Why would an increase in wages result in higher prices. The goal is to shift productivity gains downward rather than send them all to the top. So over the next 20 years maybe half the economic gains will go to labor and half will go to capital. It’d be different than the 95% going to capital like it has in the last 30 years, but I’m not sure why that would make prices go up.
If you gave people an extra 10k I don’t think everyone would spend it. I think many would pay down debt or save it. As it stands we have become a debtor nation over the last 15 years or so. I don’t think people would still be as deeply in debt, but put the extra 10k into new stuff too.
As far as the history of the middle class, I really don’t know. I am under the impression that economic security in the 50s and 60s was higher than now. But the fact that the rates of bankruptcy and debt have increased dramatically combined with the fact that more and more people have to have 2 people in the workforce to make ends meet shows something is going wrong. Forty years ago one person in the workforce was enough to pay the bills and have a decent savings rate. Now 2 people in the workforce means higher rates of debt, bankruptcy and negative savings rates.
Yep. A prepaid cell phone and internet access combined probably add up to $20-30/month. But they are two of the most important investments you can make. Its not the same as spending $30/month on video games or movie tickets.
The CPI basket changes over time. One reason people make the mistake of thinking we are richer because we can buy a certain thing easier is that any given product goes through a life cycle, beginning as expensive thing and becoming cheaper over time until it becomes a commodity. Saying that more people can afford product X than they could ten years ago says nothing at all about wealth. Things that are already commodities, like the things you mention, are much better indicators of how people are faring.
Right. Just because poor people in the 70s could afford black and white TVs bigger the richest person could buy in the 40s doesn’t mean that they weren’t poor.
On the OP, the biggest problem with trickle down is it assumes that any excess money in the hands of big business will be spent in ways that generate jobs in the U.S. With globalization and the growth of derivatives that is a huge assumption. Since the 80s companies have taken subsidies and moved jobs overseas. The trickle down is falling somewhere else. Since at least the 90s they have been taking that money and moving it around in ways that make it grow without ever actually producing anything.
I have some anecdotes for this discussion; like most people, my husband and I have worked all of our lives for companies that do business the usual way - you get your salary, you get a few benefits (that you pay for out of your salary usually), and that’s it. All the profit the company makes goes into company growth and shareholder profits. My husband has been working at an employee-owned company for the last five years, and the differences are like night and day. Instead of the profits being funnelled away from the company, they are returned to the actual employees, at every level, and they have been making some very good profits.
I completely agree that the idea that excess money in most corporations is spent on job generation is incorrect; mostly it is given to shareholders, and I don’t consider rich people employing a maid and buying expensive things to have the same overall benefit as a company actually returning its profits to its employees, like my husband’s employee-owned company does.
To be fair to big companies, or any company, it is absurd to create new jobs when there is no work for new employees to do. When businesses who want to expand cannot do so because of lack of capital, then tax cuts for them make sense. If they are not expanding because of lack of demand, then tax cuts to encourage new production make no sense at all.
To respond to Strassia’s comment, money is going to chase areas of greatest return. That is often not things which create new jobs. In the past few years it was mortgage backed securities and exotic derivatives, which did the country as a whole no good in the long run. You can’t blame investors for that, but the right shouldn’t pretend that throwing money at them is going to result in some desired social good. I’m assuming that the right thinks unemployment is bad, some of the their policies make me wonder.
Yes and no. Because the shareholders in my company are also employed by the company, they are directly invested in ensuring that the company be as successful and profitable as possible, since that directly affects each person’s bottom line. The profits actually do trickle down to the people who caused them and not to a bunch of faceless investors who care only about their dividends and not one whit about whether the company is acting in the best interests of its employees are its own sustainability. In our company, people don’t face massive cost-cutting layoffs to improve dividend cheques for investors because the employees are the investors and the company recognizes that hiring the right people – in sufficient numbers to do the work – strengthens the company and gives it the best chance for long-term growth and success. As a result, the company just recently celebrated it’s 102nd year in business and is currently the 7th largest construction management company in North America. AND, while business has slowed down during the recent crunch, my ROI this year and last year and in 2008 was right around 60%. I’m not saying our way of doing things is recession proof, but I feel a lot more confident in my long-term future with these guys than I would in a publicly owned company, where slashing jobs for the sake of hanging on to investors seems to be the name of the game in difficult economic times.
Just out of curiosity, where else could profits go? Money given to employees is not profit. It’s, you know, **pay. ** Which is an expense.
And it might surprise you to know what a lot of successful companies DON’T give profits to shareholders. At one point Microsoft went 18 years without paying a single dividend.
Understand that the purpose of a company is not to create jobs for people. It is to generate wealth for its owners and shareholders by selling a product or service.
Oh, I do. My point is that when the employees are the shareholders, that money gets spread around to people who don’t normally see tasty dividend cheques.
Or the employees could hold shares in other companies and get dividend cheques even if the company they work for’s doing crappy.
