As often happens when two sensible people do some thinking, the core ideas can be pretty close.
Placing wage and safety controls on the workplace is a necessary governmental activity. One additional point is that these regulations are as much about protecting workers from themselves as they are about controlling employer behavior.
If I go out and say, “I’ll pay anyone five dollars to repair my roof during an electrical storm,” I could possibly find somebody to do the work, perhaps even just for the thrill of the risk in some cases. See also greenhorns on Deadliest Catch. Making the offer of employment in that case is unethical based both on the immorally low wage and the obvious hazardous safety conditions, which are easily mitigated in a cost-effective manner (but might not be if I were not compelled to do so).
Saying, “I’ll pay anyone ten thousand dollars to repair my roof during an electrical storm,” is nearly as unethical as the previous offer. I am still providing a needlessly hazardous working environment, and now I am playing off of a wider market’s need for good wages to compel additional people into this dangerous situation. I would guess I would have a line of level-headed but desperate people signing up for that job, not just foolish thrill-seekers.
If somebody takes an 105 hour per week sweatshop job, they took it because it pays off for them somehow. For both safety and humanitarian reasons, nobody really wants to see anyone do that, even though somebody would sign up at some threshold level of pay. We can regulate that and say “that’s quantity supplied that we don’t want.”
But here’s where the philosophies about labor demand kick in. Wage and safety controls establish a price floor that prevents people from accepting opportunities that we as a society believe should be neither offered nor accepted. Nobody really disagrees on that.
The real question is, as the wage rate increases to socially-acceptable levels (which should be reasonably low to allow people to adapt as needed, rather than driving up the unemployment rate by removing low-wage workers from decent but sub-optimal jobs), why aren’t employers hiring?
The capitalist tells you about a profit-thresholded and risk-adjusted marginal cost versus marginal benefit analysis. A good manager should not hire precisely when marginal benefit equals marginal cost; he must realize the risk he is taking on by hiring (threat of onerous new regulation very notably included), as well as producing a reasonable return on investment for the owners of the organization and stable cash flows for its creditors.
This produces a nice free market graph as drawn beautifully by me over lunch:
A side point is that there are people who are willing to work for nothing, especially when there is great experience or a rewarding time to be had. While we certainly have to prevent abusive conditions, making some allowances for these special cases is a great idea.
There were a few great points made in the rebuttal that factor into the capitalist’s decision-making process:
First, high margins. Making a social argument about this probably requires requesting that investors accept lower rates of return on their investments in order to receive higher absolute profits on their investments (the law of decreasing marginal returns dictates that more hiring will eventually and inevitably become less profitable at some point). Accepting a lower rate of return is fine (and rational) as long as the risk of loss is mitigated or low; investors require high margins as compensation for high risk. Clear and forthright regulatory policy and a quality, dependable workforce are the best ways to lower perceived risk and encourage investors to grow profits at the expense of lower unit margins.
An important note here is that regulation in itself is not nearly as threatening as uncertainty about regulation. Known costs adjust behavior and then are factored out of marginal decision-making, even if they ultimately reduce profits. Uncertainty produces an emotional (albeit rational) compulsion to scale back and protect existing profits and margins.
We dealt with the “profit-thresholded” and “risk-adjusted” elements of the decision process. Aside from regulatory uncertainty, the “marginal cost” element is a known factor via the equilibrium or floored wage rate. The remaining argument regarded the “marginal benefit” side of the equation, which essentially boils down to a higher-than-ever unit productivity of American labor.
My response is “yes, definitely.” The free market advocate then stands up and says, “If that’s true and risk/return are acceptable, why aren’t they hiring?” My answer would be: incentives, and a misunderstanding of bumps in marginal cost. If I have a high-tech and super-safe factory, that produces solar panels for Greenpeace vehicles no less, once I have a factory full of workers I cannot scale upward without capital investment.
In most cases, this will eventually become a limitation. And in the dictates of marginal cost, the marginal cost of the next guy hired into a “full” company is extraordinary: before I hire this person I have to build a new factory. Then, my marginal cost goes cheap again and settles in at effectively the wage rate.
Of course, investment is always going on and is profitable, especially under low interest rates. What we don’t need is a government that constantly (1) chides and regulates investment banks and reduces their incentives to seek out opportunities, (2) criticizes the investor class for plowing money into growth-promoting stocks and bonds rather than redirecting it to one-time consumption, (3) excessively taxes the discretionary income of those who have the funds and knowledge to invest significantly as well as consume, (4) rewrites contractual debt seniority agreements to favor labor unions (producing astronomical uncertainty in agreements with large corporations in “blessed” economic sectors), (5) threatens increasing the taxes on returns on investment, (6) threatens removing tax incentives to invest rapidly, and (7) considers risk-compensating profits and highly-paid individuals as moral offenses.
All of these behaviors produce backwards incentives and high uncertainty, which are barriers to otherwise very profitable investments and upscaling of employment. While we cannot ultimately tell shareholders how to direct the assets and strategy of a corporation, creating a favorable environment for growth is the best way to reduce marginal costs and risk, which in turn allows for the lowering of average unit margin while still growing returns due to the high marginal benefit of an excellent workforce.
