Hello and welcome back to “Pie ponders”, in which Pie – that is me, for those who are new – raises questions on various topics of great importance. Today, we talk about the evil of bias.
Talk of bias in hiring, wage gaps, and glass ceilings is all the rage these days. I will take advantage of glibertarians being a safe space and voice an opinion that would be routinely excoriated in a different environment: bias is inevitable and preventing it is no business of government, as long as no aggression is involved.
But what about the wymminz, you ask? Make love to them if they are pretty and to someone else if they are plain, to paraphrase some shitlord from a while back, a different age it was, because no one would say such a thing in our enlightened time. But seriously, I kid, I kid… I would never say anything so crass. Well, about the women or minorities or whatever the answer is simple: a free market will penalize, although not eliminate, bias and bigotry, and will constantly create new opportunities. Beyond that, life sometimes sucks and you cannot prevent that by giving vast powers to bureaucrats.
Something else controversial: bias is inherent in human experience. People are biased in every aspect of their life- it is called subjective preference. Business is an aspect of life like any other. As I said before, the whole economic/social liberty dichotomy complete nonsense. Human life is a continuum of many aspects and you cannot draw clear boundaries between them. But… but… it’s not fair… Well, life ain’t fair, depending on your definition of fair. Some things are unpleasant or sad or unfortunate. That is the way it is. Luck of the draw, as I mentioned in an earlier article. But whatever you view on the fairness of it all, you will not solve it by government aggression. I can tell you that much. Getting back to bias in the economic area of life, in the end it is no different than choosing who you date. You make decisions based on knowledge and personal preference. And, just like dating, it is an issue of skin in the game (and/or superglue).
Let’s say I own a property which I rent using Airbnb. That property is worth money and it is part of my wealth. It also can be damaged, reducing its value. If this happens, I lose money, so I have a direct interest of it not happening. Maybe, based on personal prejudice, I do not want to rent said Airbnb to say… hot Russian women. That is maybe unpleasant for the group of hot Russian women on a girl’s only vacation in Bucharest who really likes that apartment, but it is my right not to rent them my property. But maybe it is not that simple. Maybe in my personal experience – based on the last 3 times I rented to a group of Russian women – Russian women get drunk and mess things up, it is my right and my decision to avoid property damage and, as such, loss of money. I will instead rent it out to that group of Mormon missionaries. It is probably unfair to these 5 nice Russian girls who just want to see the museums and quietly read some books in the evening. It may even be true that statistically, worldwide, Mormon missionaries do more damage to Airbnb rentals then hot Russian women (based on OECD data for 2015). But, in the end, it is my apartment, my experience of damage, my preference and I choose how to best avoid issues, even if it means stereotyping.
And while some groups had significant historical discrimination – imposed by law, custom and oftentimes both, I am sorry to say that this has nothing to do with individuals in the present. Collectivism tries to make it about groups throughout history, but collectivism is full of shit. Each makes choices based on personal experience and has nothing to do with other groups in the past. Furthermore, not unlike minimum wage, I have significant doubts anti-discrimination legislation, at this point in time, helps various groups more than it hurts. There is always a way to get around it.
As a personal anecdote, the first time I left Romania as a kid in the 90s, I went on a trip to Italy, where it was sufficient to go into a store and be heard speaking Romanian for a shop assistant to constantly keep an eye on us, even follow us around, assuming we were there to steal. Was it unpleasant? Yes. Did it enrage my mom? Sure. But in the end, prejudice or experience, those shop keepers had a right to keep an eye on what they decided to be suspicious persons, as unpleasant as that may have been for me.
If I have a business which I start with my work and my money, and I am the one at risk to go bankrupt, I get to choose who I hire, which customers I target, what products I make, where I source my raw materials and every other aspect about running the business. If I believe hiring a good looking employee helps my business, I will not hire someone I consider ugly. Is it unfair? Maybe. Here some people will say you should hire based on merit, and then exclude looks from the merit part. But can you do that? Not always and not in every business. In the end, the employer decides what merit is, based on the position they are hiring for. Hooters hires for different reasons than the local hardware store.
Bias will not go away. All people are biased, and sometimes – regardless of how often -with reason. You depend on various heuristics – stereotypes among them- in order to make decisions about unknown things and an unknowable future. Some of this bias can be simply bigotry. Thems be the breaks. But, in the end, when you take the risk of a business, no one without similar risk in it should get to tell you what to do, or who to hire. Because if the business fails, it should fail due to your decisions, not ones imposed by others with no skin in the game. And no one can tell you this or that “has nothing to do with the business”. There are a million ways a business can succeed or fail, and they are not clear or known. Hence all the failures. So the owner gets to decide what they want to do. You can avoid hiring women, if you think they work less overtime or they will inevitably leave to have children, or you are just plain misogynist; gays if you think your customers prefer heterosexuals or they make your best employee uncomfortable, or you are just plain against homosexuality; fat people, if you think they are weak-willed or more prone to miss work due to illness, or just don’t like the fatties. You and only you should get to make those judgments. Because it is your business at play.
While a lot of the talk of various gaps can be proven wrong by looking at the actual data, it would not be a correct conclusion that there is zero bias. Bias in individual companies or people is not the same as widespread bias in every company or person. You will always have people who are prejudiced and make biased decisions due to that, people who are incompetent and make biased decisions due to that, people who have been burned before and make more or less excessively biased decisions due to that. But in a free market situation, there are inherent feed-backs that punish bad decision making, whether the bad decision taking is prejudice or incompetence or simply choosing wrong among various uncertainties.
