Would You Be Willing to Pay 2 Cents More for a Ping Pong Paddle?

[SAVE TO WORD] Test.

There is an interesting quote in today’s Star Tribune.  A resident of Ranier, Minnesota — a town of 150 people on the Canadian border — expressing frustration with the increased rail traffic that flows through his small town due to the increase in global trade says, “I’m not against people making a buck, but I’d rather pay two more cents for a ping pong paddle than put up with this.”

He’s hit on something and it involves more than being inconvenienced at an international rail crossing.  One might ask the same question in the context of jobs, product safety, worker rights, the environment, and so on.

[PASTE A]

Global trade isn’t all bad.  In fact, global trade has helped lift millions — perhaps billions — of people from poverty.  It has also given consumers in advanced economies like the United States more buying power as the cost of consumer goods decreases.

However we are forgetting some very basic economic insights that go back to the dawn of economics.  In America we are fond of quoting Adam Smith, doing our best to invest his work with moral authority that justifies free markets, an overly simplified reading of Smith, of course.

Let’s not forget about David Ricardo and his theory of comparative advantage — Smith, too — and maybe more importantly here the Iron Law of Wages.  Not to get too deep into the weeds here, we can guess that Americans — especially American capitalists — don’t quote Ricardo as much because his thinking is a bit more stark, if not pessimistic, about the shared rewards of open economies.

Of course Ricardo hasn’t been entirely forgotten in the history of economic thought.  Marx, Keynes, and Galbraith worked with Ricardo’s ideas, but not surprisingly, those economists are mostly ignored, if not vilified, in political and economic discourse today.

Ricardo essentially made a supply and demand argument for wages which most of us would regard as common sense.  Any premium on wages would come at a cost, specifically a cost to the property owners.  Thus, one might conclude that wages, like the economy as a whole, should be free and government should not interfere.

What’s the problem?  Well, it is what we are seeing today.  Wealth will have a natural propensity to concentrate into the vaults of those who possess economic power.  The most recent and most read account of this trend is Thomas Piketty‘s “Capital in the Twenty-First Century.”  The stats Piketty follows seem to bear out this concentration of wealth phenomenon.

As fortunes grow there are some ramifications for competition.  In short, competition becomes imperfect.  Firms enjoy more discretion in pricing, for example, which might also involve the price they pay for labor.  In Ricardo’s view, labor rises and falls with the productive value added by their work.  It is sustained at a subsistence level; quite literally the amount needed at a supply/demand equilibrium to sustain and maintain an appropriate population of workers.

In a state of imperfect competition — one created by the concentration of industry and wealth — these natural wage controls may not exist.  Indeed, we see that today.  Productivity is at record levels, as are corporate profits, and yet wages — both real and nominal — are flat or even in decline in older, advanced economies.  On the other side of the equation they are on the rise in younger, less advanced economies.   There isn’t a natural supply/demand equilibrium when it comes to wages, however.  The rewards of increased productivity concentrate in the fortunes of those who possess economic power.

When the Ranier resident says he is willing to pay two cents more for a ping pong paddle, he is touching on that economic power which is increasingly realized in consolidated wealth and multinational corporations.

Ricardo also talks about the nature of comparative advantage among nations, but has been applied to the theory of competitive advantage of a firm.  (Ricardo’s example pits two countries against each other where one has a comparative advantage over another.  Frequently this gets confused with the idea of the competitive advantage of the firm and so-called “free markets ” or “free trade”.  I’ll try to keep them straight!)

A competitive advantage for a business — or a nation — is a good thing.  It sets up success based on merit, effort, and innovation.  Or perhaps one nation has an advantageous access to a commodity like oil that others do not have. In the case of oil, as an example, until recently many foreign producers of oil enjoyed a cost advantage over the United States for oil production.  Following Ricardo’s simple argument, those countries became exporters and we became importers.