That’s the business side of maximizing social good. The political side of the left’s messaging (let’s forget if this is even representative of their true philosophy for these purposes) is far different, and far divorced from the basic economics and rational decision-making that both sides should always be able to agree on. I see Obama’s view as being something like this:
The most fundamental difference here is the premised inelasticity of labor demand. This ignores the hardly disputable fact that some jobs just don’t get done (at least domestically) at a certain price floor, at least under capitalistic decision-making. My previous post essentially dealt with this entirely.
Interestingly when placed against the previous business thinking, there is a very populist implication that capital investment is actually downscaling the labor market through automation. Obama’s ill-conceived ATM statement, which almost suggested that ATMs were widely proliferated during his presidency, actually illustrated the point that labor is being priced in excess of the capital cost of automation.
Some of that is the natural progression of technology, but you could argue that a lower minimum wage, below a living wage but in excess of a humane one, might make those capital costs overly burdensome to make that decision. Economics textbooks would also remind Obama that a proliferation of ATMs creates high-tech jobs in ATM development, engineering, and maintenance.
There is another implication that companies are simply over-working their existing force rather than expanding. At the aforementioned limits of morality and social responsibility, this is simply preposterous union claptrap; adapting and becoming more productive is simply being competitive in the labor market. If this competition did not exist, we would be in terrible shape (the UAW tries to limit such adaptation as much as possible, for example, to the point of collapsing the domestic automobile sector). And, if the marginal cost of new employment is low enough, (humanely) mandated overtime makes new hiring a lot more sensible.
Simply telling businesses to go out and hire without exploring why the otherwise-obvious arguments for it (high-quality labor and wide profit margins) are not working is not ultimately productive. “They can afford it” is a subjective call best made by the stakeholders of a business, and one can be sure those decision-makers are watching for signs from the government when evaluating their risks and rewards.
I had all these economic blog entries planned until I started reading Thomas Sowell’s Basic Economics, which said all my stuff and more. There is a (so far) unstated policy point that I see arising from his logic that seems to explain a lot of the otherwise puzzling policy positions we’re seeing coming from the White House.
The focus is said to be on lowering unemployment, but then the moves being taken actually increase the cost of labor and thus decrease the quantity demanded and increase unemployment. As Sowell repeatedly emphasizes, the minimum wage is not the only price floor on employment; mandated benefits (ObamaCare now included) are virtually unavoidable fixed costs (unless you’re a highly politically-connected employer). This discourages hiring by pricing labor above its breakeven economic value to the private firm.
In fact, as Sowell astutely points out, these fixed-cost price floors actually encourage overtime versus part-time hiring, since these expenses are mostly tied to headcount rather than total compensation. The employed gain income while the unemployed stay unemployed.
Kurt Vonnegut referred to bums (his word) as “sacred cattle.” This is telling in a way I never realized: just like a Coach purse is deemed better off destroyed than sold at a deep discount to the detriment of its brand, or how a corn field is kept barren and propped up with transfer payments rather than “depressing” the “fair price” of its neighbors’ output, the true but unstated liberal view is that a human body is innately worth something often far dearer than the economy is willing to value on its own. It is repugnant that a person could work below a policy-dictated “living wage,” despite the fact that the pittance of free market wages far exceeds the zero that the person is both contributing and earning while idle.
The very concept of a “living wage” (also in the book) presupposes a certain lifestyle envisioned by the policy establishment. It doesn’t include living with family in an overcrowded but safe home, or sharing a lawnmower with neighbors, or creating a grocery co-op to save money and be more environmentally responsible. It is an expression of a central planner’s vision for how life should be. With increased and broadened federal power, this starts feeling like a mandate. The free market tradition of America still makes the truth of all this completely repugnant to the average voter, who (while completely willing to vote himself vast government benefits) retains the cognitive dissonance of faith in the free market and retention of personal liberties (his own, at least).
The WPA and other FDR era strategies, while surely imperfect, were an expression of the government thinking on the margin, always a good thing to do in finance and economics: we (the government) see idle labor that is valuable, so we will invest in our infrastructure and use this idle labor at a low cost… what else do they have to do but sit there unhappy and starving?
The Obama perversion of the FDR gambit leaves out the “valuable” part. Sure, valuable effort is preferred to pointless expense, but the whole system is seen to work virtually just as well if the government effectively subsidizes idleness to prop up the price of employed labor. It’s the corn fields all over again. So, “shovel-ready” was literally a joke (at least post facto). I think we all know the only thing that was getting shoveled when all those plans were laid out. Additionally, unemployment benefits were extended, which extended the tolerable duration of idleness for many people who would otherwise feel a greater sense of urgency around finding a new job.
The reason Europe’s natural unemployment rate is double-digits to the point of being able to buy cigarettes is a feature, not a bug. The government is saying that it would rather support idle labor capacity rather than “allowing” the low end of the economic spectrum to be abused by a system that does not believe in the same life the society envisions to be available for all. Therefore, you see a sort of professional unemployed class in Europe, while in America (Sowell’s statistics are outstanding) the idea of a permanent poor class in America is a far smaller slice of the population than we are lead to believe (movement among the income percentiles is vast, especially on the low end of the spectrum).