To give a final example, certain businesses in Romania do not hire people from poor non-EU country like say Armenia or India. This would cause fury among certain circles. But it is a simple calculation. People from these countries want to immigrate to the EU, but not really to Romania, and use Romania as a stepping stone to reach Germany or France or whatever. For a company that has hired such people, who then leave the second they find a job further west, it means the company paid them money in the initial stages when they were being trained and not that productive, and the moment they would become productive they left. This can lead to the company to prefer not hiring these people, based on a heuristic they developed from experience. Maybe some of them think Romania is the country for them, but there is little point in taking such a chance. Alternatively, there was great outrage in Romania when some unreproducible study or other showed that in Sweden, for identical CVs, the ones with Swedish names get a higher rate of interview offers compared to ones with Romanian names. But this makes a sort of sense, for a Swedish company, all other things equal, to prefer a Swedish person, at the very least they speak the language and have more predictable habits.
No one is entitled to a certain job or a certain wage or a certain promotion, so being denied one of those things is not a business of government. Well, what about the social justice side of the issue? Well there is no social justice side of the issues, social justice has no skin in the game and also fuck social justice it is a stupid concept.
It’s no secret that Donald Trump has appointed a lot of partisan, unqualified hacks to key policy positions. A few months ago my colleague Gail Collins asked readers to help her select Trump’s worst cabinet member. It was a hard choice, because there were so many qualified applicants.
The winner, by the way, was Wilbur Ross, the commerce secretary. That looks like an even better call now: Ross’s department has reportedly prepared a report declaring that imports of European cars threaten U.S. national security. This is both ludicrous and dangerous. It gives Trump the right to start a new phase in his trade war that would inflict severe economic damage while alienating our allies — and, as a result, undermine national security.
So he links to a Politico article that explains the Trump administration is considering levying a 25% tariff on cars imported from Europe. This is not without consequences but he seems to think Trump is doing it out of sheer lunacy.
Nah, chances are pretty good it is a play to his base. Trump cites luxury cars made in Germany, Mercedes-Benz specifically. Now a tariff on foreign imports might benefit domestic manufacturers, and the workers that build them. Where do domestic auto companies build cars, again? Now, Mercedes-Benz has a plant in Alabama because it is already more cost effective for them to build cars here for the North American market. A tariff is ultimately going to be paid by the consumer which would make a base S-Class ($91,250) something around $114,062. Can the market sustain that? Maybe, but I bet they consider retooling and building the S-Class with its big luxurious, leather clad, climate controlled back seat…here in America. They do that more jobs open up in Alabama, which is smack in the middle of Trump country.
About Moore: It goes almost without saying that he has been wrong about everything. I don’t mean the occasional bad call, which all of us make. I mean a track record that includes predicting that George W. Bush’s policies would produce a magnificent boom, Barack Obama’s policies would lead to runaway inflation, tax cuts in Kansas would produce a “near immediate” boost to the state’s economy, and much more. And, of course, never an acknowledgment of error or reflection on why he got it wrong.
Because you have never been wrong, no way no how. Even where you admit you were wrong, you link a previous article where you link to yet another article where you retract your infamous statement that markets would never recover from Trump’s election.
So conservatives could, if they wanted, turn for advice to highly partisan economists with at least some idea of what they’re doing. Yet these economists, despite what often seem like pathetic attempts to curry favor with politicians, are routinely passed over for key positions, which go to almost surreally unqualified figures like Moore or Larry Kudlow, the Trump administration’s chief economist.
Many people have described the Trump administration as a kakistocracy — rule by the worst — which it is. But it’s also a hackistocracy — rule by the ignorant and incompetent. And in this Trump is just following standard G.O.P. practice.
Why do hacks rule on the right? It may simply be that a party of apparatchiks feels uncomfortable with people who have any real expertise or independent reputation, no matter how loyal they may seem. After all, you never know when they might take a stand on principle.
Your syphilis called. It wants you to know it thinks your genital warts are disgusting.
Even now — as I can attest from personal interactions — a great majority of those working for the Treasury Department, the State Department and so on are competent, hard-working people trying to do the best they can for their country.
But as top jobs systematically go to hacks, there is an inevitable process of corrosion. We’re already seeing a degradation of the way our government responds to things like natural disasters. Well, there will be more and bigger disasters ahead. And the people in charge of dealing with those disasters will be the worst of the worst.
What’s the difference? This political class is the biggest group of cum-dumpsters I’ve seen in a long time. Your problem is you’re used them fixing their hair, freshening up, and leading you to believe they at least change their panties between customers. They don’t. They are all a bunch of filthy, naked whores, and its better we all see it.
Since a few of you discussed some of his articles without me in the links, I’ll take a stab at this one.
If you’re like me, you could use at least a brief break from talking about Donald Trump. So why don’t we talk about Ivanka Trump instead? You see, recently she said something that would have been remarkable coming from any Republican, but was truly awesome coming from the Daughter in Chief.
Let’s not talk about Krugman. Lets instead talk about Krugman’s wife. Tell me, does she still look at you while somebody else fucks her brains out?
Do you see why that is a ridiculous way to start a column? Probably not. But do continue.
O.K., this was world-class lack of self-awareness: It doesn’t get much better than being lectured on self-reliance by an heiress whose business strategy involves trading on her father’s name.
So what? So does every politician named Kennedy.
