Not really. It was always an approximation. A model. All sciences create models that get overthrown when a better model is found.
OK, let’s stop right there, because how are you going to determine the “value” of something, except by what the market decides?
Productivity and wages have little, if anything, to do with each other. Wages are determined by the market (ie, the value someone else puts on your labor), while productivity is largely a product of investment. If I design a robot that an idiot can operate, that doesn’t increase the value of the idiot, even if his productivity skyrockets.
Markets don’t determine value, they determine prices. Value is subjective. One metric for value may be willingness to pay. Generally, it is an exceptional case where price corresponds to willingness to pay. (Usually someone has done something to severely segment the market.)
These are not equivalent. My boss may value me at $70,000 a year, even if my total compensation (including all his costs) were $60,000. That is, it may be the case that he is indifferent to my employment at $70,000 a year, while he finds it quite preferable at $65,000, and a real bargain at $60,000. Consumers benefit from this when they pay less for a good than they would otherwise, but employers have the same thing going for them.
Has there been a time where the American worker got a house and picket fence on one income in a non-skilled job? There have been pockets of it (unionized autoworkers in the 1950s and 1960s), but I’m not convinced that it was ever the norm.
Yes really. Some very basic assumptions of classical economics have been experimentally disproven. To be sure this affects micro more than macro.
Value here is goods or services produced, not the “value” of the employee as measured by wages. Basically, as I said, it is productivity. Of course if the goods produced don’t sell, their value is 0, the wages of an employee exceed the value produced, and they lose their jobs. But we’re not talking about that case.
Really they have nothing to do with each other? Then it would be perfectly practical for people to be paid more than they produce, right?
Now, if you really could design a robot that an idiot could operate, before too long you’d get rid of the idiot. Practically speaking automation creates fewer but higher value jobs. Very low labor rates eliminates the requirement for automation. I heard a talk about manufacturing engineering projects in the Far East, and how automation projects that make sense here make no sense if the labor rate is low enough.
If you have a situation where labor rates are very low through slavery or through an excess of people, like in China, you can have a situation where there is no incentive to increase productivity very much. You may not care about paying your people if you export everything. What do you think would happen in China if we were to suddenly stop importing stuff, and they would have to buy domestic production? Major disaster, right?
The point is not that it is impossible to pay workers little when there are external pressures - it obviously happens. The point is that minimum wage increases can be paid for out of productivity improvements, and are good things when they increase demand. I’m perfectly happy with requiring that the productivity improvements happen first, since here anyhow there is pressure to do them anyway. What causes a problem is when the benefits of productivity improvements flow up and none stay with the people at least partially responsible for them. And the problem is either a demand shortage or a build up of debt to fuel unsustainable consumption.
I know the dream of the past 20 years is to sell all our stuff to China, but it isn’t happening, is it?
I don’t know. In 1951 my father bought a nice house in a good neighborhood on his UN wages. He had no college, and I think he was involved in keeping track of the flags at the time. He had started with the UN as a security guard right after getting out of the Army. On one side of us was a baker in a big bread factory, on the other was a car mechanic. Some of my friends had professional fathers, but not all of them by any means. The fathers were absent in two cases, showing that single motherhood is not a recent invention.
Can you name a science where this has not been true? Like I said, you use the model until you find a better one.
OK.
No, and I don’t know why you would come to that conclusion. People get paid according to how valuable their skills are and how many other people are competing for those jobs with the same skill level. Just because people paid “x” to produce “100x” worth of goods doesn’t mean they can easily be paid more.
Sometimes, yes. But sometimes no. It took more skill to work in a gas station long ago, and now all you have to do is punch a key on smart register.
Emphasis added, because I think (and I could be wrong) that that is the key thing you’re trying to get at in that long paragraph. So, where are you getting that from? How have you determined that to be true? Because it looks like one of those perpetual motion ideas that forgets one or more key aspects of how the actual world works. In this case, I suspect it’s the idea that companies in the US don’t have to compete with companies in other countries. But I’d like to see your argument fleshed out more before going any further.
erislover: Price and value are the same thing. The price you are will to pay for something is the value you put on it.
Of course conditions right now provide no supply at those wages. There are many factors influencing that reason but I don’t see how it is relevant to the discussion.
Wages rise with economic growth. Wages should not increase just because someone feels they should, they should increase as the economy grows. Countries have to produce more (increase in real GDP). People are only laid off when wages are artificially increased, such as if a politician decided the minimum wage should be $10 more than employers are willing to pay workers.
Merriam-Webster defines economics as the following:
There may be no constraints on what you can do in an economy but that does not mean everything you do is correct. There is a reason economies fail and that is because they are not doing things correctly and the people in control are not following the principles of economics.
I know it is hard to believe nowadays, but that was the norm in the industrial heartland circa 1945-1960. True, some of the unionized workers became princes of the working class, but there was a culture of relative abundance. Service industries had to compete for labor with industries that required large workforces. Large developments (e.g. Levittown) of modest homes served the needs of growing families without long commutes (pre-interstate). BTW, those union jobs were unskilled only at the entry level. Most involved a 4-year on-the-job apprentice program. If you want to see unskilled labor, go to today’s right-to-work states.
But what I am willing to pay is not necessarily the same thing as what I do pay. What I do pay is the price. When I value what I acquire more than the price, I have benefited from the trade. If price and value are the same thing, how do people benefit from trade?
What are you taking with a “grain of salt?” The number of pages, or their content?
