Economic Crisis Part II

[RSL]

But that surely has nothing to do with the "stupid" child labor legislation, does it now?

Where did I say that child labor laws are "stupid," Slobodan? Have you ever looked at Lewis Hine's photographs -- the ones he risked his neck to get -- of little girls working in fabric mills and little boys working as coal breakers? I'm very much in favor of reasonable child labor laws, but that's not the kind of child labor laws we're talking about.

C'mon Russ, who has ever requested "living wage" for kids!?

Of course not. That's an exaggeration. But what's happened to child labor laws since Hine managed to get them enacted is that bleeding hearts who never did a lick of work as children see any kid under eighteen at paying work as being oppressed. What started out as reasonable child labor laws have become corrupted to the point where kids can't learn about work in the adult world before they have to enter it to survive.

So, if paper delivery is too dangerous, what exactly would you want them to do? School janitors (as per Newt)? Factory workers?

Newt has a habit of becoming entranced at the sound of his own voice and going overboard, but I don't see a problem with kids doing routine cleanup in schools. I wouldn't want to see them doing adult work such as heating system maintenance, but sweeping halls and cleaning bathrooms aren't exactly dangerous or overly demanding jobs. And yes, there are factory jobs kids can do. Depends on what the factory is making.

[Ray]

It certainly is puzzling to many of us from other Western democratic nations, that a strong and rich country like the USA  seems to have such a poor safety net for the disadvantaged and the vulnerable.

I suppose the rationale for keeping minimum wages so low is to keep the prices of goods and services low. I was amazed to discover that the minimum wage for a waiter in a restaurant, in certain states of America, is as low as $2.13 per hour. I now understand the stories I've heard that failing to tip a waiter in America can be dangerous. The next time you visit the restaurant, the waiter might piss in your beer. 

[RSL]

Right, Ray. And there's no doubt that high minimum wages in other Western nations (Greece comes to mind) accounts for their rapidly improving economies.

[RSL]

Regarding our "low" minimum wage I have one question: if, say, $10/hr is a "fairer" minimum wage than, say, $8/hr, why not make the minimum wage $110/hr. Wouldn't that be even fairer? That's what I used to charge when I was doing software engineering, and I was charging less than most of my competition. Why shouldn't a McDonald's employee enjoy the same benefits? After all, he's working just as hard -- in fact, from a physical point of view, harder.

There are two sides to any wage situation: the value (pay) the employee gets from his labor and the value (productivity) the employer gets from the employee's labor. If the second value isn't at least a bit more than the first, the job has to disappear. There's no free lunch, and anybody who thinks he can violate the inviolable laws of economics is in for a lesson in economics. Of course politicians are always exempt from lessons in economics.

[Slobodan Blagojevic]

Where did I say that child labor laws are "stupid," Slobodan?...

Correct, not your words, but Newt's. However, you said you agree with him "100%" so...

... any kid under eighteen...

Actually, as I posted before, "the nation's federal Fair Labor Standards Act sets 14 as the minimum age."

[Ray]

Right, Ray. And there's no doubt that high minimum wages in other Western nations (Greece comes to mind) accounts for their rapidly improving economies.

Russ,
From my rational perspective I see the causes of these economic collapses in certain countries as being more to do with incompetent, corrupt, unethical and deceptive practices among bankers and financial institutions, rather than minimum wages that are too high.

The most glaring example of this, which presumably was just the tip of the iceberg, was the practice of lending money to people for the purpose of buying a house, despite the fact that many such borrowers had no reasonable expectation of being able to repay the loans.

Now, as I understand, the rationale for this practice was based upon an assumption that property prices would continue to rise. If or when the debtor defaulted on his loan repayments, the bank could repossess a property which had hopefully risen in value since the loan was issued. Is this correct?

Regarding our "low" minimum wage I have one question: if, say, $10/hr is a "fairer" minimum wage than, say, $8/hr, why not make the minimum wage $110/hr. Wouldn't that be even fairer? That's what I used to charge when I was doing software engineering, and I was charging less than most of my competition. Why shouldn't a McDonald's employee enjoy the same benefits? After all, he's working just as hard -- in fact, from a physical point of view, harder.