The free market tradition of America produces the nonsensical “these fat cats need to get out there and hire” rhetoric that screams desire for government control of corporate decisions, otherwise known as central planning or socialism. My message to Obama and friends:
Own your position.
You believe the capitalist system is broken, that wealth is improperly “distributed” and the poor have your voice but also your impotence to manipulate the free market sufficiently to produce “social justice.” Unions are a great way to stabilize the economic cycle from an employment perspective (which in turn destabilizes the business from an economic perspective) and put the burden on the employer to fund those who are laid off in hard times and assure their rehiring when the cycle turns around. The trifecta of refundable tax breaks, unemployment “benefits,” and mandatory benefit “entitlements” independent of employment status (healthcare via ObamaCare, pension via Social Security, and disability insurance also via Social Security) provide an institutional means of funding the unemployed to the point of near-equality with the labor class, if not better (especially when factoring in black market labor such as that from illegal immigrants priced at free market rates).
Seize the banks and use government-provided “capital” to fund only the economic activity of which you approve. Put central planners in charge of critical economic functions. The EPA is trying to ratchet up the CAFE standards again; cut the nonsense and let that be what it is: government control of the auto industry and its corresponding consumer behavior. Create a Ministry of Motor Vehicles to make sure it is all adequately governed, and that unions get their slice of the subsidized battery and electric motor markets when they start to destroy the internal combustion engine prematurely.
I mean, it’s all been done and is in the middle of collapsing across the Atlantic, but maybe (if you actually believed in American exceptionalism, ironically) we could pull it off better than the EU could. It might be worth a try here. This way at least the policy is coherent. It doesn’t have to be bald-faced socialism if you don’t want it to be, but it’s definitely not capitalism in philosophy. The doubletalk is doing nobody any good, except to bolster your position through deceit. Right now, much of your constituency is not fully aware of the trajectory of your course. That is dishonest and essentially immoral. If you want to fight your fight, do it in an open field with fair competition.
Don’t get me wrong here… I still despise its interface, but the internals of Excel 2007 continue to impress me.
They keep adding functions that I have been carping about for years.
Newest example: IFERROR
In a lot of funky (and even some relatively conventional) situations, you need to test if an expression is an error and only use the result of the expression if it is not an error.
For example, I need to see if the leftmost six characters in a cell are numeric (each cell is either blank or has text and numbers combined). If they are numeric, I want to convert them to a number and display them; otherwise, I want to display “NO”.
The prior problem was the requirement to repeat the main expression twice, once for error testing and once to display the result. I had a lot of multi-line formulas because of that mess. Now it’s squeaky clean.
My network music player briefcase project rolls along. While I await my speakers, amplifier, and cabling, I went ahead and did the power switch modifications to the laptop board (allowing for an external switch, shown in the upper-left of the picture hooked up with green and yellow alligator clips). That switch will be panel-mounted on the top of the case, near the handle.
The white USB cable has been chopped at the device end, pulling out the 5V DC supply coming from the USB port and using it to power an LED indicator (bottom-right), which illuminates when the laptop power is on. The breadboard in the bottom-left just handles the hookups for that and currently houses the resistor for the LED.
I picked up some tiny pre-etched circuit boards at Radio Shack today that will ultimately contain all the electronics to drive the switching and LEDs. I also have the panel mounts to attach all the lights and switches. The 1⁄8” stereo jack is ready to go, which will take an auxiliary input and pass it through to my speakers.
Later this week I can drill out all the panel mounts and go ahead and mount the switches, lights, and audio jack onto the metal plate.
I like how, even with “modern” Windows windows that have no icon in the upper left corner (and sometimes no title bar), you can still double click the upper left corner of a window to close it, which is basically a holdover from Windows 3.1.
Have you ever been working outside, then come in, wet, eyes burning with sweat, dirt up to your elbows, clothes all limp, and then in some kind of postmodern atavistic way, think, “Man, I really need a shower?”
Not just, “It’s time for my shower,” or, “I should shower,” but needing to shower?
And then you brush off the arm dirt and blog about it before taking your shower?
We have a sign in front of our house that says “Protected by ADT Security.” I wondered if that was dishonest, but then I thought, their sign is certainly protecting us.
I love my Android phone, but it’s handling of headphones is ridiculous.
I’m jamming to Glee’s cover of Celine Dion’s “Taking Chances” at work, then my phone proceeds to pause the music and ring via the loudspeaker (maybe because my headphones don’t have a microphone lead?). I answer the phone and the microphone doesn’t work until I unplug the headphones. A few seconds later, it figures out the new configuration and switches the internal mic on.
I have my phone call and hang up. Everything’s fine, but then the media player pops up and starts playing the song through the loudspeaker at nearly max volume, because the headphones aren’t plugged in anymore. I unlock the display and rush to shut that down (also possible to plug in the headphones at that point, if they’re handy). Given nobody ever sits at their desk on my floor I think most embarassment was avoided.