But let’s go beyond the personal here. We know a lot about upward mobility in different countries, and the facts are not what Republicans want to hear.
[…]
The key observation, based on a growing body of research, is that when it comes to upward social mobility, the U.S. is truly exceptional — that is, it performs exceptionally badly. Americans whose parents have low incomes are more likely to have low incomes themselves, and less likely to make it into the middle or upper class, than their counterparts in other advanced countries. And those who are born affluent are, correspondingly, more likely to keep their status.
You know where this is going. Because there must be somebody on Earth we can emulate…
Back to the “potential for upward mobility”: Where do people from poor or modest backgrounds have the best chance of getting ahead? The answer is that Scandinavia leads the rankings, although Canada also does well. And here’s the thing: The Nordic countries don’t just have low inequality, they also have much bigger governments, much more extensive social safety nets, than we do. In other words, they have what Republicans denounce as “socialism” (it really isn’t, but never mind).
Are they socialists or not? I’m pretty sure if I point out Cuba, Cambodia, Venezuela, and Zimbabwe as socialist helloles, you’ll start talking about Sweden. Pick one shit head.
But as to the question of upward mobility, here’s a fun snippet from OECD.
Intergenerational mobility reflects a host of factors, including inherited traits, social norms and public policies that may influence the individual’s willingness and ability to seize economic opportunities. These factors are difficult to unbundle precisely and, as regards norms and policies, to some extent reflect societal choices over institutional settings as well as differences in choices over redistribution and equity, which are likely to be valued differently across countries. Therefore, no “benchmark” mobility level can be identified in cross-country comparisons.
So comparing the country with the world’s largest economy to a tiny European ethnostate, is pardon my anglo-saxomisms, probably comparing shit to syphilis.
Which means once again, we have to point out the countries you are talking about have small, nearly homogenous populations, distributed among a few population centers. How small exactly? The United States has more millionaires than Sweden has people. Even then, the millionaires in Sweden appear to have inherited their wealth. Why does Sweden have the type of “income equality” that they do? Probably because their middle class pays most of the taxes, and if you happen to be a high earner you have incentive to leave….because the taxes there suck balls.
At any rate, here is a book I am sure you never read that explains how many of these so called “successes” are actually the result of free market reforms that have been put in place since the 70’s…when the Swedes figured out they were turning into what we now call Venezuela. So how do you conclude?
By contrast, progressive Democrats are calling for universal health care, increased aid to the poor, and programs offering free or at least subsidized college tuition. They’re calling for aid that helps middle- and lower-income parents afford quality child care. And they propose paying for these benefits with increased taxes on high incomes and large fortunes.
Yes, because Universal Healthcare is working out in Finland. If you need to find out how well that works out in the US, one simply need to look at how well the Veteran’s Administration is meeting the challenge of providing universal healthcare to 3-4% of the US population. Its particularly bad if you live in a rural area.
Which I assume an asshole like you is okay with fucking over the half of the country that doesn’t vote for your preferred politicians.
I predict a nonzero number of people reading this will not find it enlightening or insightful. The exact verbiage involves some profanity, but I ask the forbearance of the Glibertariat.
I frequently ruminate on why I don’t understand other people, and speculate on how they might have come to some rather bizarre conclusions. While often fruitless, it does exercise the neurons, and leave pieces of dross lying around the brain pan like this one. It seems to me how one views the world can imply a great deal about how one sees value. I think, at a basic level, there are two ways of looking at value. I’m going to dub them the Theory of Absolute Value, and the Theory of Relative Value.
The names more or less contain all there is to know about the core of the theories. Absolute value means that if something has value, that value is the same, for everyone. It is a very easy thing to intuit, especially when you look at how a child is taught about money. “This piece of cotton and linen with ink on it is worth something. If you go to the store, you can trade it for other things.” Since that value is fairly consistent, it’s easy to infer it’s worth the same to everybody. And with prices being fairly consistent, it’s not hard to make the leap to value being intrinsic.
In of itself this intuitive leap doesn’t harm the person’s ability to function. But when you start to draw logical conclusions from it, things begin to look different. If the value is absolute, then that value can be determined objectively, and centrally. Also, there is no such thing as a mutually beneficial trade. Either both parties break even, or one side gets cheated. But what of artisans? How does a cobbler take pieces of leather that don’t seem to have much value and make a shoe that does? Clearly this means the labor is adding something, and that labor has a value. But then that labor’s value must also be the same in all cases. So in any exchange of services, you’re going to end up with one party fleecing the other, or a grudging lack of gain on either side. From there it’s easy to look at a business and conclude that the only way it could be making a profit was if it was cheating its customers, employees, suppliers, or any combination of the three.
But why would so many people willingly participate in a system where they’re losing out or barely breaking even most of the time? Clearly they must not have a choice. Before you know it, you’ve gone from a simple intuitive inference to chanting anti-capitalist slogans.
Backing up to the beginning, the alternative proposition is the Theory of Relative Value. It supposes that value is not intrinsic but subjective and situational. Our cobbler may have made a fantastic shoe, but if it’s a size ten, it’s too small for my feet, so I’m not going to value it a whole lot. Likewise, those pieces of inked cotton and flax don’t themselves have value, beyond the ability to facilitate exchange. Once nothing intrinsically has value, but some measure of utility, it becomes easy to see mutually advantageous exchanges where both sides might walk away satisfied with the result.
