| >Maybe Henry Ford was on to something when he shocked the world by paying his employees enough to afford the product they were making (more than doubling many workers' wages)... That's a nice story to tell, but the economics never works out if you do the math. Whatever extra wages you pay, you only get a fraction of that back in increased sales. How much percent of a worker's income do you think is spent on a car? As a rough measure we can use the BLS's CPI weights for "new and used vehicles", which comes in at 7.4%, with an extra 1.4% if you include maintenance and parts. By that alone "paying his employees enough to afford the product they were making" is going to be a losing proposition, because Ford can only hope to get 8.8% of whatever they paid in wages back as revenue. And all of this is ignoring the fact that you can't pay extra wages out of revenue, only profit, so you can only hope to recoup a fraction of that 8.8%. |
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| ▲ | gruez an hour ago | parent [-] | | >If everyone pays higher wages, there's a greater supply of money for buying stuff / solving problems (assuming the higher wages aren't eaten by rents). No individual form recoups all of the higher wages they pay their workers, obviously, but there's a larger market for the goods of everyone has more money. Does this actually work? Suppose you're on an island where the economy only produces coconuts. How does giving workers more coconuts make the economy grow, such that there's more coconuts to go around overall? Unless the workers were absolutely famished, giving them more coconuts isn't going to increase productivity. You might argue this model isn't representative of the real world, but that's approximately how the economy works. It can produce a certain amount of "stuff" (ie. coconuts), of which some portion can be given to workers, and the remainder can be given to the kings/elites/capitalists/whatever. Unless you improve productivity, there isn't going to be magically more stuff to go around. Giving each worker a car can plausibly increase their productivity (less time spent commuting?) but the effect is small, and unlikely to be recouped by car companies. The situation looks even worse in the current economy. If everyone's paychecks were 10% bigger, what marginal item do you think it'll be spent on? A bigger car? A new iPhone or big screen TV? How would any of those increase productivity? | | |
| ▲ | roughly 26 minutes ago | parent | next [-] | | > Suppose you're on an island where the economy only produces coconuts. This is why nobody takes economists seriously. What you lose in simplifying down to this model is literally everything. The coconut economy has zero predictive power. In the real world, distribution effects dramatically affect the functioning of the economy, because workers are also consumers and owners of capital are siphoning off the purchasing power of their customers. Productivity isn’t the question in the modern economy - we’re already massively overproducing just about everything - our problem is both our wealth and production allocations are borderline suicidal. | | |
| ▲ | gruez 17 minutes ago | parent [-] | | >This is why nobody takes economists seriously. What you lose in simplifying down to this model is literally everything. The coconut economy has zero predictive power. A simplified model is needed otherwise rigorous analysis becomes impossible, and people make handwavy arguments about how paying workers more means they can spend more, which means factories, and it's a perpetual growth machine! >we’re already massively overproducing just about everything No we're not. If we weren't, we shouldn't have seen the massive inflation near the end of covid. The supply disruptions hit almost immediately, but it wasn't until the stimmy checks hit that inflation went up. >our problem is both our wealth and production allocations are borderline suicidal. If you read my previous comments more carefully, you'd note that I'm not arguing against better wages for workers as a whole, only that contrary to what some people claim, they don't pay for themselves. |
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| ▲ | sdenton4 38 minutes ago | parent | prev | next [-] | | This is how we had a major boom in middle-class wealth int he US post WW2. If you are only selling coconuts, a single raw material, yes, you will run into supply constraints such that prices go up. But that isn't how economics works. Your zero-sum economics example is only applicable in short-term scenarios: over the longer term, new industries develop to solve persistent problems that people are willing to pay to solve. Money solves the problems of the people that have the problems. If the problem is 'we need to eat', producers will diversify into new food sources to meet the demand, solving the problem, and capturing the money of the people who have that problem. There is an enormous space of problems people have which cannot be solved due to lack of access to money. Increasing costs in childcare, elder care, and education are good examples. | | |
| ▲ | gruez 21 minutes ago | parent [-] | | >This is how we had a major boom in middle-class wealth int he US post WW2. The fact that Europe got bombed no doubt helped too, same with the elites being concerned that communism was on the rise and giving workers a better deal in an effort to stave that off. >Your zero-sum economics example is only applicable in short-term scenarios: over the longer term, new industries develop to solve persistent problems that people are willing to pay to solve. >Money solves the problems of the people that have the problems. If the problem is 'we need to eat', producers will diversify into new food sources to meet the demand, solving the problem, and capturing the money of the people who have that problem. I'm not how you got the impression that I thought the economy had to be zero sum. I even specifically mentioned the possibility of more stuff to go around if productivity goes up. That's the problem with your "new industries develop" argument. Unless productivity goes up too, there will only be different stuff, not more stuff overall. >There is an enormous space of problems people have which cannot be solved due to lack of access to money. Increasing costs in childcare, elder care, and education are good examples. All of those are service industries that are resistant to scaling, and as a result productivity growth have been abysmal. Giving people more money to spend on those things just means productive capacity is removed from the economy elsewhere. Going back to the coconut economy example, it would certainly be nice if workers could have a maid to do the cleaning or a chef to do the cooking, but you still need people do the cleaning or cooking. At the end of the day you're just shuffling people around, not growing more coconuts. |
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| ▲ | tjr 34 minutes ago | parent | prev [-] | | If the economy is 100% coconuts — all supply is coconuts, all demand is coconuts — then coconuts are all. Business owners sell coconuts in exchange for coconuts in order to acquire more coconuts. Employees are paid in coconuts which they trade for more coconuts. Paying workers more coconuts gives them more of what they want, which is coconuts, that they turn around and spend on coconuts. | | |
| ▲ | gruez 30 minutes ago | parent [-] | | That's exactly the problem. At the end of the day, unless you increase production of "stuff" (or coconuts), there isn't going to be magically more "stuff" (or coconuts) to go around just because people are shuffling "stuff" (or coconuts) around. | | |
| ▲ | uoaei 22 minutes ago | parent [-] | | I don't understand what compels you to continue down this line of thought when its obvious flaws have been so clearly elaborated by other commenters. |
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