When we confuse Comparative Advantage with “free trade” we run into problems, especially when that confusion becomes key to justifying free trade agreements.  Moreover, the real focus on these trade agreements are not so much on the benefit of national economies per se, but on the business interests of private enterprise.  The idea for the last 30 years has been to promise less government interference in private enterprise so that business can thrive and all will do better.  But again, this is based on a basic confusion between the interests of a nation and those of a firm.  In some sense, I think, the comparative advantage of nations has been pushed aside to benefit the competitive advantage of the firm.

The competitive advantage enjoyed by large multinational firms includes its enormous economies of scale.  If once upon a time a dozen firms made ping pong paddles and sold them throughout the economy, firms might compete on quality and innovation as much as price.  If we reduce the number of ping pong paddle makers to one or two, competition on those measures becomes less important and you potentially have an state of imperfect competition.  The ping pong manufacturer might compete solely on price and push out competitors who cannot.  (Think Wal-Mart versus Main Street.)

So when the Rainer resident comments on price and says he would rather pay the extra 2 cents than wait for a train to pass, he is expressing a willingness to adopt a less free market for the benefit he expects (less waiting for import trains).  That two cents means little to him, but it is interesting, isn’t it?  Built into these markets is something more than the cost and flow of goods.  Waiting for trains is one thing…what about securing well-paying jobs?    This will not happen in a free economy.  Ricardos’ wage laws seem to apply.  in the global economy, when you multiple all those small price margins — margins that favor the manufacturer by undercutting competition — the benefit is clear.  Consider a hypothetical situation.  If imperfect competition enables a firm to cut prices by 2 cents per unit and wages by 10 cents per unit, they control more of the market at lower costs while increasing profits and wealth.  If you are selling millions of units a day, these pennies add up.  They don’t go to the worker, however, because there is no economic pressure to do so.  That is the trap set by imperfect competition.

It works because a large part of the labor supply (e.g., the American worker) is overpriced on the global market.  Theoretically — although not very probably — eventually we would all end up living in huts eating radishes and stale bread in order to reproduce just enough labor and offspring to keep the system running!  No more, no less.  (Is that Malthus rumbling?)  [KEEP IT SORT OF SERIOUS.]

Marx thought this sort of wealth concentration would spell the end of capitalism.  He didn’t foresee the power of consumerism financed by credit.  Global wealth is willing to take a chance on consumers — at 20% APR — that they can finance spending and maintain demand even on depressed wages.  But that’s another story.

We should consider whether it makes sense to pay a little more to support stronger local economies versus global ones.  There are indeed advantages to a more open global economy, but it is important to keep an eye on where the benefits go.  In the United States, for example, the most glaring result of trade agreements has been a tendency to move low wages in third world countries and the high wages in industrial countries toward each other, even if very slowly.  In Ricardo’s model, wages will continue to fall in developed economies as production is spread to low income economies.

So do we want these trade agreements or do we want to pay two cents more for a ping pong paddle?  Until the myth of supply side economics becomes a reality and wealth trickles down from the concentrated fortunes that grow today, we might want to be skeptical of trade agreements that have largely served corporate interests at great costs to our national labor markets.

The implications of this is enormous.  Millions of people across the globe live better lives because of global trade.  Millions of people in developed countries are a little worse off.  So there are some decisions to be made here.  But there is one significant part of the economy we don’t want to touch and that is the growing inequality of wealth.  Ricardo concluded that this was unsustainable.  We should consider as much, too.

But forget about wealth for a moment.  What we trade today is labor.

What good are cheap ping pong paddles — or televisions, cars, or anything else — if your factories are closed and your wages flat?  The most glaring flaw in the trade debate is confusing the free flow of goods with the flow of the factors of production.  A stronger flow of goods does not necessarily relate to stronger labor markets.  It just means more cheap stuff as the cost of sustaining an adequate labor force drops.  Meanwhile the owners of production still pocket a profit from increased productivity on an enormous economies of scale advantage they enjoy in a economy sustaining imperfect competition.  [REWRITE — B]

Please comment.

Even if Woodward Has it Right He Has it Wrong: Bush WMD

bob-woodward-obama-white-house-2-620x464Bob Woodward is back in the news, apparently feeling the need to be relevant again.  After all, forty years is a long time.

