Tag Archives: jobs

False Premises

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Bill Gates had a thought on how to help workers, especially low-skilled workers facing automation.  However, he’s operating from a number of false premises.

I think tax structures will have to move away from taxing payroll.  …  Software substitution—whether it’s for drivers or waiters, nurses…it’s progressing.  And that’s going to force us to rethink how these tax structures work in order to maximize employment given that capitalism in general over time will create more inequality, and technology over time will reduce demand for jobs, particularly at the lower end of the skill set.  …  Twenty years from now, labor demand for lots of skill sets will be substantially lower, and I don’t think people have that in their mental model.  …  Economists would have said a progressive consumption tax is a better construct at any point in history.  But what I am saying is that it’s even more important as we go forward because…I want to distort in the favor of labor.  …  When people say we should raise the minimum wage—I know some economists disagree—but I worry about what that does to job creation.  The idea that through the Earned Income Tax Credit you would end up with a certain minimum wage that you would receive, that I understand better than intentionally dampening demand in the part of the labor spectrum that I’m most worried about.

The first, and prior, false premise is that taxes should be used to achieve social engineering goals—whether government’s or any others’.  No.  Taxes are for funding the government so it can carry out the tasks for which we’ve hired it.  Our Constitution lays out the sole purposes of spending at the Federal level: paying our nation’s debt, funding our national defense, and the general welfare—which is explicitly enumerated in the 18 Clauses of Article I, Section 8.  Nowhere in there is spending for social engineering listed.  Taxes, then, can only be used to raise funds for those three spending purposes, and not for social engineering.

Gates’ second false premise is that a free market is somehow a zero sum game.  In a free market economy, two men freely arrive at terms of an exchange (e.g., a good for an amount of labor, either of those for an amount of money, etc) and make the exchange.  After that exchange, both men are better off than they were before it, since each man now has something of value to him that he didn’t have before—and that thing did not cost him more than it was worth to him, with the possibility that each man got slightly more than he paid as evidenced by his willingness (now hypothetically) to have paid slightly more than he actually did.  Plainly, a free market economy is a positive sum game.

His third false premise is that “technology over time will reduce demand for jobs.”  Like technology reduced employment when car manufacturing replaced horse buggy manufacturing.  Like Henry Ford’s assembly line technology reduced manufacturing employment.  Like computers have reduced employment.  Again, no.  Technology over time changes the kinds of jobs that have value, but it doesn’t reduce the number of jobs available.

His fourth false premise is that government subsidy (minimum wage or EITC or anything else) somehow makes labor less costly—at least to the employers.  Again, no.  Whether those labor subsidies are paid for by taxes or by borrowing, they’re paid for by taxes: all government borrowing does is shift the taxes onto later generations (and without their being in a position impudently to protest the matter).  Those taxes come out of the citizenry’s pockets, and (under present tax structures) out of the revenues earned by businesses.  Costs to the citizens and to the businesses thus are increased, and they’re increased by an excess amount derived from the difference between the actual value of the man’s labor and the subsidized price paid him for that labor.  Ultimately, too, that excess amount works through the economy in the form of higher prices—inflation—and the man is no better off in the end than he was at the pre-subsidy start.

Finally, there’s the matter of wealth/income inequality about which Gates worries.  Bill Gates, however, is the modern poster boy for that sort of inequality.  That inequality, though, is neither good, nor bad; it just is, like money generally.  It’s a tool, and like any tool, it can be used for good or ill, or it can be left on the shelf to rust.

Gates, in fact, has been enormously generous with his wealth, far more so than any of the rest of us could be, and to a degree that is utterly impossible without the enormous (unequal) wealth that Gates has and the enormously unequal income he earns with which to accumulate that wealth.  As have been the Carnegies, the Rockefellers, et al., of our capitalist nation.

I’ll leave off the mechanics of a “progressive consumption tax” and the inevitably byzantine nature of the sales tax code developed to implement this.  I’d be curious to see how Gates would implement such a thing: a customer in WalMart, at the cash register imputing (in some verifiable manner) his income, and the cash register calculating his sales tax accordingly (oh, wait—there’s that technology putting a cashier out of a job…)?

We all get sales tax refunds on 16 April according to our incomes and the amount of sales taxes we paid through the year?  How will the man living in the region of the Federal Poverty Guideline live on his sales tax-reduced income before he gets his refund?

 

h/t AEIdeas

More Governance by Diktat

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Rule by law, not rule of law.  Here‘s the latest Obama installment.

The president plans to make the announcement [ordering Labor to expand overtime pay requirements to include millions more workers] on Thursday at the White House, a senior administration official confirmed to Fox News. Though the administration has claimed previous executive actions had bipartisan support, officials are acknowledging that this particular move [does not.]

These aren’t blue-collar jobs covered by “collective bargaining” agreements—union contracts—either.  Now, managers and executive officers of companies will be…covered: fast-food restaurant managers, loan officers, computer technicians, and more.

There’s not even a pretense of union-management mutually agreed compensation structure in this latest government move—the Federal government is dictating to businesses how they must conduct their businesses, the Federal government is dictating to businesses how they must structure their internal costs.

