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SPENDING MONEY TO MAKE MONEY

July 8, 2017

SPENDING MONEY TO MAKE MONEY

Economists predicted recently that we would add 175,000 new jobs to our workforce in June, 2017. We added 222,000. My favorite papers, the New York Times and the Washington Post, heralded such an unexpected increase in job count as assurance that our worry about the state of the economy was unfounded or, in other words, that the number of people employed is the measure of the economy’s health. These newspapers may have Wharton School business writers telling us that this is the case, but I as a lawyer with only an undergraduate degree in economics respectfully disagree. I think that while the employment statistic matters that it is how much the workforce is paid per unit that in reality tells us not only that the economy is in good shape until next month but for perhaps months and years to come, as I expect to show later in this essay.

We must first understand that it is aggregate demand in market economies and not employment statistics which determine the economy’s health. If few are buying the goods and services provided by the economy, few will be produced to sit or rot in warehouses for lack of demand. Factories lay off employees, ancillary industries suffer, employers insist on wage reductions etc., thus further dampening demand and increasing social costs we all pay to help the unemployed keep body and soul together, all of such economic negatives hardly indications of economic health or of economic growth to come.

Let’s take some numbers in my attempt to prove my thesis that it is how much people are paid per unit and not how many people are working that make for demand in an ordinary economy, an economy assumed to be neither in recession nor depression nor boom status and with average unemployment figures. First, there is always frictional unemployment to consider. So-called really “Full Employment” can never be achieved because there are always those who are temporarily unemployed due to injury or illness and especially among those who are in between jobs. “Full employment” is therefore, like “free markets,” a myth to be defined as around 4 percent unemployment, though rightly so, and even in boom times, because of this permanent limitation on the count.

Let’ assume for illustrative purposes and ease of discussion that we have 100 million people in the workforce and (at the present official rate) 4.5 million unemployed that will never go below 4 million in any event. (Actually there are more than 100 million in the workforce and may be less than 4.5 million unemployed given its frictional component and what I am about to suggest can be fairly expanded to fit those numbers as our economy lumbers along to its now-unknown fate due to politicians who divvy up its income and wealth to their friendly contributors while ignoring the rest of us.

Now to the heart of my argument (whether my assumptions and redefinitions are flawed or not) – Try to imagine, say, a 5 dollar an hour increase mandate for everyone in the workforce. With 100 million “units” that amounts to $500 million AN HOUR in additional demand! Now take that a step further and try to imagine what such a giant increase in demand would do for our present underperforming if not moribund economy. Would such a mandate bankrupt employers or cause them to offshore their production in search of cheaper labor costs? Would employers, for instance, hire fewer medical assistants and retail clerks because of such additional costs acting as drags on their bottom lines?

I think not. Trade treaties could be renegotiated to reflect this change in domestic wage policy amid cries from the status quo about such nonsense as the nonexistent “free market” and “protectionism” in a global economy, but just who is protecting whom in this global equation? Are the sources of cheap foreign labor protecting their own economy with their cheap labor policies or are we protecting our economy with enlightened initiatives such as I am suggesting? Both. We have just as much right to protect our economy as they have to protect theirs, it seems to me, and I don’t see why we should abandon our policy-making to protect our own economy to others, trade treaties or no trade treaties. China, after all, doesn’t give us any rights to set their domestic wage policies, so why should we allow them (and our complicit American multinational corporations) to effectively set ours?

As I see it and assuming such a raise, I think that our domestic employers will be hiring and not firing medical assistants and retail clerks and others in a demand-inspired booming economy in order to provide goods and services for millions of new customers with more money in their pockets and that the additional labor costs will be blunted by the huge increases in profits so that, in effect, everyone profits. I also note that when we get our unemployment numbers as low as they can go that our social costs (food stamps, rental assistance, etc.) will also crater as government revenues zoom from such a long-overdue move away from wage inequality, the current cancer on our economy.

It takes money to make money, as the old saying goes, and if policies I have here recommended were to become official policies everyone from the man who works in the local lumber yard to and through even Wall Street would prosper greatly with economic growth in the stratosphere. My all-time favorite economist, John Maynard Keynes, got it right when he wrote that “Our problem is not over-production; it’s under-consumption,” and I think the way to rid ourselves of under consumption is to provide our workforce with the necessary withal to make our economy hum for everyone, and why not? Isn’t it about time for all of us rather than just the few to have a winner? Why have a “market economy” if few can afford to visit there? Let’s end wage inequality so that all of us can afford to “go to the store” and stoke up demand in the process.     GERALD      E

 

 

 

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