Russ, it's not  the numerical value of the wage that counts, but what it can buy. If the minimum wage is not sufficient to pay for the requirements of a basic lifestyle, then something is seriously wrong with the system. If people get into trouble, such as the lady in the McDonald's story who had her first child whilst still at school, then accumulated 3 more without a permanent husband, then the social services need to step in, if the minimum wage is not sufficient to provide for the children.

I'm not claiming that the minimum wage should be sufficient for an unmarried mother with four children to provide for all the necessities in life. In that sense, the McDonald's story was not particularly convincing, and seemed designed more to pull at the heart strings.

http://www.forbes.com/sites/laurashin/2013/07/19/how-she-lives-on-minimum-wage-one-mcdonalds-workers-budget/3/

[Vladimirovich]

Russ,
From my rational perspective I see the causes of these economic collapses in certain countries as being more to do with incompetent, corrupt, unethical and deceptive practices among bankers and financial institutions, rather than minimum wages that are too high.

I 'd say they pay too much benefits/pension/etc for gov't employees and retirees... that also is applicable to USA, any such benefits from federal/stage gov't (no matter which dept) here shall be cancelled and everybody moved to a regular SS/Medicare.

[Ray]

I'd say that most of our economic problems, whatever our country, are due to sheer incompetence at every level, Governmental, institutional and individual.

We think that feeding an increasing world population might be beyond the planet's resources, yet the world currently wastes about 1.3 billion tonnes of food annually. America alone discards about $43 billion worth of processed food every year. That is, food that is considered to be inedible because it has passed its 'use-by' or' best-by' date, or food that is not eaten because people are too picky or choosy, or because the restaurant has provided too big a serve.

Food is wasted, or used as animal fodder, because it doesn't meet the standards of flawless appearance that many individual consumers seem to demand.  Food is often processed in a similar way, conceptually, to Hasselblad's production of its recent compact Lunar camera. That is, take a perfectly nutritious Sony NEX-7, enhance its appearance, attempt to make it tasty, then sell it for 4x the price.

In fact, the food industry is even more ludicrous than Hasselblad. At least the Lunar is a fully functional NEX-7. The processing of food to enhance its appearance and taste usually results in a degrading of nutritional value, through the addition of artificial flavouring, preservatives, fructose, salt etc, and the removal of valuable fibre.

In addition to this enormous wastage of food, the individual tends to simply eat too much. About 65% of all Americans are overweight, and about half of those are actually obese. The consequences of such overeating are increased medical costs, eventually. I haven't got any figures for the total quantity of food that is overeaten, that results in the varying degrees of obesity, but add that to the 1.3 billion tonnes of known waste, and you might end up with a figure of 2 billion tonnes or more. It would be impossible to calculate the additional cost of medical care that results from the hedonistic pleasures of overeating, but I'm sure they would be considerable.

I see all this as incompetence at the individual level.

[32BT]

We think that feeding an increasing world population might be beyond the planet's resources, …

Food is wasted, or used as animal fodder,

It is more about sustaining an increasing world population. As in: everybody is entitled to a warm shelter generally designated as "a home". But can we provide such basic entitlements at the current rate of growth and waste of resources? (Food being just one of those.)

As for wasting food. As you already pointed out: most overdate food goes to animal fodder, which means we will eventually be eating it one way or another anyway.

[Vladimirovich]

We think that feeding an increasing world population might be beyond the planet's resources,

http://blogs.scientificamerican.com/anthropology-in-practice/2013/07/24/whats-stopping-us-from-eating-insects/

[RSL]

From my rational perspective I see the causes of these economic collapses in certain countries as being more to do with incompetent, corrupt, unethical and deceptive practices among bankers and financial institutions, rather than minimum wages that are too high.

The most glaring example of this, which presumably was just the tip of the iceberg, was the practice of lending money to people for the purpose of buying a house, despite the fact that many such borrowers had no reasonable expectation of being able to repay the loans.

Now, as I understand, the rationale for this practice was based upon an assumption that property prices would continue to rise. If or when the debtor defaulted on his loan repayments, the bank could repossess a property which had hopefully risen in value since the loan was issued. Is this correct?

Got to go up the mountain to the goldfields this morning to shoot some pictures, so I haven't time to go into detail, but:

I see the causes of these economic collapses as politicians making economic decisions and distorting markets. When politicians make economic decisions they're playing with other people's money, and, as Maggie said, "Sooner or later you run out of other people's money" and things fall apart. Setting a minimum wage, by the way, is an economic decision made by politicians.

