Please Dems, not Hillary!

The government should pass laws to increase the productivity of workers? That sounds like how the Soviets and Chinese used to think.

No, Squeek. The government can provide education, health care, roads, ports, and connectivity, and promote the free exchange of ideas so innovations are quickly turned into production inputs. Well-educated, healthy people are more productive workers, and roads, ports, and connectivity help get inputs to where they're needed and products to markets. That raises productivity per worker. I'm sorry if I wasn't sufficiently clear.

Those all sound good to me, so thanks for the clarification.

Individual productivity is one of those things that really ought to be easy but isn't. I used to work with a guy who was once a productivity manager for a large manufacturer, and the way he described what he did between the hours of 8 and 5 was actually pretty funny.

There's one more thing which is a bit hairier.

Free trade means that the pay levels for unskilled labor will tend to converge. That's good for Vietnamese, not so good for Americans or Europeans. The state can do something to intervene there -- for example, mandate a minimum wage or institute a negative income tax for the very low end of the income scale -- but none of this is entirely unproblematic. The former choice will create pressure to outsource everything that can be outsourced, which will create unemployment just among the people least capable of dealing with it; the latter will cost a bundle, distort employer incentives, and will, in most cases, be politically impossible.

Prime Junta said:

The former choice will create pressure to outsource everything that can be outsourced, which will create unemployment just among the people least capable of dealing with it;

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LOL PJ, you mean "...HAVE created..."

Eliaures said:

As the worlds greatest consumer, I think we have a lot of weight to throw around to improve our condition with regards to free trade. Countries will not abandon such a lucrative market even if we do tighten controls in the form of tariffs. I don't think we can just shut down free trade, but we can use tools to help strengthen and promote industry in the US.

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Keep in mind those tarrifs were lowered as part of a reciprocal deal, one already heavily weighted toward the industrial developed countries including the US. Start raising tarriffs and the rest of the world will do the same rasing barriers to American goods.

And from here it already looks like the US has been throwing its weight about in trade.

In all honesty, I prefer PJ's method to improving the United States lot than imposing trade sanctions, but in some cases it is not such a bad thing. Harley Davidson was on the verge of collapse and produced some real crap until some temporary protections were imposed. Now every yuppie (is this term even still used?), Easy Rider/Wild One wannabe has one, much to the distress of my ears.

Certainly, trade barriers have their uses -- but I don't think Harley-Davidson is a good example. (Specifically, I'm fairly confident that the market would've taken care of that problem -- the brand is enormously valuable, so even if the company had gone belly-up, someone would've bought the remains and started over.)

The problem is that they're very risky, because of the element of reciprocity. You put up a tariff barrier, and your affected trade partners will very likely counter with one of their own. That hurts your export industries, which demand more barriers so they can sell their stuff on the home market. And so the cycle repeats. GATT and the WTO were set up specifically to head off these kinds of retaliatory spirals.

Another problem is that "temporary" protections have a tendency to stick. The industry that benefits from them will always argue that they need to stay up just another year or two, threatening with doom, gloom, and mass unemployment if they don't. And, of course, once the precedent is set, other troubled industries will demand protection of their own. If unchecked, this leads to a situation of having a large number of inefficient industries that depend on the trade barriers to survive -- which means *lower* overall productivity; the opposite of what was intended.

This is especially true for a rich country with a diversified and highly productive economy -- there's a lot further to fall. A developing economy that is, for example, trying to transition from rice farming to ship building is in a bit of a different situation -- there, the "baby industries" can benefit greatly from protective tariffs as the basic infrastructure and skills are built up. South Korea became the powerhouse it is now just this way -- but it also had the sense and courage to take down the barriers when they were no longer needed.

But protectionism makes no macroeconomic sense for a country like the USA. You benefit from free trade way more than you suffer from it. What you can and IMO should do is figure out how to divide the pie more evenly. For example, why not pass a law that says that the ratio between the highest and lowest pay in any publicly listed company may not exceed 100:1? So if the janitor makes $20,000, the CEO can make $2,000,000.

I agree with what you are saying about reciprocity and the need to promote wage normalization. I think railing against free trade is a bit of a red herring since the candidates are just pandering to Ohio prior to today's election. Most Americans are very fearful of their current situation. We are a medical bill or layoff away from not being able to take care of our families. And rather than address the real issues of why we are in this situation, the media and politicians are just distracting us with easy explanations, scape goats, and "shinies" such as celebrity news.

Prime Junta said:

For example, why not pass a law that says that the ratio between the highest and lowest pay in any publicly listed company may not exceed 100:1? So if the janitor makes $20,000, the CEO can make $2,000,000.