I don’t know much about Bob Woodward other than his penchant to seemingly know a lot about a lot of private stuff and then talk a lot about it.  He strikes me as a sort of sober Truman Capote or a balanced William F. Buckley, Jr., a journalistic remnant from a more interesting era.

However even being in the know, so to speak, doesn’t mean you get it right.

In recent days Mr. Woodward has told us that George W. Bush didn’t lie to get us into the Iraqi War.  For many that settles the issue.  Bob Woodward — a lefty, perhaps! — says it is so and that’s the end of it.  In truth, if anyone of any reputation had said as much it would be settled for those on the right desperate for an escape from the blame.

But what has Bob Woodward really told us?  He says that Bush, rather than push the WMD angle, actually warned CIA Director George Tenet, “Don’t let anyone stretch the case on WMD.”  But as luck would have it, war plans were well underway and the entire project had “momentum.”  As Woodward tells us, “That war plan kept getting better and easier, and finally at the end people were saying, ‘Hey, look, it’ll only take a week or two.'”

gwb-anc111102-002Right.  Don’t want to spoil the big event with anything like common sense or decency getting in the way.  And how, exactly, is this different from not lying?  Can we say that Bush therefore was telling the truth?  Hardly.  One should ask how we got to the point where war became fait accompli just for the sake of its own momentum.

It is all fine and good for Bush to have allegedly have tried to remove fuel from the fire, but why didn’t he douse the whole thing if it became apparent that the purported justification for the war was not proving to be true?  Precisely because we proceeded with war — under the leadership of George W. Bush and his advisers — despite these questions does indeed show a president making decisions dishonestly when his propaganda machine is telling the nation otherwise.  You cannot excuse George W. Bush because of what was at best half-hearted attempts to be cautious.

Ultimately the question is this:  Was George W. Bush Commander-in-Chief during the build up to war and ultimately when the United States did invade Iraq?  The answer is yes.  How was that war justified?  It was Bush’s responsibility to choose based on facts and not resign our country to war because — oh well — it is looking like things are getting along pretty well for a quick and easy invasion.

In the end, one could twist and turn and agree with Bob Woodward.  George Bush didn’t lie to get us into a war with Iraq, but only if you believe that WMDs was the reason.  Apparently WMD was secondary.  Woodward’s “revelation” makes Bush et al appear worse, in my opinion.  Bush lead us into war just because it seemed it would happen anyway, emerging from a process he started in the first place, and he had a chance to tell the TRUTH and stop it.  But he didn’t.  How honest and noble is that?

Good People and Guns?

(c) Houston Chronicle I want to avoid drawing conclusions based on hunches and stereotypes.  I don’t want to generalize too broadly either.  And I most certainly don’t want to say conservatives are not good people.  Heck no, right?  (Insert your favorite emoticon.)

But jeepers…there does seem to be perhaps a subtle trend toward conservatives when it comes to bad political behavior and certainly bad ideas.  I would be willing to bet, for example, that the hateful attacks against our president when recently he opened a Twitter account likely didn’t come from many liberals.  And please don’t try to say that “both sides do it” because they don’t.

(c) Houston ChronicleBy and large, conservatives are the people who foam at the mouth when anyone suggests any sort of responsible control on guns in this country.  Many non-conservatives respectfully wish to keep guns, too, by the way.  I have a rifle and a shotgun and I hope you have no problem with that.  As long as I am safe and responsible, I see no reason why anyone, including the government, should be concerned.

But now let’s take a look what’s going on in Texas.  The Texas legislature moved closer yesterday to passing an open-carry handgun law.  Apparently gun owners can carry rifles and shotguns in Texas, even assault weapons it seems, so…I don’t know…handguns seem reasonable.  What the hell, right?  And I’m not going to debate the issue here anyway.  Instead I want comment on one of the arguments promoted by pro-gun folks.

(c) Houston ChronicleGood people and guns are a good thing, that’s the argument.  Guns, after all, don’t kill people, people kill people.  And who are those people killing people with guns?  Bad people.  In fact, good people with guns can be a deterrent to crime, they argue.  Again, we’re not here to debate this.  Let’s say they’re right…how do we test for this?  How do you know who is a good person?

