Businessmen should not be running the World’s Economy… Then who should?
Back in the 90’s I sat down and chatted with a philosopher from India that was passing through my local town. He said one thing that I have thought about for years. He told me that according to Indian culture, there are 4 types of people related to the elements, Fire, Earth, Air and Water. Fire people do best in sports, exploration and the military. Earth people do best in business. Air people are the intellectuals who think through theories and innovation. Water people were the wise people who understood a balanced and sustainable society. Water people he said should be the ones guiding government policies and overseeing society in general.
I asked him… But we see a world now where the Earth types of business are running the government and overseeing society. What happens with that? He said that it is not good for the Earth types or business to control society. He did not give any specifics to explain that statement, but can we understand what he meant?
Look at China… There policies are simply unsustainable. Investment is running too high in comparison to labor’s future ability to consume the increased production. Economic growth is creating severe pollution conditions in their cities. Their housing boom is set to burst at some point creating societal damage.
Look at Abenomics in Japan… Again we see policies to give incentives to business. Nominal interest rates have been lowered to spur private investment. Fiscal spending is creating demand and spending, yet labor share of income and wages are not budging higher. The increased business is creating increased profits for cash-rich corporations, but the extra money is not finding its way to labor. Poverty have been rising in Japan for decades. Then we see their sales tax going from 5% to 8%, and then to 10% in October 2015.
Look at the US… Monetary policy is supporting business and investment liquidity. Corporate profits are very high. Effective tax rates on the rich and corporations is low by historical standards. Yet, labor share is at its lowest level since WWII. The millennials are not buying houses so much and the recent college graduating class is the most indebted in history.
Th point I am making is that in the examples above, businessmen are creating policies that they see as beneficial to business. Yet, they do not include labor within their social vision. Labor is still seen as a cost of business, which should be lowered in order to be more competitive.
I have always considered myself a Water type person after talking with that Indian philosopher. I am concerned about the overall balance and sustainability of social economics. My guiding principle is “Marginal social benefits = Marginal social costs”.
The problem with Earth business types is that their guiding principle is “Marginal private benefits = Marginal private costs”. They believe that when business is strong, society is strong. They believe that shareholder profits is the guiding light of economic health. So all they have to do is make business strong. Yet, a chain is only as strong as its weakest link. And if labor continually gets weaker from lower and lower labor share, the economic chain itself becomes weaker and less able to maintain production “sustainably”.
Businessmen should not be running the world’s economy. They create a society that is unbalanced and weak, while they seek to make business strong. Businessmen lack the vision needed to construct an economy which sustains a healthy society.
However, in Chile, Michelle Bachelet is the president. She is a Water type person in a country with a long history of inequality as the result of private interests. She is pushing strong against the traditions of tax evasion among the rich. She just appointed Oscar Landerretche as the Director of Codelco, Chile’s largest state-owned copper mine. Oscar Landerretche is a socialist economist who thinks about economics the same way I do, that “marginal SOCIAL benefits = marginal SOCIAL costs”. President Bachelet wants to make sure that Codelco as Chile’s largest corporation is performing in the best interests of the community in regards to the environment, revenues and taxes paid. We can suspect there will be some internal battles within Codelco.
The world needs more Presidents like Michelle Bachelet.
Abenomics is in the tradition of liberalism that started in the 18th century. Nothing big about it. Some parts of the family of liberals may not like it, but that is the same of all families. Hayek and Keynes did not see eye to eye. Brothers don’t always.
Socialism was actually a reaction against liberalism, not a revolution to it. Marxism was hardly “socialism” either. Marx’ s dedication to the liberal creed and especially Ricardo has made me chuckle when everybody equates Marxism as socialism nowadays. What Karl wanted was capitalism to reach its final stage without going through the progressions. Adolph Hitler was a socialist more than Karl Marx. Socialism is a spiritual creed of progress through identity.
The point of stopping capitalists from owning the world and creating the market state is identity number 1. Whether your Lew Rockwell or Bill Clinton, they want the merchant caste to rule. A perversion of nature, a perversion of soul.
One can contemplate Marx to Hitler or soup to nuts, its The Golden Rule(thems with the gold, rule).
The Market Class have CASH and plenty of it readily on hand to spend on politicians(Citizens United for one).
One should NEVER underestimate the pure power of Greed&Stupidity.
Lambert
I couldn’t agree with you more. I have often said, right here on Angry Bear, that we need businessmen, entrepreneurs. I have nothing against with paying them very well for what they do.
But I don’t think we should let them make the rules.
That would be like letting the prize bull make the rules, just because he is where your money comes from.
Edward,
I am working now on the idea that the US economy is splitting like an amoeba into two distinct markets:
a) the labor/employer market where the employer competes for business by ratcheting (as in one way only) down labor’s price;
b) the employer/consumer market where the employer (only – not labor) sets prices according to most money to be extracted from the consumer (probably not huge per unit given fair competition).
There remains today only a vestige of, what I call for the moment, the all-in-one market where employees can withhold labor (not just their labor – labor per se) in order to bargain (through the employer) with the consumer. A surprisingly good example of this scenario may be found – surprisingly – in the old anti-minimum wage question: “Why not make the minimum wage $100 an hour?” This puts the wage earner squarely versus the consumer in the market place; no? J
It is that old all-in-one market that the US must return to with all deliberate speed. Continuing to sink totally into labor/employer bargaining mode with no connection to what the consumer might be willing to pay (and therefore no need for that information; a reality point with economists) – is the road to serfdom, quite literally.