But if everything is relative, it is impossible to determine an objective value. Not for those shoes. Not for an undeveloped piece of land. Not even for yellow-hued, chemically resistant metal. This causes problems then for doing things centrally. And that business? Well, it’s entirely possible that it can turn a profit without cheating the customers, suppliers, or employees.
The thing is, if your brain has wired in the Theory of Absolute Value, then the Theory of Relative Value becomes almost alien to it. This conclusion, I fear, is drawn almost entirely from my own thought processes. I passed economics, so logically I can figure out that the Theory of Relative Value more accurately reflects reality. But intuitively, I still jump to Absolute Value. The initial reaction of, “Why would anyone buy that?” betrays the old childhood pathways still in use. Because it still makes no sense why anyone pays a dime for a Jackson Pollock splatter, or Florida real estate.
Introduction
In this series, I will be examining an economic event known as The Great Decoupling its causes, and how they drive economic inequality. The first part of the article will deal solely with delving into the background of the Great Decoupling and developing a theory for what caused it. Part 2 will go into wealth and income inequality and how they are caused/driven by those factors.
What is The Great Decoupling
The Great Decoupling is a term that has been coined to describe the sudden divergence between productivity growth and wage growth in the early 1970s. Prior to that going back to at least the end of World War 2 wages and productivity moved in lockstep indicating that they were tightly coupled and that in effect workers were claiming a constant percentage of their growing productivity. You can see this graphically in images like the one below.
There are other versions of this graph comparing different wage metrics, they all tell the same basic story however so there is no need to go into them.
And that graph does tell us that something profound happened to the economy in the early 1970s and if you look closely at the graph that it is clear that this event was not a form of slow gradual change but rather a specific event that occurred between 1972 and 1974. What the event was the cause for the decoupling of wages from productivity is not so clear.
Before I go into my own theories for what is behind this event, I will go over the 2 most commonly promoted/believed theories and examine them to see if they have any validity to explain the phenomenon.
There are a few other theories for what caused the Great Decoupling but none of them are particularly widespread or developed as these and so I will not go into them but suffice it to say that every theory I have seen proposed for the cause of the Great Decoupling has been lacking and not backed up by any evidence that fits the evidence
Theory 1: Automation driving workers out of their jobs
The basic idea behind this theory is that as automation of factory jobs grew demand for labor shrank and while it never shrank enough to create mass unemployment, it did deprive workers of the negotiating power needed to demand higher wages. Being an essentially neo-Luddite theory, you will often see this mixed with some claims about declining union membership/power as an aggravating factor.
In fairness, there is some validity to this theory as automation was a growing force in the economy in the post-war years that have accelerated as time went on. There are some flaws to the theory. First, automation did not come onto the scene from nowhere in the early 1970s, it had been an ever-growing force in the economy since the industrial revolution. Had this been the primary driving cause of the Great Decoupling you would not see a sharp line of demarcation where wages and productivity diverged, rather you would see a slow departure as wages gradually fell behind productivity growth. In other words, as automation grew steadily since the 1880’s wages and productivity would never have been coupled in the first place. Second, the growth in automation would have only impacted a few sectors of the economy, primarily manufacturing and farming. Over the period of the Great Decoupling those 2 sectors represented a shrinking portion of the overall economy and as a result, there were plenty of jobs for the workers impacted by automation to go to in other sectors of the economy to find work leaving them with plenty of bargaining power to increase wages.
Ultimately this theory is used to back either an Organized Labor narrative or to support dire predictions of a coming singularity where automation renders huge percentages of the workforce obsolete and while that may or may not have some validity going forward it is a very poor fit to describe what actually happened to the economy between 72 and 74. The best you can say is that Automation was one factor among many that helped keep wage growth decoupled from productivity growth, it could not have been the causal factor which initiated the decoupling.
Theory 2: Deregulation and tax cuts for the wealthy transferred ever-growing wealth from workers to capitalists
This is your standard Progressive/Neo-Marxist talking point. Basically, the greedy rich people convinced the government to change the rules so that they can seize ever more money from the proletariat. Often by having government itself redistribute the income/wealth upwards through cuts in services to the poor being funneled into tax cuts for the rich. Unlike with Theory 1 however, there is pretty much no validity to this claim whatsoever.
As the graph shows, the deviation between real wages (real wages have been adjusted for inflation) and productivity are clearly indicated to have occurred suddenly between 1972 and 1974. For government regulation or tax changes to be the driving force, there would by necessity have had to have been some major new legislation on taxes or regulations that drove the change within a handful of years immediately prior to the time period in question. What we instead see in the years immediately prior to the decoupling event is a period of massive increases in regulation with the government going so far as to impose wage and price controls as well as the creation of 2 of the largest and most powerful regulatory bodies in our government, OSHA and the EPA. On Taxes the only significant changes being the imposition of entirely new payroll taxes and while those taxes were not progressive in nature, they were small and offset by massive increases in welfare spending transferring income to the poor. You do not see significant tax cuts or pushes for deregulation going into effect until 1982 a full decade after the decoupling event.
The best factual case that progressives and left-wing economists can make is that the decoupling was initiated by something else and then reinforced by the tax and regulatory changes of the Reagan administration and even that is a weakly supported claim based on the evidence.
What really happened
Admittedly not being a trained economist or having access to all of the data to back this theory up or prove it this is just a theory but what I can say about what is to follow is that it is a far more complete vision of what happened and is totally consistent with all of the evidence which I took into account.
Before we can really understand what drove the decoupling we must understand when and how it happened. If you look very closely at the graph in the image you will see that in 1972 productivity and wages remained in synch, in 1973 they had begun to diverge however the divergence was within what was expected based on how the 2 metrics had moved in the past and by 1974 the 2 metrics were moving along completely different curves. This is a very sharp line of demarcation it can be placed to somewhere in an 18-month period from the start of 1972 through mid-1973 that a 24-year-old trend suddenly changed. Since it was not some kind of a gradual event there must have been a specific change that drove it and it had to have occurred no earlier than 1970 and no later than 1973. When we look at history there happens to be just 1 significant political-economic event that matches this time period, the end of the Bretton Woods system.
Breton Woods
What was the Breton Woods System? Following World War 2 the major nations of the world agreed to a system of international currency valuations with other currencies being marked to the dollar and the dollar being directly convertible into gold. The system worked well enough for a while, but it was originally based on the political and economic realities of 1944 where most of the economies of the world had been smashed to rubble and the only significant industrial economy remaining was the US. By the 1960s that was no longer true, England and France had resumed their prewar positions as major economic players, Germany was not far behind and Japan was an up and comer hot on their heels. Compounding this was the fact that the global economy was growing so much faster than the US economy that the US lacked the gold reserves to sufficiently guarantee the currency.
In 1971 the G10 held a summit to try and rescue the Bretton Woods system devaluing the dollar from $35 to $38 per oz of gold and in August of that year the US stopped the practice of allowing dollars to be directly exchanged for gold by closing the “Gold Window”. These steps did not help, and the dollar reached $44 per oz of gold in 1972. The end came in 1973 when the US and the rest of the world abandoned the Bretton Woods system and the gold standard altogether for a system of fiat currency backed by nothing where exchange rates would be determined by market forces. Under this system, a country can manipulate its currency by just creating new money as needed without the need to worry about whether they have the gold reserves to back that new money. Basically, the end of Breton Woods was the birth of the Inflationary monetary regime.
So now we have a candidate that at least could, in theory, cause the decoupling and fits the timeline, but this is still not a complete enough explanation as a move from fixed to floating currency can merely cause inflation, there is no real mechanism for it to suppress wages in relation to productivity changes, or at all for that matter. While wages generally trail inflation, they do rise with it. So, If the end of Breton Woods were the sole cause of the decoupling event then what we not have seen a decoupling between real wages and productivity as there would have been nothing to prevent workers from continuing to capture the same portion of productivity growth as they had in the past
What’s missing?
Now we have a temporal event that acted as a trigger in the decoupling but that event is not in and of itself capable of producing the result we have seen so there must also be other forces at play here, we have to come up with a reason why wages are not only not rising with productivity but also not rising with inflation as they always have in the past and economic theory says they should. We need to come up with some kind of economic force or combination of forces that are capable of completely counteracting inflation and productivity growth which are working to pull wages up and results in wages that have essentially flatlined for 45 years.
The link between wages and prices
Before we can get into what is driving the wage stagnation there is an important relationship we need to understand, the link between prices and wages. Economists argue over whether wages drive prices or prices drive wages, but they all agree that prices and wages are intimately linked. The actual evidence seems to say that the link is bi-directional, that is, an increase in wages in an economy will drive a corresponding increase in prices and an increase in prices will drive a corresponding increase in wages. There is good reason to believe in this bi-directional link between the two as it fits in with much we know about human motivations.
When a worker accepts a wage, he is not really agreeing to the absolute magnitude of the wage he is evaluating that wage in relation to what it costs him to live and the lifestyle that the wage will afford him. If prices are rising, then he will eventually decide that the current wage no longer satisfies his needs and seek a higher one. On the reverse side when a company offers a wage for a position, they are taking the same factors into account and if prices are falling they may not be able to get their current workers to accept lowered wages but they certainly will offer new workers lower wages in response and in extreme cases will replace current higher paid workers with new workers at lower wages. So, this is how wages respond to changes in price levels within an economy.
Prices also respond to changes in wages. If a worker’s wages are increasing, he will be more willing to spend increasing amounts on goods and services that he was in the past with the lower wage, companies seeking to maximize profit will note this increased financial flexibility within the market and adjust their prices higher accordingly. Additionally, if a company finds itself having to pay higher wages for workers that represents an increase in costs and therefore they have a strong incentive to raise prices to compensate for the increase In cost.
So as you can see there are multiple forces on each side of the wage-price equation that work to keep the two in close correlation and when one looks at real wages (that is wages adjusted for price inflation) over this time period one does indeed see that both wages AND prices have been flat.
We find ourselves in a world driven by inflationary fiat currencies which according to pretty much all economic theories should be producing increasing prices and wages, but we find that neither are really increasing at all and so the questions that must be answered are why neither is increasing because if either was increasing then the other would be.
What has been keeping wages down?
In addition to there not having been any upward pressure on wages from increasing prices it boils down to supply and demand. Coming out of World War 2 the US had a rapidly growing labor force as productivity increases in farm work freed up large numbers of workers to go to work in more valuable endeavors and the number of women in the workforce began to grow steadily. This trend was then reinforced by improvements in public health driving up the median age as well as the age to which one was healthy enough to work and eventually the Baby Boomer generation entering the workforce. This was not a problem in the immediate postwar years as the US had a massive export economy and virtually no import economy to compete with thanks to the US being the sole remaining industrial power in the world. Even in the face of this rapidly growing workforce, there was still plenty of work to go around.