At a pro-gun rally in Houston last summer, a group called Come and Take It Houston held a rally to promote its views on gun rights.  Some members attended the rally armed with assault rifles and carried signs which superimposed the group’s name and a picture of an assault rifle on the state’s flag.

(c) Houston ChronicleDoesn’t that imply a threat?  In my opinion, it isn’t even subtle.  In the little man rhetoric of the pro-gun movement is this “from my cold dead hands” rhetoric that indeed does imply that these people will fight their government to the death if need be.  Again, I understand the tyranny worries and blah, blah, blah…but in an era when school lunches and health care equate with government tyranny and the end of freedom, well…

So, who are these so-called “good people” seemingly willing to promote their political agenda quite literally at the point of a gun?  Come and Take It Houston organizer, Kenneth Lindbloom, wants “people to realize that in the hands of good people, guns are not dangerous and they don’t kill people.”  There’s something ironic about this, isn’t there?  If the state goes the other direction and restricts gun use — gun ownership — will these good people turn their guns on the state?  Probably not.  I get that.  But it points out a very basic flaw in the “Good People” argument.  People are good only until they are not.

By the way, I see that “Come and Take It” is a patriotic slogan with connections to both the American Revolution and the Texas Revolution.  (You can learn something writing these things.)  Interestingly — and ironically — one might argue that the slogan refers not to individual gun rights, but to the arming of an organized militia, something which the Second Amendment does seem to endorse.  (c) Houston Chronicle

 

Fear and Loathing in Ham Lake

Ham Lake, MinnesotaOh boy…Don’t tell the mayor and city council of Ham Lake what to do because they’ve got rights, damn it!  Property rights!  And, besides, they’re all big and grown up and smart and don’t need no stinking Big Government lurking around their backyard…

Seriously, as a joke, someone might walk into Maxx Bar and ponder aloud:  “I wonder if Barack Obama is planning any military action around here.”  The huckleberries would fly out the door to protect hearth and home from their Bud Lite-soaked dystopian fantasies…

All right, I will stop.  I have lost any hope of winning over much thoughtful consideration from the good people of Ham Lake, but I really doubt there would be much hope to begin with.  It would go against what they call “culture” up there.

So let’s start again.

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How Wrong are Republicans? Let’s Look at the F.E.C.

A quick comment on a story in Sunday’s New York Times, “Paralyzed F.E.C. Can’t Do Its Job, Chairwoman Says“.  Read it.  It’s frustrating and frightening.

It is frustrating because of how absolutely dysfunctional the bi-partisan committee has become.  Three Democrats and three Republicans and they agree on nothing.  (But there is a villain here.  It is the GOP.)

That brings us to frightening.  The story quotes Republican commissioner Lee E. Goodman who says “Congress set this place up to gridlock…This agency is functioning as Congress intended.  Democracy isn’t collapsing around us.”

I beg to differ.

This is a fine position to take if democracy indeed is serving the people, but it is hard to make the case that democracy is served when there speech is so strongly enabled by money and power or so strongly inhibited by the lack of money and power.  If the status quo does not equally serve the interests of all citizens, we should be concerned.  To say, “Oh well, it is what it is and we can’t do anything because gridlock is what Congress intended” really misses the point.  The Constitution still protects the rights of all Americans, right?  And isn’t it still the responsibility of Congress to represent the people and protect those rights?  Congress should not intend gridlock as a barrier to rights equality.

Let’s put a little common sense on the issue of money and (ironically named) free speech.  If large sums of money did not matter, would people who have the millions — if not billions — to spend on speech spend that money in the first place?  If there were not political and economic benefit from spending $889 million dollars — as David and Charles Koch will openly pledge to spend — why would they do it?  If the value of free speech were not tied to free spending, why would people with enormous sums of money to invest in political speech fight so hard to protect the laws that permit their spending?

The frightening outcome of this development is the way that inequality is touted as a First Amendment issue.  Toward the end of the story, former Republican commissioner Bradley A. Smith is described as someone with whom Democrats could work.  Smith left the F.E.C. in 2005.  Today he jokingly challenges Democrat commissioner Ellen Weintraub to a fight, “Let’s go right now, you speech-hating enemy of the First Amendment!”