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It would be extremely difficult to close all the loopholes in that sort of thing. It also promotes inefficiency, since the quick answer is to increase the pay of the janitor beyond "world-wide" market value. International corporations would have an awful time staying in compliance. You'd have to take currency fluctuations into consideration, and you'd better hope you don't have facilities in some African backwater where $1/day truly is a king's ransom.

I figure the immediate response to that law would be increased reliance on stock options (probably only activated after the CEO has left the company). That is the trend you need to stomp out. With executive pay commonly tied to stock price and CEO's rarely staying with a given company for more than a few years, right now the emphasis is driving up the stock price, even if it is detrimental to the long term health of the company. The CEO makes a fortune artificially propping up the stock price and disappears (cash in hand, of course) before it comes time to pay the piper for all those games. I'm not sure the government can (let alone "should") change that approach, but it's certainly not doing our nation any good.

dteowner said:

It would be extremely difficult to close all the loopholes in that sort of thing. It also promotes inefficiency, since the quick answer is to increase the pay of the janitor beyond "world-wide" market value. International corporations would have an awful time staying in compliance. You'd have to take currency fluctuations into consideration, and you'd better hope you don't have facilities in some African backwater where $1/day truly is a king's ransom.

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You're right, it would -- and this wasn't intended as a completely serious proposal. The larger point is, though, that democracy sets the rules by which the market plays, and it is possible to set rules that decrease inequity -- just like it is possible to set rules that increase it. Choosing to do one or the other is a political choice. My proposed law was a simplified example of such a potential rule.

"Political choice" indeed! And we seems to have a distinctive split between "savage capitalism" which seems to be mainly Anglo-Saxon pre-occupation and "social capitalism" as practiced (to a larger or smaller degree) in most of the other developed countries in Europe. Time will tell which model will prove more successful but my bet would be on a "social" one....

Mine would be on savage capitalism as it has worked long term, where as social capitalism has not.

blatantninja said:

Mine would be on savage capitalism as it has worked long term, where as social capitalism has not.

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Actually, that's not true. (Do I keep saying that a lot, or what?)

"Savage capitalism" broke down in a big way all around the world in the early twentieth century, culminating in the 1930's -- the Great Depression in the US, various fascist parties coming into power in Europe, and eventually getting us into WW2.

From there on out until the 1970's, America practiced social capitalism -- or "democratic capitalism" as it's usually called -- as well. The specific model was just different from the European one -- instead of having the state do the planning and redistribution, you had a small number of enormous corporations (GM, Ford, Chrysler, AT&T, GE, Standard Steel, Standard Oil, etc.) and enormous labor unions (Steel Workers' Union, Auto Workers' Union, etc.) do it, with the state exercising a regulatory function; guaranteeing profits to monopolies, keeping everybody in their own nice little box, and so on.

That broke down with globalization; the big corporations had to slim down their operations to survive in the global marketplace, and the redistributive schemes went with that. The European state-run systems ran into different problems (the EU economy was, until recently, very sluggish due to inflexibility of the labor market), but on the whole it has weathered globalization better.

What we're seeing now in the US is a like the "savage capitalism" of the 19th century in some ways, but very different in others. It's also nowhere near as different from the European systems as you might think; the biggest differences are in the discourse. In Europe, we actually *like* our redistributive schemes and social safety nets. There's more of a sense of "there but for the grace of God go I" here, I think.

Prime Junta said:

Actually, that's not true. (Do I keep saying that a lot, or what?)

"Savage capitalism" broke down in a big way all around the world in the early twentieth century, culminating in the 1930's -- the Great Depression in the US, various fascist parties coming into power in Europe, and eventually getting us into WW2.

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The problem with your theory is that you assume that America could not have returned to savage capitalism and been ok. We did make a shift (too much IMO), but it had nothing to do with our recovery, nor, IMO, to the long sustained period of economic growth.

From there on out until the 1970's, America practiced social capitalism -- or "democratic capitalism" as it's usually called -- as well. The specific model was just different from the European one -- instead of having the state do the planning and redistribution, you had a small number of enormous corporations (GM, Ford, Chrysler, AT&T, GE, Standard Steel, Standard Oil, etc.) and enormous labor unions (Steel Workers' Union, Auto Workers' Union, etc.) do it, with the state exercising a regulatory function; guaranteeing profits to monopolies, keeping everybody in their own nice little box, and so on.

