Decile dispersion ratio, and the Share of income/consumption of the poorest x%. All of these metrics should be used in tandem for a more accurate analysis.

In taking a look at where we are today, it's obvious that we really do have some very serious perception problems.


























Bear in mind, these figures are only through 2010, the last time the Census Bureau did their estimate. Two years ago we were at 46.9 which means we are very close to that .5 tipping point where we quite literally have a country of haves and have-nots. The study from above shows that Americans want our country to be more like Sweden. That's not surprising, given that there Gini coefficient is .23, nearly half of what our's is today.

Stiglitz has much more to say in this chapter regarding perceptions in terms of market behavior, fairness, and a whole host of other issues like the public view on estate taxes and bank recapitalization. It's quite a bit of information to absorb so I chose to focus on the more general theme of the chapter-the perception of inequality. For the finer points, as always, I recommend reading the book and the sources contained at the end of each section, some of which I have listed here.

So, the facts show that it's a more subtle version of newspeak, isn't it? It's not quite war is peace (although the Right's view on guns is certainly close to that) but it's still just as contradictory. The people of this country need to know just how much inequality there is and, as Stiglitz noted in previous chapters, the detrimental effects it is inflicting on our country.

Sunday, February 24, 2013

Good Words

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. (Adam Smith, 1776)

It's always amused me when conservatives bring up Adam Smith and point to him as the King of Unbridled Capitalism. As is usually the case, they miss the complexity.

Smith was firmly grounded in reality and recognized the dangers of special interests. He concluded that employers "always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages above their actual rate" and sometimes entered "into particular combinations to sink the wages even below this rate." He also condemned the deadening effects of division of labor and that's why he called for government intervention to raise workers' living standards.

So, while he was indeed the father of economic liberalism, he was decidedly not the cold-hearted capitalist that the Right will have you believe he was.


Friday, August 12, 2011

Crandall and Putnam

People of the same trade seldom meet together, but the conversation ends in a conspiracy against the public, or in some diversion to raise prices.

---Adam Smith, The Wealth of Nations.

A recent post by Nikto entitled "The Tax Cut Experiment" provoked an interesting discussion in comments and it made me think of the quote above. Clearly, Smith was well aware of corporate force even that long ago. The comments in that post also sparked a memory of the phone call between Robert Crandall, president of American Airlines, and Howard Putnam, president of Braniff Airways, in 1982.

Crandall: I think it's as dumb as hell...to sit here and pound the #$%#$ out of each other and neither one is making a $%#$ dime.

Putnam: Do you have a suggestion for me?

Crandall: Yes, I have a suggestion for you. Raise your #$%#$ fares 20 percent. I'll raise mine the next morning.

Putnam: Robert, we...

Crandall: You'll make more money and I will, too.

Putnam: We can't talk about pricing!

Crandall: Oh, ##$%$, Howard! We can talk about anything #$%$ thing we want to talk about.

If Crandall were around today, he'd be running a Tea Party organization.

The simple fact is, folks, that the government can sometimes improve markets. Never is this more true than with the airlines. Time and again we see that if left to their own devices they will collude against the public and produce a market that is not efficient...in other words, less consumer surplus.

In so many ways, this accurately describes the problem we have right now. We have a decided lack of aggregate demand with consumers (two thirds of our economy) not spending money. The main reason for this is prices from food to gas to health care are completely ridiculous.

With government effectively ball less (vasectomy courtesy of the Tea Party), it's only going to get worse.


Monday, November 15, 2010

Lame Ducks (In Every Sense of the Word)

The lame duck Congress reconvenes this week and the Democrats will have their curtain call. Anyone out there think they will do anything worthwhile?

I don't.

In fact, I think they will do their usual pussy dance and cower in fear of the now much further right GOP. They could repeal "Don't ask, don't tell" but they won't because people like John McCain, who said we would repeal the law if the generals gave the OK, has now gone back on that because he wants to stay in good graces with the anti gay crowd on the right. The Democrats will follow suit and, even though 70 percent of the country favors repeal, give in (once again) to the very vocal and VERY bigoted minority. (side rant: This would be a classic example of how the minority wins time and again for those of you who have wondered. It's related to spinal muscular atrophy.) The Democrats could do something on immigration or energy. But they won't. Again, their complete lack of spine will send them cowering in fear in the face of the likes of the Koch brothers. But these issues aren't even the worst transgression. That trophy belongs to the Bush tax cuts.

I think we can all agree that making all the tax cuts (save for the top 2 percent of nation's earners) permanent is a good thing. It is my view that the middle class drives this economy and letting their tax cuts expire in a recession is a monumentally stupid thing.

But the tax cuts for the wealthiest 2 percent of this country should expire. Why? First, they aren't going to end up paying those taxes anyway because they will move their money around and pay less due to the simple fact that they can afford teams of lawyers and accountants. Second, the MYTH that the less the rich are taxed the more they invest in the economy has been completely torpedoed. They don't invest in shit except derivatives and hedge funds that simply make them more money. Third, they will make the deficit much worse. Cry all you want about spending but until you show me where you are going to stand up and make cuts, we are going to need more revenue. We'll need it anyway.

Finally, they should pay more because they are wealthy.

Now, I know all of you charity-to-the-wealthy lovers just had an epileptic seizure and began to foam at the mouth about redistribution of wealth/socialism/guns/statism blah blah blah. And I know how offensive it is to ask criminals, who risk our money-not theirs, to part with their ill gotten millions. But one of the men that you tout as being an authority on how markets should be run has said as much. That man's name is Adam Smith.

For those of you who aren't familiar with Mr. Smith, he wrote a masterpiece on free market economics called The Wealth of Nations (1776). The basic gist of his treatise is that there should be as little government interference in the market and "the invisible hand" should be allowed to work its magic. This invisible hand is roughly defined as men acting in their own self interest will unknowingly serve the interests of other, less fortunate members of society.

Setting aside the fact (which many libertarians and right wingers conveniently ignore) that the terms "economics" and "capitalism" weren't in use at the time of his writing, those who tout Smith completely fail to point out this line from the piece.

The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

Or this one.

The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

Or this one (especially dedicated to those of you who howl at me about your money being taken by the butt of a gun)

Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty. It denotes that he is the subject of government;,indeed but that, as he has some property, he cannot himself be the property of a master.

In other words, progressive taxes are fair, honest, and what work best. Bear in mind that Smith saw all this from a society that was a dominated by feudalism. I wonder what he would think of out little plutonomy today given the similarities....hmmm....

Anyway, the Democrats, in light of these obvious truths, should draw a line in the sand (like the right always does and invariably succeeds) and tell the minority for the next 6 weeks to pound salt up their ass. Bring a vote to the floor for the middle class tax cuts only and, if the GOP has an eight year old boy temper tantrum, let them try to explain to the American people, upon taking over in January 2011, how they let all the tax cuts expire. In other words, play HARDBALL like the right does all the time. Democrats should send a two word message to the GOP in this lame duck session.

"Fuck" and "Off."