By the mid 1960s this began to change, even though the growth in the US workforce was not slowing countries had largely rebuilt from the war and not only could satisfy many of their material needs themselves they were beginning to export large quantities of goods into the US so while there was still plenty of work to go around companies and consumers began to have alternatives to just paying higher prices for US labor.
As time has gone by this trend has only continued to accelerate as more and more countries became first major export players and eventually economic powers in their own right. At the same time technology has been expanding to make the world a more global place. Yes, the US is still the leading economic power, but it is no longer the only economic power so that workers in the US are no longer just competing with their neighbors but with people across the globe who often can work for a tiny fraction of what a US worker needs to earn and still survive. The result of this is massive downward pressure on wages, there is plenty of work and we do not see widescale unemployment but there is little flexibility for workers to place upward pressure on wages because if US workers ask for too much the work will just go overseas.
What is keeping prices low?
The first thing to recognize is that a fiat currency regime need not be inherently inflationary. It is only inflationary to the extent that the money supply grows faster than the growth in goods and services produced within the economy which means that new money created up to the level of the gains in productivity + population growth would simply have the impact of counteracting the natural deflationary tendency of productivity and population growth and work to hold prices steady. It is only money creation beyond this level which could cause actual inflation in prices.
That said with the monetary policies created following the end of Bretton Woods were significantly beyond this point and so a common refrain you hear to challenge economists opposed to the monetary policies of the Fed and US Government is “Where is the inflation”? Prices have been essentially flat for decades even though the monetary base has been increasing near exponentially, so those theories are falsified, right?
Not so fast. The first thing that needs to be realized is that both increases in productivity and population exert deflationary pressure on prices.
Given that an increase in population represents more workers producing goods and services however while this represents a deflationary pressure on prices as there are fewer dollars available for each unit of production in the economy so the monetary supply had to grow by the same proportion as population growth (more specifically workforce growth but they are interchangeable if we assume a steady portion of the population in the workforce) before you would see any price inflation.
Additionally, an increase in productivity means a decrease in production cost. Growing productivity will by necessity produce some combination of a decrease in price, an increase in wages, or an increase in profits the question becomes what proportion of each. That is, who claims the benefit from the growing productivity, the workers, the owners, or the consumers?
All other things being equal standard economic theory says that competition in the market place will result in the companies benefiting from productivity growth trying to realize the increased profits but over time being forced to cut prices to stave off competition and in the end the consumer receiving the benefit in the form of lower prices for goods and services. Workers will also try to claim a portion of this windfall from increased productivity by demanding increased wages. Historically this could be seen by the link between productivity gains and wages. Workers claimed a constant portion of the productivity gains, the company’s owners received a short-term benefit and over time prices would fall so that in the long term the remaining benefit would flow to consumers in the form of a decrease in prices.
Over the period of the Great Decoupling, we have seen quite large gains in both productivity and population which in the absence of an inflationary monetary policy would have served to drive prices down, these trends have been in effect canceling out some of the price inflation that you would have expected to see.
Finally just as workers began to find themselves in competition with other workers all over the globe companies also began to find themselves in the same position. You no longer had to contend with one or two competitors inside your own country you also had to deal with foreign competition both in the form of a foreign entity beginning to import products that compete directly with yours as well as competitors cutting costs and prices by outsourcing their work to foreign workers. This increased environment between companies acted to make it harder for those companies to raise prices to stay in line with inflation and so in order to maintain their bottom line they began to actively find ways to cut production costs which both drove some of the gains in productivity and worked to place yet more downward pressure on wages.
Putting the pieces together
Now we can tell a complete story of how the Great Decoupling came to be.
As a result of a growing workforce and globalization, there has been persistent downward pressure on wages starting in the mid to late 1960s. Due to technological growth and the aforementioned globalization economic productivity began to grow at never before seen rates. The end of the Bretton Woods system and a switch from hard currency to fiat currency accompanied by an inflationary monetary policy acted as the trigger event that allowed those two forces to cause both wages and consumer prices to stagnate in real terms. As productivity continued to grow and the gains from the productivity growth are no longer being divided between workers (in the form of higher wages) and consumers (in the form of lower prices) but are rather being counteracted by inflation. The net impact has been growing productivity with stagnant wages and low consumer price inflation.
Now I cannot prove this theory is true, not being a professional economist, I do not have easy access to the data which could do that but what I can say is that this theory is both more complete and fits the actual historical data better than any other theory as to what is behind this economic event. To the extent that what I have laid out here is true, it shatters the progressive claim that the Great Decoupling is an inevitable result of “unfettered capitalism and proof that we live in an era of unbridled greed.”
Up next, looking into how these factors are the key drivers of income and wealth inequality.
So child care really should be an important part of the progressive agenda. Hillary Clinton had a serious plan back in 2016, but the news media were too busy obsessing over emails to pay attention. And if you ask me, Elizabeth Warren’s new proposal isn’t getting as much attention as it should.
For the Warren proposal is the kind of initiative that, if enacted, would change millions of lives for the better, yet could actually happen in the near future.
Among other things, unlike purist visions of replacing private health insurance with “Medicare for all,” providing child care wouldn’t require imposing big new taxes on the middle class. The sums of money involved are small enough that new taxes on great wealth and high incomes, which are desirable on other grounds, could easily raise sufficient revenue.
Keep in mind this is a guy with an estimated net worth worth of $2.5 million. Just enough to be able to afford to live in a trendy neighborhood in New Jersey, but perhaps not enough to be “great wealth” or “high income.” But do continue, darling.
