(no subject)
Employers who pay their employees poorly are, fundamentally, demanding that other businesses and the government subsidize their parsimony.
Consumer demand is fundamentally what drives capitalist economies, and that one of the biggest drivers of consumer demand, if not _the_ driver of consumer demand, is disposable income (subject, of course, to the marginal propensity to consume- for what should be obvious reasons, a million people with $1000 of disposable income each creates much, much more demand than a single person with a billion dollars of disposable income). Disposable income comes from high wages, and this right here is a big reason why the post-war era was so prosperous- wages skyrocketed, creating a working class with lots and lots of disposable income, which in turn creates demand for goods. The demand for goods creates jobs making those goods, and the income from those jobs creates demand, and so on.
What we're seeing right now is what a capitalist economy without a lot of disposable income looks like- there's no jobs, because nobody's got the disposable income to buy things, which means that jobs don't get made... The extremely reductionist summary of Keynesianism holds that in such a situation, the government should spend money to stimulate demand, causing jobs to be created to fill that demand, and then you get the positive feedback loop going. Once things are okay, the government stops spending to stimulate (since it's no longer necessary) and pays off the debt incurred by the stimulus spending with the taxes generated by the increased economic activity, and also saves up so that the next time stimulus is necessary, they'll have the cash to pay for it up front as much as possible. And it will be necessary- the pressure in capitalist economies for every firm to grow to the greatest extent possible means that the ups and downs aren't a result of bad policy- they're just part of capitalism. Keynesianism aims to make those ups and downs as painless as possible.
Stay with me a moment for a seeming tangent about cartels.
For those who aren't aware, a cartel is (broadly) an economic arrangement among the producers of a particular good in which the producers agree to control production and prices so that they can gain higher prices for their goods. The best-known cartel is probably OPEC, the Organization of Petroleum Exporting Countries, who agree amongst themselves to restrict oil production in order to keep prices high.
Cartel members are subject to an interesting logic, in which each member is incentivized to cheat. In the case of OPEC, this takes the form of overproducing oil, since you can sell more at the higher price the cartel obtains. Of course, if every member of the cartel cheats, the whole system falls apart, as the reduced supply that was causing prices to rise is eliminated by the cheating. So while every member is individually heavily incentivized to cheat, if more than a certain threshold of members cheat, everything goes to hell and nobody wins.
You may recognize this as a version of the Prisoner's Dilemma.
Employers are subject to a form of cartel logic, though it's one of consumption rather than of production. Every employer wants to minimize the amount of labor they consume- or, to be more plain, each employer wants to pay as little as possible to their employees. That's not because employers are cheap fuckers- though many are- but rather because the point of running a business is to make money, and every penny paid out is a penny less in profit. Labor is just another expense, same as raw materials, maintenance of capital, and so on.
The problem is, the money paid to labor is where the demand for an employer's products come from. When a firm that employs people cuts wages and lays people off, they increase their profit by reducing their labor costs, but they also reduce the amount of demand in the system as a whole. If only a small number of employers do this, the impact is negligible, but if the practice becomes widespread, the result is catastrophic. Just as large numbers of OPEC members overproducing drives the price back down, large numbers of employers paying low wages drives demand down to the point where it actively hurts the economy.
Henry Ford, bastard that he was, understood fundamentally that a working class with disposable income was massively beneficial to anybody who owns a business, and lacking one, did his part to help create one, by famously paying high wages to his employees. In the post-war era, when working-class wages were high, the economy boomed because it contained lots of people with money to spend. At some point, paying low wages and expecting other employers, or the government (quite brazenly, in Wal-Mart's case) to subsidize those wages became the norm.
Consumer demand is fundamentally what drives capitalist economies, and that one of the biggest drivers of consumer demand, if not _the_ driver of consumer demand, is disposable income (subject, of course, to the marginal propensity to consume- for what should be obvious reasons, a million people with $1000 of disposable income each creates much, much more demand than a single person with a billion dollars of disposable income). Disposable income comes from high wages, and this right here is a big reason why the post-war era was so prosperous- wages skyrocketed, creating a working class with lots and lots of disposable income, which in turn creates demand for goods. The demand for goods creates jobs making those goods, and the income from those jobs creates demand, and so on.
What we're seeing right now is what a capitalist economy without a lot of disposable income looks like- there's no jobs, because nobody's got the disposable income to buy things, which means that jobs don't get made... The extremely reductionist summary of Keynesianism holds that in such a situation, the government should spend money to stimulate demand, causing jobs to be created to fill that demand, and then you get the positive feedback loop going. Once things are okay, the government stops spending to stimulate (since it's no longer necessary) and pays off the debt incurred by the stimulus spending with the taxes generated by the increased economic activity, and also saves up so that the next time stimulus is necessary, they'll have the cash to pay for it up front as much as possible. And it will be necessary- the pressure in capitalist economies for every firm to grow to the greatest extent possible means that the ups and downs aren't a result of bad policy- they're just part of capitalism. Keynesianism aims to make those ups and downs as painless as possible.
Stay with me a moment for a seeming tangent about cartels.
For those who aren't aware, a cartel is (broadly) an economic arrangement among the producers of a particular good in which the producers agree to control production and prices so that they can gain higher prices for their goods. The best-known cartel is probably OPEC, the Organization of Petroleum Exporting Countries, who agree amongst themselves to restrict oil production in order to keep prices high.
Cartel members are subject to an interesting logic, in which each member is incentivized to cheat. In the case of OPEC, this takes the form of overproducing oil, since you can sell more at the higher price the cartel obtains. Of course, if every member of the cartel cheats, the whole system falls apart, as the reduced supply that was causing prices to rise is eliminated by the cheating. So while every member is individually heavily incentivized to cheat, if more than a certain threshold of members cheat, everything goes to hell and nobody wins.
You may recognize this as a version of the Prisoner's Dilemma.
Employers are subject to a form of cartel logic, though it's one of consumption rather than of production. Every employer wants to minimize the amount of labor they consume- or, to be more plain, each employer wants to pay as little as possible to their employees. That's not because employers are cheap fuckers- though many are- but rather because the point of running a business is to make money, and every penny paid out is a penny less in profit. Labor is just another expense, same as raw materials, maintenance of capital, and so on.
The problem is, the money paid to labor is where the demand for an employer's products come from. When a firm that employs people cuts wages and lays people off, they increase their profit by reducing their labor costs, but they also reduce the amount of demand in the system as a whole. If only a small number of employers do this, the impact is negligible, but if the practice becomes widespread, the result is catastrophic. Just as large numbers of OPEC members overproducing drives the price back down, large numbers of employers paying low wages drives demand down to the point where it actively hurts the economy.
Henry Ford, bastard that he was, understood fundamentally that a working class with disposable income was massively beneficial to anybody who owns a business, and lacking one, did his part to help create one, by famously paying high wages to his employees. In the post-war era, when working-class wages were high, the economy boomed because it contained lots of people with money to spend. At some point, paying low wages and expecting other employers, or the government (quite brazenly, in Wal-Mart's case) to subsidize those wages became the norm.