The only incentive an employer in today’s labor/employer market has to raise pay above subsistence is his own good. For instance, Starbucks pays a couple of dollars above minimum wage in order to attract white, yuppie-like employees to create an upscale atmosphere (where English isn’t a second language) it wants. Whole Foods may combine this with the need for a higher rung of competence to pay a rung above that – etc.
The right kind of legislation is essential to set up a fair labor market as it is in financial markets. A labor market must be constructed that connects the employee with the consumer in price setting. This means labor must be able to withhold labor (per se) from every employer. At the low level a sensibly set minimum wage can serve this withholding purpose.
Across the board there is only one established (for decades, around the world, and by the Teamsters Union here) modality that ownership cannot work its ratcheting way around: centralized bargaining – where everyone doing the same work in the same locale (nationally when applicable) does so under a single collectively bargained contract with all employers (this should eliminate the legal use of scabs who don’t have a contract – never heard of scabs in Europe). Start to think about it you who are progressive economists: the choice is either centralized bargaining or literal serfdom.
The labor/employer market versus the all-in-one market is exemplified by the poverty wages of regional airline pilots with typically $100,000 educations and the two to three times higher wages and benefits enjoyed by Teamster Union truckers under their National Master Agreement.
Time is a-waisting. A few years back, Northwest Airlines squeezed a billion dollars of givebacks from its major airline flight crews and the following year gave a billion dollars of bonuses to a thousand execs. The pace on the road to serfdom is speeding up thou academics. Help! Educate the world on the only way back! Now!
answering your headline question:
poets
MY REPLY TO A COMMENTER ON ANOTHER BLOG:
If you are addressing me, legally mandated, centralized bargaining was instituted to keep labor from going on a race-to-the-top in post WWII continental Europe. It is what the Teamsters Union has won privately here. Stops the race-to-the-bottom just as effectively — and naturally by balancing the bargaining power in the labor market.
The road to serfdom is getting paid subsistence-plus. That is when employers pay the lowest skilled workers subsistence — no matter how rich the economy, or how much output per person grows — and ups pay a rung for every extra rung of ability. Sounds eminently fair?
Imagine an Alaska bush pilot who owns his own plane. He will charge you the max you are willing to pay for his services — I would call that the price the marginal value of his services compared to everything else he might purchase.
Suppose instead, the pilot works as an employee. As a practical matter the owner may charge you much less — the max you would be willing minus subsistence-plus and a little (competition, you know) profit — but he will probably need to own several planes to make a living. This mirrors fast food and convenience store owners, who need to own several.
The customer is getting a better deal for sure — but only because she may be paying much less than the marginal amount she would have been willing to pay compared to other products or services. Ultimately this does not sort out the best mix of wants for the greatest number — rather, it deeply discounts the price subsistence-plus workers can charge for their labor.
Leaving aside the moral problem of leaving most worker/consumers behind as an economy gets more and more productive — is there anything either more productive or more efficient about this setup?
Of course, since most of the workforce ends up living on the short end it must turn out to be extremely inefficient — in terms of stunted educations, troubled families and crime, etc., etc., among whom could have been much more productive persons.
In any case there are more of us than there are of owners; meaning we have the votes and we are going to make things better for ourselves.
PS. I am just working all of this out.
BELATED NOTE — in case anybody is still watching:
Finally figured out the last part of this theory.
First part was a subsistence-plus wage ladder when wages are not geared through collective bargaining (or a sensibly set minimum wage) to the maximum the consumer would be willing to pay.
Missing part was what was happened on the other side of the — labor price disconnected from demand — market: in so far as the consumer is buying (the product of) labor discounted below the consumer’s own discounted rung on the subsistence-plus ladder (e.g., Whole Foods employee buying fast food — two rungs?) or below the consumers own non-discounted labor level (consumer able to extract fully what her own consumers are pay for the products of her labor): a condition of less than maximally efficient distribution of human gratification (a.k.a., utility :-]) exists.
Now, have to work up an essay with a title something like: “Maximally Efficient Distribution of Gratifications (utility) — versus — Today’s US Road to Serfdom.”
Legally mandated, centralized bargaining the only way back to the Great Compression, of course. That ought to take the starch out of the “unfettered (efficient?!) labor market theory” hair shirts.
On further thought:
Forget rungs below getting an “inefficient” share of gratifications (utility) — it just might be (coincidentally) that happened to reflect the difference in value of the different labors that consumer saw also. “Inefficient” share of gratifications (utility) should only be defined as a consumer whose wage extract the max from their own consumers purchasing products made with labor whose wages are not able to extract the max — or a consumer whose wage at least extracts a greater part of what their own consumers are willing to pay.
On further thought (this time in English — not that anyone is listening anymore):
First part was identifying the subsistence-plus wage ladder where wages are not geared through collective bargaining (or a sensibly set minimum wage) to extract the maximum the consumer is willing to pay — but only the minimum the employer needs to bid against other (mostly subsistence-plus?) employers .
Missing part was that if consumers whose own wages fully extract what consumers are willing to pay for their products or services is able to buy products of employees who cannot thus fully extract (subsistence-plus), then, a condition of inefficient distribution of gratifications (utility) exists. Ditto for any relative extraction differential.
Goodbye, unfettered, (efficient) labor market hypothesis. No efficiency or productivity can be demonstrated lost by institutions which allow employees to extract full labor price from consumers. The very opposite, of course: individuals who are deprived end up less educated, in more social trouble and less economically productive.
Legally mandated, centralized bargaining the only way back to what we call the Great Compression. Re-unionization the only way back to political democracy, too.
I hear ya, Dennis.