The crash -- at least here in the United States -- came from politicians, specifically two senators who managed to convince a majority of Democrats in our Senate that minorities and poor people weren't getting a fair shake from the country's lenders. They put into practice a quota system that required lending agencies to make loans to people who obviously couldn't repay the loans. There's a lot more to it than that: securitization of the bad loans and a government edict that let banks treat such crappy paper as secure investments to name just two, but that was the proximate cause. I'm not suggesting there weren't some greedy, incompetent and corrupt lenders involved. There always are, but even the honest lenders were forced by our politicians to do things they knew they shouldn't be doing.

For some enlightenment about how greed can work to help an economy you might want to sit down and read Adam Smith's The Wealth of Nations. Adam was well aware of the fact that people can be greedy and corrupt, by the way.

[Vladimirovich]

Setting a minimum wage, by the way, is an economic decision made by politicians.

true, so are your retirement benefits... do not forget that.

[Ray]

It is more about sustaining an increasing world population. As in: everybody is entitled to a warm shelter generally designated as "a home". But can we provide such basic entitlements at the current rate of growth and waste of resources? (Food being just one of those.)

I see two separate questions here. (1) Is it technologically feasible to provide such basic requirements for an increasing population, and (2) Is it politically feasible, considering the incompetence, ineptitude and corruption of governments and individuals which result in enormous waste and inefficient practices at all levels?

There's no doubt in my mind that it is technologically feasible to sustain a considerably larger population than the current 7 billion. And, as you probably already know, providing wealth and security for people tends to reduce their motivation to produce large families.

We are limited only by our energy supplies and our imagination. Whilst reserves of fossil fuels are obviously limited, it will be a long time before the sun stops shining. If the uninhabited part of the Sahara desert, approximately 9 million square kilometres, were covered entirely with modern solar voltaic panels, the amount of electricity generated would be over 20x the current world energy usage, including all current oil and gas usage, converted to kWh, plus all electricity produced from whatever source.

I believe the latest developments in HVDC transmission (High Voltage Direct Current) are at the stage where only a 2% loss in energy is possiblet for every 10,000km of transmission, although loss rates for current existing HVDC lines are greater than this.

As for wasting food. As you already pointed out: most overdate food goes to animal fodder, which means we will eventually be eating it one way or another anyway.

I don't have any information on the percentage of wasted food that is fed to cattle and pigs, as opposed to landfill and compost use, but it's a terribly inefficient process to prepare food for humans then feed it to animals. I've seen estimates that 16 kg of grain and soybeans is required to produce just 1 kg of meat.

However, again there is no insurmountable technological problem in providing food for a much larger population than 7 billion. Permaculture practices can increase the food yield per acre of land fourfold, whilst simultaneously increasing the fertility of the soil, resulting in greater storage of carbon in the soil, which would consequently reduce any climate change problems that may result from our CO2 emissions.

Problems solved. 

[James Clark]

Got to go up the mountain to the goldfields this morning to shoot some pictures, so I haven't time to go into detail, but:

I see the causes of these economic collapses as politicians making economic decisions and distorting markets. When politicians make economic decisions they're playing with other people's money, and, as Maggie said, "Sooner or later you run out of other people's money" and things fall apart. Setting a minimum wage, by the way, is an economic decision made by politicians.

The crash -- at least here in the United States -- came from politicians, specifically two senators who managed to convince a majority of Democrats in our Senate that minorities and poor people weren't getting a fair shake from the country's lenders. They put into practice a quota system that required lending agencies to make loans to people who obviously couldn't repay the loans. There's a lot more to it than that: securitization of the bad loans and a government edict that let banks treat such crappy paper as secure investments to name just two, but that was the proximate cause. I'm not suggesting there weren't some greedy, incompetent and corrupt lenders involved. There always are, but even the honest lenders were forced by our politicians to do things they knew they shouldn't be doing.

For some enlightenment about how greed can work to help an economy you might want to sit down and read Adam Smith's The Wealth of Nations. Adam was well aware of the fact that people can be greedy and corrupt, by the way.

The problem with a minimum wage as I see it is that it's inflationary, and thus only productive until the market for goods "adjusts" to the new wage standard.  So while I don't believe that it's generally true that increasing the minimum wage will automatically result in layoffs, it WILL result, by definition, in higher operational costs which necessitate EITHER a cutting of resources (i.e. employees) OR an increase in prices.  Prices go up, then even with the increased wage the worker is really just as stasis, and then the whole cycle repeats itself.