No market forces allowed.  And if the law doesn’t let the Federal government do what it wants to do to us, the Feds (not us) will change the law, and the Feds will change it with, or without, our permission.

What’s next?  It’s a truism, that if something becomes—or is made—more expensive to have, buyers will buy less of it.  If labor—blue- or white-collar—is made more expensive, businesses will retain/hire less of it.  Look for slowed hiring and outright management staff reductions, either in people retained or in salaries paid to make room for the mandated overtime increases.

Then, look for this administration to change/write its own law to mandate that salaries and wages can never be reduced, and that once hired, an employee can never be terminated.  Businesses, after all, are jobs welfare programs in the Progressive mind.

Jobs

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Here’s where we are, five years into the Obama “recovery” from the Panic of 2008:

  • 4.1 million fewer full-time workers today than in November 2007
  • 81% of workers are full-time now vs. 83% prerecession—and that per centage is of a smaller labor force than extant in 2007
  • per CBO, employment at the end of 2013 was about 6 million jobs short of where it would be if the unemployment rate had returned to its prerecession level…”if the participation rate had risen to the level it would have attained without the current cyclical weakness”

Real wages have gone nowhere in this recovery:

And this graph of the performance of the Obama “recovery:”

This recovery is some 10 per centage points below the recoveries of the three prior…recessions.

If this sounds like a broken record, it’s because this “recovery” is a broken record.

Speaking of Out of Touch

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Senator Bernie Sanders (I, VT) demonstrated the depth of his condition of out of touchness in a Tuesday op-ed in The Wall Street Journal.  Although Sanders’ out of touchness is amply demonstrated by his full-throated defense of the dinosaur that is the United States Postal Service, I want to look at a couple of other things he said in his piece.

First, there’s this:

There are very powerful and wealthy special interests who want to privatize or dismember virtually every function that government now performs, whether it is Social Security, Medicare, public education or the Postal Service.  They see an opportunity for Wall Street and corporate America to make billions in profits out of these services….

He says this in all seriousness, as if shrinking government and returning the bulk of its functions to the private sector where they belong is somehow a bad thing.  And that there would be profit in that private sector (and not only for “Wall Street and corporate America,” but also for medium-sized and small businesses and the Americans these would employ) is something only an avowed Democratic Socialist like Sanders would decry.  Moreover, it’s not only the powerful and special interests who want this shrinking of government and a divestment of its present array of “functions.”  Apparently he’s missed the Tea Party revolution that’s been going on these last five years.

He also had this (with some overlap with the quote above):

They see an opportunity for Wall Street and corporate America to make billions in profits out of these services, and couldn’t care less how privatization or a degradation of services affects ordinary Americans.

This is a false dichotomy.  Privatization doesn’t at all degrade services—it improves those extant and leads to vast expansion of new services, and at lower prices than before.  This is the example of the breakup of Ma Bell, effective at the start of 1984.  Under Ma Bell, we had a very good land line telephone system.  After the breakup, we got an even better land line system of competing companies (until their effective remerger); a cell phone system of competing companies; a cable system of more-or-less competing companies, which also compete for telephone business; and all of them competing for Internet business—including telephony communications.

A further example is the USPS, which prior to the divestment of package delivery and mail service other than first class, did a very good job of delivery.  Now we have competing package and special delivery service companies that are cheaper, faster, and even more reliable, and they have a broader range of special delivery services that the USPS is scrambling to match.  Additionally, all those communications services above are functionally competing for first class mail delivery, too, even though only the USPS can handle formal first class.  That’s what email, texting, Skype, AIM Chat, Twitter, and on and on—even that other dinosaur, faxing—are doing.

Apparently, Rip van Sanders has been sleeping through the end of the 20th century and this beginning of the 21st.

Our Economic Recovery

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The Congressional Budget Office had some remarks last Thursday.

More than four and a half years after the end of the recession, employment has risen sluggishly—much more slowly than it grew, on average, during the four previous recoveries that lasted more than one year.  At the same time, the unemployment rate has fallen only partway back to its prerecession level…and a significant part of that improvement is attributable to a decline in labor force participation that has occurred as an unusually large number of people have stopped looking for work….  Moreover, the rate of long-term unemployment—the percentage of the labor force that has been out of work for more than 26 consecutive weeks—remains extraordinarily high.

And

CBO estimates that GDP was 7½% smaller than potential (maximum sustainable) GDP at the end of the recession; by the end of 2013, less than one-half of that gap had been closed.  With output growing so slowly, payrolls have increased slowly as well—and the slack in the labor market that can be seen in the elevated unemployment rate and in part of the reduction in the rate of labor force participation mirrors the gap between actual and potential GDP.

And [emphasis in the original]

Employment at the end of 2013 was about 6 million jobs short of where it would be if the unemployment rate had returned to its prerecession level and if the participation rate had risen to the level it would have attained without the current cyclical weakness. Those factors account roughly equally for the shortfall.

Any questions about the effectiveness of the Obama administration’s economic policies?