The logic of the Warren plan is fairly simple (although some commentators are trying to make it sound complex).
Logic? Well grab a spoon and eat my ass.
Child care would be regulated to ensure that basic quality was maintained and subsidized to make it affordable. The size of the subsidy would depend on parents’ incomes: lower-income parents would get free care, higher-income parents would have to pay something, but nobody would have to pay more than 7 percent of income
There is already a tax credit for child care. The details are here but we’re talking $2000/year for qualifying families. Incidentally, the child care provider is already aware of this tax credit and price their services accordingly. They currently have no incentive to price their services below this $2000 per year, so they’ll make sure it stays above $2000 or about $38 per week so their customers max out this tax credit. Need proof of this lack of incentive? The average cost of infant care in the US last year was — $211 per week.
But sure…maybe charging $38 per week is unrealistically low.
Warren’s advisers put the budget cost at $70 billion a year, or around one-third of one percent of GDP. That’s not chicken feed, but it’s not that much for something that could transform so many lives.
It is, for example, well under half the revenue lost due to the Trump tax cut, which seems to have been used mainly for share buybacks. And it’s a tiny fraction of what it would cost to replace all private health insurance with a public program.
Again with the stock buybacks…. the sake of all that is fuck! Let people control more of their money they might just do what they want with it. Some might get their finances in order, other might buy my personal favorite, hookers and blow. More hookers. More blow.
Meanwhile, on the right there are the usual cries of “socialism,” which these days means anything to the left of eating poor people’s babies.
Cut that out. You’re too much a fucking pussy to beat off, let alone beat a straw-man.
More interestingly, I’m seeing at least some commentary on the right that doesn’t just push back against the whole idea of making it easier for mothers to work, it wants us to go back to the days when families could “live on one income.”
Darling, there’s no link here. That means you just made this up.
Going back to this $70 billion number lets say this does go in effect. Is this number go higher or lower as individuals try to fogure out how many kids they have? Had I known I can send Winston to daycare for free, there might be more than one Winston. Think about that. Two Winstons!
And it would be for free, I work how I get paid—under the table. I haven’t paid taxes since 1967.
With this increased demand, will the cost of the subsidy go up or down? How will supply be determnied to adjust to demand? Now that I think about it, it might work out okay for me, as I’ll get more business greasing the wheels of that governing body.
Still, Krugman provides no evidence as to how this will substantively reduce the cost of child care. While I can point to subsidies like, I dunno, college tuition assistance, or rent control…neither of which actually reduced the cost of tuition or housing.
But do continue providing cover for Lizzy. Lizzy is busy laying low and hoping we all forget the whole white squaw thing.
Since the editors were still unable to find a suitable replacement, I, Winston’s Mom will continue to provide valuable analysis of the economic questions of the day.
In your face Heritage Foundation!
Drake, dear. I left half a box of Summer’s Eve in the back of your car. If you can be a peach and can drop it off later. KThxBi!
That’s a shameful line of argument. In fact, whenever you see someone invoking Venezuela as a reason not to consider progressive policy ideas, you know right away that the person in question is uninformed, dishonest, or both. It basically shows that the speaker or writer isn’t willing to engage in serious discussion, preferring to scare people with a boogeyman of which he or she knows nothing.
I was working in Jersey once when a group of sailors stopped by the brothel I was working at tha time. My Madam said not to reuse the condom, we’ll all get the clap that way. I didn’t believe that the first time. Let me tell you something, we all got the clap after that.
The next time soomebody says, thats how you get the clap…you might just get the clap.
But what, exactly, does any of this have to do with the policy ideas of Elizabeth Warren, or Kamala Harris, or even a genuine radical like Alexandria Ocasio-Cortez? Is anyone in U.S. politics, even those who call themselves socialists, proposing that we nationalize large parts of the private sector? Is there anything in the record of U.S. progressives suggesting that they are less fiscally responsible than the people who keep using voodoo economics to push massive tax cuts for the rich?
I wouldn’t trust any of these broads you mentioned to run a brothel. Everybody would get the clap.
Maybe you disagree with all these policy ideas. But if your first response, literally, is to scream “Venezuela,” you’re demonstrating both your unscrupulousness and your lack of any serious arguments for your position.
I don’t lack serious arguments. You lack serious arguments. VENEZUELA!!!! VENEZUELA!!! VENEZUELA!!!
But from now on, here’s my rule: anyone who tries to use Venezuela as a cudgel in U.S. political debate doesn’t deserve to be part of that debate.
Of course its relevant! I can’t even get a job in Venezuela you punk bitch. I hope Venezuela’s giant, wet snatch is rubbed in your face from now until the end of fucking time.
Note from the Glibertarians.com editing staff: Here at Glibertarians.com, we are constantly searching for new features. We noticed a niche in our features was lacking: macroeconomic analysis. Because of this, we reached out to Yaron Brook of the Ayn Rand institute. Unfortunately, that guy wants to get paid for his work. So we found the next best thing:
Winston’s Mom.
First thing I want to say is, hi Winston, Mom got a new gig!
Now that we got thst out of the way, let me begin here,
In 1961, America faced what conservatives considered a mortal threat: calls for a national health insurance program covering senior citizens. In an attempt to avert this awful fate, the American Medical Association launched what it called Operation Coffee Cup, a pioneering attempt at viral marketing.
Here’s how it worked: Doctors’ wives (hey, it was 1961) were asked to invite their friends over and play them a recording in which Ronald Reagan explained that socialized medicine would destroy American freedom. The housewives, in turn, were supposed to write letters to Congress denouncing the menace of Medicare.