I recently came within final signing day of buying a house, and I archived every single thing. The total length of the documents I had to read and sign associated with the loan and the transfer of property is as follows:
*Borrowers’ Certification and Authorization: 1 page
*Credit Score Disclosure: 2 pages
*General Disclosure Notices (inc. affidavit of occupancy): 4 pages
*“FBI” Mortgage Occupancy Statement (I think that’s the title; it’s not really titled): 1 page
*Truth in Lending Disclosure Statement: 1 page
*Affidavits saying why you are getting a loan when you could pay cash for the house: 6 pages (seriously, this was really fucking stupid - most people won’t have these, so I won’t count them in the totals)
Total: 36 pages
If you include the home inspector’s report (something any non-dumbass homeowner should read) then it’s about 80+. When I bought my last house there were innumerable documents which had to be signed at close, so extending that 36 to twice that seems fairly reasonable. I didn’t make it that far so I don’t know.
And the text of the documents is not arcane legalese. Nor is it dense. If you don’t believe me then do your own damn legwork - I’ve given you the document names up above. Or if it is considered such, then once again I week for the stupidity and illiteracy of the average person. The documents are all clear, not in fine text, and clearly communicate what they are telling you.
Seriously, this isn’t hard stuff. When I was in high school I could have understood this shit.
Obviously, what I’m taking with salt is the claim that lay people typically can be expected to read and comprehend the entire set of documents. I would need to see a set of documents myself, or have them described to me in more detail than has happened in the thread, before I could judge that claim.
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wtf with the hostility?
You’re describing the content of the documents, for which I thank you. You even gave me some document names to use in searches. I asked for that above! My thanks to you for that as well!
You’re being extremely helpful! And cursing at me at the same time?! I don’t get it.
Well, you’re the one telling a fellow poster that you’ll take what they post “with a grain of salt” which is essentially saying “I don’t believe you, but I guess I’ll let it stand for now.” However, my “do your own damn legwork” was meant to be only mildly finger-wagging chiding, not hostile. I apologize to you for not communicating that mild chiding better and instead sounding hostile.
Yes, you’re right, and I was sloppy in my characterization. The price of something is what “the market” values it at. That is, the collective actions of all the buyers and sellers-- not just “you”. Now, the market isn’t perfect. It almost never is, but it’s the best mechanism we know for getting it as close to right as possible. Sometimes too high, sometimes too low. But on average, just about right.
For example, if “the market” prices something below it’s value, people will start gobbling it up and there will be a shortage, which will cause the price to rise until there is too much, at which point the price will fall. Lather, rinse and repeat, as the saying goes.
But the period you are talking about is not the norm. The U.S. just got out of fighting a war, had built up a huge manufacturing base to support the war and the rest of the western world was blown to hell and had to rebuild. So when the war ended we had all kinds of manufacturing capabilities and markets that needed to buy lots of stuff.
For example, if you watch home ownership rates in the U.S., they ran at about 45% from 1900 to 1940. From 1940 to 1960 home ownership increased from 43.6% to 61.9%. I am willing to be that if you hunt down the data you’d find that the biggest increase in home ownership is between 1945 and ~1955.
IIRC, it was the US middle class that was by far the hugest market for US goods at that time. It was BECAUSE the middle class was so strong economically that the economy rolled right along. So actually you are making our point for us. Thanks!
I said that the “laws” were proven wrong, and you said not really. So you do agree that the laws were proven wrong? I was not saying economics is pseudo-science or anything like that. But we still do hear from people assuming that the laws work - for instance saying that we don’t need regulations because everyone will make rational choices.
Circular reasoning. You are saying that people are paid by how valuable their skills are, and you measure how valuable their skills are based on how much they get paid.
In the recession many people took pay cuts. Did their skills become inherently less valuable?
Pay is based on lots of variables, and is not very precise. I know there is lots of flexibility in starting salaries, and we know the irrational way the salaries of execs are computed, and we know about the winner’s curse, mentioned by Thaler, which says that almost any winner of an auction has paid too much - and lots of salaries are based on auctions.
First, I don’t know what the relative pay is today when compared to then. Second, the attendant today is more a retail clerk than what a gas station attendant used to be. I guess there were some gas station attendants who were mechanics in training, but as I remember it they mostly stuck the nozzle in, cleaned the windshield, and checked the oil, not of which was rocket science, or as hard as refilling a Slurpy machine or selling lottery tickets. I suspect the guy behind the counter is more productive than the old attendance, but I doubt he is getting paid any more adjusted for inflation.
Are you questioning whether paying people at low income levels more increases demand?
The point is that in the past decade the economy grew and wages did not. No one is asking for something for nothing, we are asking for a share in what is produced. The response seems to be "productivity rose but workers had nothing to do with it, so screw them. "
You are confused. Economics is basically descriptive. The principles of economics attempt to explain the reaction of an economy to economic actions, and also to predict the impact of actions - usually badly. When people do things that classical economics say they shouldn’t do they aren’t wrong - classical economics is wrong.And if you create policy based on what people should do, not what they actually do, you are going to cause a big problem - like Greenspan not getting that Wall Street is greedy
For some goods, like washing machines. we were definitely our best market. But we were sending tons of material to Europe to rebuild. Due to the multiplier effect, its unlikely that we’d have been able to afford that many washing machines without the construction material, food, clothing, etc. being sent to Europe.
There were also substantial differences in the workforce in the 1950s - for instance, in much of the U.S. you didn’t have to pay a black man or a woman the same wage you paid a white male. So we were able to keep some of our costs low by paying a decent wage to a certain class, while paying entire other classes of people something that today would be laughable as a living wage.
My two income grandparents, my grandfather made ok money as a bottler for Hamms brewery. My grandmother took in sewing for most of her life - she was still doing some of it when she died at 83. There was, in the 1950s, a large hidden economy in women’s work among the labor classes.
OK, sure I had a fever of 102 from this goddamn flu, and yes my fingers don’t work very well from repetitive injury, and I make a lot of typos, but still, what I typed is so ironically stupid it shames me. :smack: