Labor Day Issues

The state's two major dailies take on Labor Day in two very different ways.  The Freeps does a human interest story on the rich while the Herald editorializes on the status of workers.

The Freeps story (in which I am quoted) had some interesting perspectives.  First, few people were willing to put a dollar figure on what it took to be rich.   Second was the side bar, which read

Defining "rich"

rich: adj. "having more than enough of material possessions; owning much money or property; wealthy ... rich is the general word for one who has more money or income-producing property than is necessary to satisfy normal needs."
Webster's New World  College Dictionary

So what is more than enough of material possessions?  That's hard to say.  What we do know is that many goods that we take for granted today, and are regular fixtures of poor people's households, were hardly available to the rich in years past.   Three decades ago, almost no one, rich or poor, owned a computer or cell phone.  Today they are widespread, even among the poor.  The same holds true for VCRs, iPods, and a variety of electronic items such as microwaves and color televisions.   Most poor people own their own cars and nearly half own their own homes.  A homeless person who suffers a heart attack will get better health care than President Eisenhower got when he had his heart attack 50 years ago.   What the poor consume today is what the rich couldn't even dream of consuming in the past. 

There's no reason to expect that the pattern of goods and services being more widely available to everyone will not continue, and goods and services that are today only available to the rich will be available to the middle class and then to the poor. 

Which brings me to the Herald's editorial concerning Labor Day. 

On this Labor Day, think for a moment of the exploited workers in Mexico and China, two of the "developing nations" where many American jobs have fled over the past decade or so, as we have exported our manufacturing base.

Who's doing the exploiting?  Literally hundreds of millions of people have moved from rural to urban China in the past two decades, the greatest mass migration in history.  Why are they moving away from idyllic farms to be exploited in cities?  Who forced them to move?  Maybe they moved because life and opportunities are better in the cities.

America exporting its manufacturing base?  According to the U.S. Bureau of Economic Analysis, manufacturing output in the U.S. is higher today than it ever was in the past.  And we haven't seen American jobs fleeing.  The total number of jobs in the U.S. is higher than it was 5, 10, 15, 20 years ago.  By millions.  The number of manufacturing jobs is down, and the share of all jobs in manufacturing has been falling.  A lot.  But it's been falling for 50 years (page 4 and 5 of this link). 

The editorial's complaint seems to be more about some people earning huge incomes:

Part of the problem is the old saw that what's good for General Motors is good for the country. In 2005, GM lost $10.6 million. In 2006, its CEO, G. Richard Wagoner, "earned" a little more than $7 million, after having cut his actual salary, before perks, in half, to $1.1 million. He kept the $3.5 million in stock options and the $1.4 million in "incentive/retirement" money, though.

General Motors has lots of problems.  Consumer demands have changed dramatically.  The company may go bankrupt.  Its board is hoping that Mr. Wagoner can take a company, still (but not for long) the largest car company on the planet, currently on the verge of bankruptcy, and turn it around.  How much should the board pay for someone who can accomplish that task?  I sure don't know, but I do know that such a person doesn't come cheap.  And if he succeeds, he'll be worth every penny of his pay, which pales next to the $128 million Tiger Woods earned last year.

My biggest beef with the editorial, though, is with its fundamental lack of understanding of how the economy works

The difference isn't the degree to which the parasites at the top are feeding off those less well-off, it's the overall health of the American economy.

Parasites?  The economy is not a zero sum game, where rich people at the top get rich because they impoverish the people at the bottom.  When people contribute to the economy and they get rich doing it--whether they're Bill Gates, Oprah Winfrey, Tiger Woods, or Richard Tarrant or Ben Cohen--the people who buy their products benefit far more than the people who make millions.

If Tiger Woods has earned $128 million last year, do you think 50 million golfers, and countless other non-golfers, would pay $3 each to watch him play or read about him in the newspapers?  Probably more. 

Despite Bill Gates' billions, every business and just about every family in the United States, and much of the developed world, is far better off because of what Microsoft has provided them.  He hasn't leeched off of every computer owner (except for Apple owners) in the world.

Markets and trade make us better off.  That's the lesson from Adam Smith, and the editorial does quote Smith.  And Smith and others showed that trade is not a zero sum game.  Both parties to a voluntary transaction, the buyer and the seller, benefit.  But the result of a market economy is increased inequality. Simon Kuznets won a Nobel Prize for analyzing why that occurs.  As long as economic growth continues, I'm happy  to accept inequality as the price we pay. But let's not demonize the process.

Comments

[David Usher]

Thanks, Art, for knocking victimology right up side the head. Capitalism is not perfect, but it's yards ahead of Socialism. Socialism may(??) moderate inequality, but I don't want it. Nevertheless, a vast horde of people, thinking they are curing the ills they see or may be experiencing in our society may well vote for more of it in November.

[Chris Campion]

If classic European economic stagnation has created a movement to reduce tax rates there to spur economic growth (as evidenced by the decline in European tax rates in the last decade), why do some in the States cling so doggedly to income re-distribution? Are they actively seeking negative economic growth? Are they actively seeking more governmental involvement and control over their lives?

Many Vermonters just want a chance at what I describe as a key and vital part of liberty - economic freedom. We sacrifice part of our freedom when we give up the means to control our own lives to others, willingly or no.

[Rama Schneider]

Hey Art, two things:

1) Adam Smith NEVER advocated lassaiz faire economics. Perhaps you neglected to read "Wealth of Nations"?

As a matter of fact Smith used the example of the then existent East India Tea Co as an example of an out of control multi-national that required heavy regulation.

On top of that, Smith's "invisible hand" referred to the desirability of local economies as communities could act as that "invisible hand" to keep local entrepreneurs in check.

2) How many jobs in the time frame you list above were needed just to keep pace with population growth?

Your overly simplistic numbers do a disservice as these numbers presume there was no yesterday where a strong middle class was built by direct government (ie. common) action.