A joke, right?  But think about it.  Republicans have turned the power and privilege of money into a First Amendment issue; they cloak it in the veil of Constitutional rights.  To question it is to be a “speech-hating” enemy of free speech.  That’s frightening.

So what is democracy in relation to the First Amendment.  Are the rights defined by the Constitution rights for all Americans or are they rights for those who have somehow gained an advantage?  If we accept Commissioner Goodman’s assessment that gridlock which prevents change is a good thing, it seems that Republicans — as a matter of policy — support rights weighted to serve  the interests of the advantaged over the rest.  That’s hardly a working democracy.

Read the story and see what you think.  It is bedtime for me.

Repealing Wage Protection Laws Does Not Protect Tax Payers

 (AP Photo/Michael Conroy)

Indiana Legislature

Indiana is set to repeal laws that have been in place for nearly 80 years that set pay standards for people working on state projects.  Indiana’s House speaker, Republican Brian C. Basma, explains that the change reflects a new era when “There’s more concern about efficiency and taxpayer protection than there was 20 years ago.”

This, of course, is typical of the conservative mind set and its inability to grasp complex and sophisticated issues.  It also raises the question, which “tax payers” does legislation like this protect?

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Minnesota GOP Transportation Plan

35W Bridge Collapse, Minneapolis, MNMinnesota’s Republican legislators propose funding overdue transportation infrastructure work without raising taxes.  That sounds good.  It is like getting something for nothing.  Of course their budget comes up a couple billion dollars short of what we probably need, but if we can get what they want without taxes…well getting something for nothing is better than getting nothing at all, right?

A sizable part of the funding Republicans propose finding comes from existing sales taxes.  They would dedicated sales taxes from the purchase of auto parts, car rentals, and car sales to their transportation budget.  Again, it sounds good.  It is that simple-minded common sense shared among neighbors that even feels good.

(And we wonder why the tax laws in this country are so cumbersome.)

However the problem here should be plain.  If you take a dollar from existing revenues to pay for something else without replacing that dollar, whatever is funded by that existing revenue is going to be underfunded.  Former governor Tim Pawlenty seemed to think that moving money around was a magical way to recreate funds, but it didn’t work then and it won’t work now.  It took Democrats and Democratic Governor Mark Dayton to clean up Pawlenty’s mess.

000003So now we seem to be lulled into repeating the past GOP sins.  People are buying into the idea.  And they are not paying attention.

Minnesota Republicans are numb to progress.  They want to lay off still more public workers, eliminate MinnesotaCare, and cut aid to Minneapolis and St. Paul, the state’s largest and most significant social and economic centers.  They also want to add more tax cuts, cuts that might give a typical family of four savings of only $500 over two years.  That’s less than $5 a week.

The trade off is consequential.  Public safety and private commerce depend on quality transportation infrastructure.  The daily needs of all Minnesotans to some degree are met directly or indirectly by the means of transportation.  Furthermore, Minnesota is on the mend economically, and a strong job-creating public sector investment in transportation deserves public investment.  It would build on Minnesota’s economic momentum.

Democrats propose raising the state’s gas tax to raise new funds to cover the new investments.  That is both reasonable and smart.  The arguments against gas tax — cars are more fuel efficient, electric cars don’t pay, bus riders don’t pay — are bogus.  Let me put it this way:  Who cares?  (And why?)  Get it done.

Holiday Traffic (c) MPR NewsIt is true — most definitely — that a gas tax is regressive.  In an era when poorer and middle class Americans carry an unfavorable economic burden compared with those most fortunate, this is a clear disadvantage.  However, the benefits — and the needs — leave few other options.  Certainly Republicans would not consider other taxes.  Americans don’t pay the real cost of driving anyway.  The Democrat plan closes the gap between the costs and what is paid to some degree.

If Minnesota is serious about addressing its infrastructure issues, the plans proposed by the Democrats is the best solution.  What the state’s Republicans propose relies on unwise and unnecessary cuts to state government and the services the state provides.