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In 1913, Henry Ford wrote the following as the directors had been reaping the rewards of profits - "The wages we pay are too small in comparison with our profits. I think we should raise our minimum pay rate".

Thursday, December 9, 2010

The Economy and related schools of thought

I couldn't comment on the CNN blog post, but I found some comments to be interesting :

Sniffit
"How do they feel about their fellow GOPers willing to back the wealthy giving them tax cuts that raise the deficit? "
They are ardently mindless adherents to the economic ideology that posits the following:
"If you give the extremely wealthy even more money, then at some point their cups runneth over and rain wealth down upon the masses. They have no desire to horde and consolidate and amass more and more wealth beyond a certain [point]. We haven't reached that point yet. Ergo, we need to keep giving them more and more of the country's wealth and assets until we do."
Yeah. My guess is they fervently believe that the tax cuts for the wealthiest 2% will magically result in jobs and fix the economy, not to mention the deficit. After all, the extended version of the above insanity is that once you give the rich their the tax cuts that magically jobs, then more people are earning money and the government's tax revenue increases without having to raise taxes. It's like talking to people who believe in cartoon physics.
I corrected a hyper-typing spelling error in [italics].  The point is right on.  It does indeed seem as though the GOP and all those who blindly follow their economic thinking do believe that giving more money to the already rich will make jobs appear.  "Cartoon Economics" - I like the label for it!!
Cartoon Economics - the theory that wealthy people choose to hand out their money to people for no reason.
and
Orlando Patriot
How can you Democrats just not understand how an economy works? Have you EVER taken a simple college level Economics course? I guess not..... Let's simply state it in basic terms – if the cost of doing business goes up then the number of employees this business will hire goes down (refer to Marginal Revenue Product in your college Microeconomics book) and if the cost of doing business goes down then this same business will hire MORE workers. Secondly, if money is taken from the "wealthy" that will decrease Consumption (remember: GDP = C+I+G+NX) and Consumption is 70% of GDP. How will this occur? Because the Aggregate Demand curve will shift left (refer to your college level Macroeconomics textbook).
In other words: Anybody who thinks RAISING taxes on ANYBODY during the worst economic downturn since the early 70's [is a good idea] is simply a moron. You need to wake up and THINK about what you are saying. I don't know about you but I have NEVER been hired by a poor person!! I am NOT wealthy and this idea of "taxing the rich" would not directly affect me but quickly it will indirectly [affect] me when unemployment RISES because of the added cost of business. And what does that cause? Democrats wanting to extend unemployment insurance so a person does not HAVE to work for almost 3 years?!?! Remember: Economics is not the study of what people SHOULD do but rather what the[y] ACTUALLY do!! Raising taxes on ANYBODY in an economic downturn is the most stupid thing to do and EVERY Economics textbook will tell you the same thing!! (Refer to AS/AD chapter in Macroeconomics and/or Labor in any Microeconomic textbook). 
I added the [bold] to help Orlando be a bit more comprehensible.  Still, its seems that he has a "Cartoon Economics" tainted perception of MRPL (also see this - which shows real wages declined from 1976 to 1996).  Job loss will only occur if the profit from having the productivity of that worker drops below (or too close to) the cost of having that worker.  Also, his analysis of Aggregate Demand is flawed as well. He is assuming that a fractional drop in income will cause 2% of the population to suddenly stop purchasing products - and that would tank the GDP.

I fail to see how Orlando and others can believe that 2% of the population can cause a serious drop in consumption.  Raising taxes slightly on that 2% may cause a drop in their savings, but it will not likely touch their spending habits.  A more likely scenario that would affect GDP is 98% of the population having decreased purchasing power, therefore spending less.  That scenario is playing out right now.

"I have never been hired by a poor person" - he says.  I've been hired by plenty of people who fall below the $250,000 per year taxable income level and many more that fall well below the $1 million mark.  I have even been hired by people living below the poverty level.  Why?  There was a demand for my services.  Demand is the only thing that can create a job.  If there is not a need to be filled, there will be no job created. If there is a need, the "cost of doing business" becomes entirely irrelevant and that need will be met.

Just a side note here.  I know that an income "Tax Cut" is allowing people to keep more of what they earn, so it not technically 'giving' them money.  However, given that all citizens have a civic responsibility to share in the funding of our government, allowing someone to evade a bigger share of that responsibility is in effect giving back that portion of their tax duty to them.

Giving money back to people who put it directly into savings - which is what "the rich" do and it is partly responsible for their remaining 'the rich' - will never, ever, create a single job.  Jobs are created when the 98% of people have something they want and are willing to give their money to someone else to provide that thing for them.  The more people willing to spend money - and who have the money to spend - the more jobs are created to meet the demand.  The wealth level of the person supplying the production is totally irrelevant.

When working Citizens see smaller paychecks, that is when jobs are lost due to dropping demand.  "The Wealthy" have money and have not been hurt much by this recession.  They recovered more quickly, businesses have cash on hand - but, contrary to Orlando and his cohorts in wealth worship, no jobs are being created.  Bigger paychecks and bonuses to CEOs equal job losses.... or job cuts equal bigger paychecks and bonuses to CEOs.  Bigger paychecks to more workers equals more buying power, which equals more demand, which equals more jobs created.

2% having more buying power equals 2% more demand - which won't create anything.  98% having more buying power - now that will create some demand!