In 1961, I recall a doctor that would send his wife down to Biloxi, MS with her girl friends. He was into fisting for some reason but that didn’t stop him from penetrating everything. He was a lousy (((tipper))) as I recall.
What do Trump’s people, or conservatives in general, mean by “socialism”? The answer is, it depends.
Sometimes it means any kind of economic liberalism. Thus after the SOTU, Steven Mnuchin, the Treasury secretary, lauded the Trump economy and declared that “we’re not going back to socialism” — i.e., apparently America itself was a socialist hellhole as recently as 2016. Who knew?
Ever try telling the lady at the methadone clinic you’re on Medicaid? What a bitch.
Other times, however, it means Soviet-style central planning, or Venezuela-style nationalization of industry, never mind the reality that there is essentially nobody in American political life who advocates such things.
That broad from NY, always on TV, always smiling with her squeaky voice. Whats her name?
Trump’s economists clearly had a hard time fitting the reality of Nordic societies into their anti-socialist manifesto. In some places they say that the Nordics aren’t really socialist; in others they try desperately to show that despite appearances, Danes and Swedes are suffering — for example, it’s expensive for them to operate a pickup truck. I am not making this up.
What about the slippery slope from liberalism to totalitarianism? There’s absolutely no evidence that it exists. Medicare didn’t destroy freedom. Stalinist Russia and Maoist China didn’t evolve out of social democracies. Venezuela was a corrupt petrostate long before Hugo Chávez came along. If there’s a road to serfdom, I can’t think of any nation that took it.
Who was it that wrote that book and who was he writing about anyway?
So scaremongering over socialism is both silly and dishonest. But will it be politically effective?
Probably not. After all, voters overwhelmingly support most of the policies proposed by American “socialists,” including higher taxes on the wealthy and making Medicare available to everyone (although they don’t support plans that would force people to give up private insurance — a warning to Democrats not to make single-payer purity a litmus test).
On the other hand, we should never discount the power of dishonesty. Right-wing media will portray whomever the Democrats nominate for president as the second coming of Leon Trotsky, and millions of people will believe them. Let’s just hope that the rest of the media report the clean little secret of American socialism, which is that it isn’t radical at all.
I do have a story from 1973 about a Danish john named Viggo. We bargained a bit, but he started small. First he asked how much to finger my ass, so I said 5 Kroner, and when he said he had real money i said $5. Then he asked how much to finger his ass and I’m all well the first one is free dear, but the second will cost another $5. One thing lead to another, and eventually we built up a lather using the hotel soap and I had an bottle of vodka in his ass while I was rubbing him out. Doesn’t seem so weird now, but back then I might not have opened up the bottle and taken a swig after the fact.
What were we talking about? Right, slippery slopes. It starts small but if you keep slipping, it might net you $58 in the end.
Well, we have many new members since then, and many people who have changed jobs, careers, or directions in life. So, I thought we were due for an update.
Since then, I’ve formed a new boutique agency with Web Dom. With our combined education and experience, and employing a couple contractors, we are able to provide website design services, digital marketing services (including copywriting, and social media/email marketing management), coaching and management for online businesses, and a few other services that are not our core offerings. With my plan to re-enter healthcare being stymied by a zillion things–now also including a cross-country relocation, this agency and my ongoing product photography work will consume most of my professional life for the foreseeable future.
How about you? What are you up to work-wise in 2019?
Let’s say I own a property which I rent using Airbnb. That property is worth money and it is part of my wealth. It also can be damaged, reducing its value. If this happens, I lose money, so I have a direct interest of it not happening. Maybe, based on personal prejudice, I do not want to rent said Airbnb to say… hot Russian women. That is maybe unpleasant for the group of hot Russian women on a girl’s only vacation in Bucharest who really likes that apartment, but it is my right not to rent them my property. But maybe it is not that simple. Maybe in my personal experience – based on the last 3 times I rented to a group of Russian women – Russian women get drunk and mess things up, it is my right and my decision to avoid property damage and, as such, loss of money. I will instead rent it out to that group of Mormon missionaries. It is probably unfair to these 5 nice Russian girls who just want to see the museums and quietly read some books in the evening. It may even be true that statistically, worldwide, Mormon missionaries do more damage to Airbnb rentals then hot Russian women (based on OECD data for 2015). But, in the end, it is my apartment, my experience of damage, my preference and I choose how to best avoid issues, even if it means stereotyping.
Bias will not go away. All people are biased, and sometimes – regardless of how often -with reason. You depend on various heuristics – stereotypes among them- in order to make decisions about unknown things and an unknowable future. Some of this bias can be simply bigotry. Thems be the breaks. But, in the end, when you take the risk of a business, no one without similar risk in it should get to tell you what to do, or who to hire. Because if the business fails, it should fail due to your decisions, not ones imposed by others with no skin in the game. And no one can tell you this or that “has nothing to do with the business”. There are a million ways a business can succeed or fail, and they are not clear or known. Hence all the failures. So the owner gets to decide what they want to do. You can avoid hiring women, if you think they work less overtime or they will inevitably leave to have children, or you are just plain misogynist; gays if you think your customers prefer heterosexuals or they make your best employee uncomfortable, or you are just plain against homosexuality; fat people, if you think they are weak-willed or more prone to miss work due to illness, or just don’t like the fatties. You and only you should get to make those judgments. Because it is your business at play.