“Employees owning the company” sounds great but in practice it’s not really much of a solution to anything. A company that is mostly or entirely employee-owned - a collective - has its own problems with how to manage itself. Dread Pirate Jimbo’s point that the employees are motivated to make sure the company succeeds is fine if it’s a small company, but once the company gets big an employee can just as easily slack off, knowing the difference between him giving 100% and giving just enough to stay employed isn’t going to affect the share price or dividend by any appreciable amount. There are LOTS of real life examples; did United Airlines suddenly become a paragon of wonderful customer service when it became employee-owned?
Similarly, if it’s just a case that the employees own some shares, but don’t control the company, the effect of their efforts on share prices and dividends are even less likely to be significant enough to affect the dividends they receive. (My best friend, a longtime employee of Cisco, has realized almost no gains at all from his many shares in the company, and would have realized the same minimal gains even if he’d put less effort in.) If you have spare money, it’s generally a wiser strategy, for most people, to pay off debt and then invest in index funds.
I’m not answering the OP by saying “Trickle down economics works” because “Trickle down economics” is usually code for “Tax cuts and government contracts for my rich friends,” which of course doesn’t help anyone but the rich friends. However, you seem to be going a bit further and suggesting that having shareholders realize benefits from owning shares is bad. That’s just not the case. You have to have shareholders to have corporations, and practically speaking you have to have corporations to run a modern economy.
As has been pointed out in a zillion books by a million economists, shareholders do not “own” a company the way you, say, own your car, and contrary to popular belief, corporations are not motivated purely by the desire to create dividends. (See the example of Microsoft above.) In fact, in the heirarchy of people who get money out of a company, shareholders are lowest on the list. Debtors and employees and suppliers all have to be paid first or else the company will go bankrupt or cease to function. A company can sail along happily for years and never pay a single dividend. Heck, you can have big corporations that don’t even have any shareholders at all.
Allow me to reiterate: I work for the 7th largest construction management company in North America. We have 24 districts spread over the continent, from Vancouver, British Columbia to Orlando, Florida, plus thriving locations in Hawaii and the Bahamas for good measure. 100% employee-owned. It’s not a small company; your comment is wrong.
No, trickle-down does not work because of its fundamental flaw, which is that despite the assumption that wealthy individuals and businesses with money to spare will invest that money in productive enterprises to increase their own wealth, in most cases it’s in their interests to hoard their wealth, or invest it in ways that don’t allow their money to circulate through the economy. Wealth keeps getting increasingly concentrated, yet the wealthy don’t seem to have any grand ideas for helping the country as a whole innovate and create jobs. We need that money circulating and getting into the hands of as many individuals as possible, unique people with their own viewpoint and their own ideas as to how the money should be spent, in order to make the economy as dynamic as possible.
Swiss bank to ID U.S. tax evaders - Washington Times Yep the rich just keep plowing money into job creation. Well. other than billions in offshore bank accounts. In just Swiss banks there is over 20 billion. Add the Caymans and other havens, and you might get to real money.
That sounds a lot like a contradiction. Is this what you meant to say?
Yes, we know that the phone bills get paid before the dividends are calculated. Dividends come from the profit pool, which isn’t calculated until the expenses are paid, and the decision to pay dividends comes from the decision-makers. It is our experience that the employee-owned company is making the decision to pay large dividends to its shareholders (the employees). Another company deciding to re-invest all its profits is not what we’re talking about here.
As MOIDALIZE and gonzomax noted, the employee-owned business model that we’re experiencing does just what it should; the people at every level of this very large company take their dividend cheques and basically spend them; house renovations, new cars, vacations, dinners out, re-invest in more shares, etc. They stimulate local economy, and they increase the quality of life for the employees. I would be interested in someone who is financially savvy explaining to me why this business model couldn’t be adopted by more corporations. It sounds very contrary to the way business is usually done (a few bigwigs get huge salaries, shareholders may get nice slices of the pie, but the average secretary makes a wage and maybe a token bonus); it’s actually a pretty sad commentary on the way we’ve all been trained that we expect someone else to take the fruits of our labour.
Buffet says it is a class war and his class is winning. He thinks it is a joke that his secretary plays a much higher rate of tax than he does. I think it is a joke that people of lower class defend the wealthy while paying a hell of a lot greater percentage of taxes.
The finance companies admit that the poor pay more for loans to help make it so the wealthy can pay less. it is stupid for a rich man to get a mortgage for practically nothing while the poor get gouged and thrown in the streets. But when you analyze who sets up the system, then it makes sense. The poor have no power and it shows.
http://www.pbs.org/wgbh/pages/frontline/creditcards/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist If you have the time, here is a Frontline on the credit card industry. They tell you the dirty tricks they do to fleece the poor.
An example is overdraft protection. The interest rate they charge for a short term loan is comparable to pay day lenders. But it is not regulated because they call it a service. That is just typical for the industry that gets to write its own legislation.