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You'll get no disagreement with me on the move to so-called democratic capitalism from me. However, I don't think globalization was the only thing that broke it down. The main drive, particularly with pension plans was that like social security, it was unsustainable in the long term without either a significant increase in worker productivity or significant adjustment to benefits.

What we're seeing now in the US is a like the "savage capitalism" of the 19th century in some ways, but very different in others. It's also nowhere near as different from the European systems as you might think; the biggest differences are in the discourse. In Europe, we actually *like* our redistributive schemes and social safety nets. There's more of a sense of "there but for the grace of God go I" here, I think.

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I would agree with the attitude being different in Europe. In the US, we've long held the concept of 'pulling yourself up by your bootstraps' dear. I am not against having any social safety net, but I think it needs to be very limited in it's scope and mainly benefit those that are truly incapable of taking care of themselves.

blatantninja said:

The problem with your theory is that you assume that America could not have returned to savage capitalism and been ok. We did make a shift (too much IMO), but it had nothing to do with our recovery, nor, IMO, to the long sustained period of economic growth.

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Um... you're saying that the structure of the economy had nothing to do with the sustained period of economic growth?

Oookay, I guess...

You'll get no disagreement with me on the move to so-called democratic capitalism from me. However, I don't think globalization was the only thing that broke it down. The main drive, particularly with pension plans was that like social security, it was unsustainable in the long term without either a significant increase in worker productivity or significant adjustment to benefits.

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But worker productivity *was* increasing all through the democratic capitalist phase, at a pretty fast clip too. That only stalled in the 1970's. And you're right, globalization certainly wasn't the only factor that broke it down; technological change, in particular the trickling down of ICT from the military to the civilian sector played a huge role too.

I would agree with the attitude being different in Europe. In the US, we've long held the concept of 'pulling yourself up by your bootstraps' dear. I am not against having any social safety net, but I think it needs to be very limited in it's scope and mainly benefit those that are truly incapable of taking care of themselves.

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Yup, it does cut both ways -- a comprehensive safety net will create a sense of entitlement and passivity in many people, while a lack of it will put more people in the street. The tough part is to find some kind of balance between the two.

Prime Junta said:

Um... you're saying that the structure of the economy had nothing to do with the sustained period of economic growth?

Oookay, I guess...

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No, not at all. There were many structural changes (the change for laisez-fair economics, the creation of the SEC, etc.) that drove this growth. My point is that the socialist aspects of the change were not the driving force (Social secuirty, growth in pensions, etc.). One of the biggest problems with the economy of the 1920's was that there was virtually no accountability for corporations in terms of how they ran their books, reported earnings, etc.

But worker productivity *was* increasing all through the democratic capitalist phase, at a pretty fast clip too. That only stalled in the 1970's. And you're right, globalization certainly wasn't the only factor that broke it down; technological change, in particular the trickling down of ICT from the military to the civilian sector played a huge role too.

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I don't deny it increased, the question is why did it increase? It had more to do with education (which I suppose you could classify as socialistic) and technology improvements than health insurance and pensions.

Yup, it does cut both ways -- a comprehensive safety net will create a sense of entitlement and passivity in many people, while a lack of it will put more people in the street. The tough part is to find some kind of balance between the two.

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Completely agree. For instance some people are against unemployment benefits, but some level of benefits is necessary so that workers are willing to take career risks. However, there has to be a limit.

blatantninja said:

However, I don't think globalization was the only thing that broke it down. The main drive, particularly with pension plans was that like social security, it was unsustainable in the long term without either a significant increase in worker productivity or significant adjustment to benefits.

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So you are positive that the rocketing rise to in pay and bonuses for corporation bosses had nothing do with it at all? Let me quote Bob Herbert for NYT: "between 2000 and 2006 the combined real annual earnings of 93 million American workers rose by $15.4 billion.
That rise is "less than half of the combined bonuses awarded by the five Wall Street firms for just one year." (based on data from the Center for Labor Market Studies at Northeastern University). How many pensions could that fund? Looks to me that "greed is good" maxime is as true now as it was in late 80s.

blatantninja said:

I would agree with the attitude being different in Europe. In the US, we've long held the concept of 'pulling yourself up by your bootstraps' dear. I am not against having any social safety net, but I think it needs to be very limited in it's scope and mainly benefit those that are truly incapable of taking care of themselves.

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True to the certain extend. But I can't shake the feeling that, deep down in their guts, Anglo-Saxons believe (another Puritan legacy?) that poor are responsible for their ill fortune.

blatantninja said:

No, not at all. There were many structural changes (the change for laisez-fair economics, the creation of the SEC, etc.) that drove this growth. My point is that the socialist aspects of the change were not the driving force (Social secuirty, growth in pensions, etc.). One of the biggest problems with the economy of the 1920's was that there was virtually no accountability for corporations in terms of how they ran their books, reported earnings, etc.