As for your contention that the CRA was the proximate cause of the housing crisis, no, it wasn't, though the right seems to really, really really want to believe it.  If you could point me to the law specifying a quota on making bad loans, I'd appreciate it, because it's not in the CRA.  

[Slobodan Blagojevic]

....  So while I don't believe that it's generally true that increasing the minimum wage will automatically result in layoffs, it WILL result, by definition, in higher operational costs which necessitate EITHER a cutting of resources (i.e. employees) OR an increase in prices...

You forgot the third option: profit reduction.

[32BT]

I see two separate questions here. (1) Is it technologically feasible to provide such basic requirements for an increasing population, and (2) Is it politically feasible, considering the incompetence, ineptitude and corruption of governments and individuals which result in enormous waste and inefficient practices at all levels?

There's no doubt in my mind that it is technologically feasible to sustain a considerably larger population than the current 7 billion. And, as you probably already know, providing wealth and security for people tends to reduce their motivation to produce large families.

I agree. I also have no doubt about the technological feasibility. But I do have a doubt about the sociological feasibility.

What is the meaning of life for an increasing population if all they do is either fight each other for resources, or being busy inventing ever more clever ways to sustain more individuals for which you don't care to begin with?

You see, I think one of the most important aspects of our life here on earth is our connection to other people, and the way we affect them and thereby ourselves. The "stuff" that forms our character so to speak. If this experience here on earth has some greater goal or is some kind of transition to a different state, then clearly "enough" people should be able to experience this life on earth in order to achieve that greater goal or transition. But that greater goal or transition only has meaning if we can give it its true meaning here on earth. i.e. people need to be able to live a decent and fulfilling life that allows them to connect meaningfully with other people they care about.

So, you can have 10bln people that don't give a shit, or 1bln people that do. Considering that time doesn't care, we might prefer to have 10 generations of 1bln people living meaningful lifes, as opposed to 1 generation of 10bln that crash the planet. Again, time doesn't care. If those 10bln people f**k up life as we know it, evolution will simply come up with a better suited form of life in a couple million years...

[stamper]

You forgot the third option: profit reduction.

But the profit ratio to goods created and sold is sacrosanct to most employers?

[James Clark]

You forgot the third option: profit reduction.

I didn't forget it, but I did omit it.  It is, of course an option, I'm just not sure it's a likely option when either of the other two are "paths of least resistance," at least for the shortsighted (and in the case of a public company, for those with an eye on the stock price and short-medium term shareholder returns). 

[James Clark]

But the profit ratio to goods created and sold is sacrosanct to most employers?

And that's the problem...  I don't necessarily AGREE with that outlook, but I do acknowledge the reality of it, for a number of reasons. 

[Slobodan Blagojevic]

I didn't forget it, but I did omit it.  It is, of course an option, I'm just not sure it's a likely option when either of the other two are "paths of least resistance,"...

Only if you have inelastic demand, i.e., where price increases have small effect on the demand. Generally, it is not that easy to pass your cost increase to consumers.

As an anecdotal evidence, when I had to increase salaries of our consultants (granted, not minimum-wage employees, but the point is still valid), I could not possibly turn to our customers and ask them to pay us a higher hourly rate just because we raise their salaries. (unless other circumstances allowed us to). Over time, as our consultants gathered more experience, we were able to move them into a higher-rate category, but the connection between their annual salary increases and the rates we charge our customers was never a simple and direct one. And yes, that meant that every salary increase was a profit reduction for us, at least short-term, and for some consultants it was longer-term than for others.

One of the contribution I made in running that company is fighting that mentality Stamper was referring to (e.g., that profit margin (rate) per consultant is somehow "sacrosanct"). Prior management was known to turn down projects if the profit margin was not up to their satisfaction, an approach that almost ran the company into the ground. I believe in a marginal profit concept (as opposed to profit rate) , i.e., you should keep doing what you are doing, as long as your marginal profit exceeds your marginal cost. Marginal profit defined, for the purpose of this example, as the increase in overall company profit (not per consultant) due to the use of a consultant. Or, to simplify, as long as my consultant is bringing in any profit, it is worth paying him more to stay.