I don't deny it increased, the question is why did it increase? It had more to do with education (which I suppose you could classify as socialistic) and technology improvements than health insurance and pensions.

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The interesting feature about growth in the "fat" post-WW2 years is that it was driven by two things: economies of scale and middle class that was getting bigger and richer -- and was therefore able to consume what the economies of scale were producing. You can't have that growth model in a highly inegalitarian society -- there won't be enough people with discretionary spending power that it makes sense to produce a hundred million Chevrolets.

Health insurance and pensions -- and, especially, steady and predictable wage growth -- were significant factors, since they made it possible for the middle class to consume. They were an essential part of the system, and with the unions, they were represented in the negotiations that set the wages, pensions, and health plans.

zahratustra said:

So you are positive that the rocketing rise to in pay and bonuses for corporation bosses had nothing do with it at all? Let me quote Bob Herbert for NYT: "between 2000 and 2006 the combined real annual earnings of 93 million American workers rose by $15.4 billion.
That rise is "less than half of the combined bonuses awarded by the five Wall Street firms for just one year." (based on data from the Center for Labor Market Studies at Northeastern University). How many pensions could that fund? Looks to me that "greed is good" maxime is as true now as it was in late 80s.

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While the rise in executive compensation outpaced overall rises in compensation over the past few decades, it really didn't have anything to do with it. Could it have been used to pay for the pensions that became underfunded? Possible, but again, that is not a cause, it's a potential solution.

What caused pensions to become underfunded was a combination of the following, in order of importance:

1) Significant increase in health care costs of retirees. Most pensions included some measure of health care costs. Due to the inflation in health care costs in this country, the cost projections made 10,20,30 years ago were grossly undervalued.

2) Significant increase in average life span of workers. When most of these pensions were set up, like social security, the average American only lived into the mid to late 60's. Now it is in the high end of the 70's and quickly approaching the 80's. Obviously number 1 and number 2 are closely entwined. We've from having, as an example, 10 workers to every retiree in many cases, to 3 or 2 to 1. That's a huge financial strain.

3) Changes made, particularly in the late 90's, to the expected rate of return on pension assets. Many firms increased their expected returns from rates such as 5 or 6% annual to 7 or 8%. To many people this seemed a small prudent measure given that the stock market was going up 20%+ every year. However, it has HUGE impact on required contributions for the firms. It's basically an accounting trick, and never should have been allowed. As such, when returns normalized after the tech bubble, they had to lower their expected returns, which created huge under fundings when combined with reason 1 & 2.

These were the causes. Not executive compensation.

Now how do you 'fix' executive compensation (if it is indeed broken)? Well, that's tricky. In the 80's they tried to 'fix' it by granting stock options instead of straight compensation. The theory was that the executives compensation would be tied to performance better. And it's true, it is. Several problems occurred though, as this encouraged manipulation of earnings to drive up stock prices as well as scandals like the back-dating one. The problem is greed, not necessarily the manner of compensation. The SEC and FASB have always been reactionary, though, so while they have 'fixed' many of these problems, undoubtedly, the unscrupulous will find new methods.

So, how would you 'fix' executive compensation? Some people have proposed a hard cap. That's a bad idea because once someone caps out, they have little incentive to do anything, and you don't want to force someone out that is doing a good job.

Don't forget also that in many cases where executives have received 'packages' that totaled in the hundreds of millions, these were almost always made up of stock and options that included, if not were dominated by, positions earned before the person was the CEO. So should they lose all of that, just because their last few years once CEO weren't very good? That hardly seems fair, not to mention it would encourage people NOT to become CEO's. In other cases, in order to lure a candidate from another firm, they have to grant stock and options equal to what the person is giving up at the old firm. So again, if you eliminate that, what incentive would a person have to ever change firms once they moved up the corporate ladder?

True to the certain extend. But I can't shake the feeling that, deep down in their guts, Anglo-Saxons believe (another Puritan legacy?) that poor are responsible for their ill fortune.

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No one is responsible for the situations they are born into. However, especially in this country, where anyone can get a high school diploma, anyone can get into a college and get loans if need be to pay for it, anyone can start their own business, etc., short of having a health related tragedy, you are responsible for making something out of your life.

I'm more than willing to pay taxes to support our education system, to reduce crime, etc., but I have no desire to spend my hard earned money simply to pay for the lifestyle of someone else, just because they made less than me.