Sunday, April 21, 2013

Society Must Better Divide Labor And Rewards

Society must find a better way to distribute labor and the rewards of labor. This would give more people a path to finding real and fulfilling work. The cost of inequality is taking a toll on our culture. Robots and new technology have streamlined and increased productivity and at the same time eliminated many jobs. Big business is good for big business but not necessarily for the masses. Consolidation often means a gain in efficiency, but this often comes at the cost of losing diversity and a "robustness" to both society and the economy. The benefits of efficiency sometimes have a huge hidden cost, in the 1993 movie Demolition Man in the future "everything is Taco Bell". How the fruits of labor are divided is important, this includes not just the wage deserved by a common laborer, but how much those in management, top CEO's, and those that can't, or choose not to work, receive. While we have become far more efficient in producing goods, all people should in their lifetime contribute to the good of society and the economic pie. Choosing not to work and live off the labor of others is theft.            

In principle, for any nation seeking fairness and equal opportunity for its people to grow and prosper inequality is an issue. Today wage stagnation is in part contributed to the financial crisis. During the Bush-era, cheaper credit papered over the problem for a while but it set America up for a terrible crash. Avoiding a repeat requires fixing the structural drivers of widening inequality. This means we must raise wages at the low end of the scale but a legislated rise in the minimum wage is not the answer. The only way a hike in the minimum wage “works” is if it creates incentives to increase labor productivity. A mandated increase in wages does not necessarily produce those incentives, but policies that support and create small businesses move in this direction. Taxation policies often draw the most attention, but this discussion should not be about taking away and redistributing wealth but more about positioning the average person with an opportunity to earn and reach "the good life".

Non-free market societies often fail because of the problems they have in adjusting supply to demand. This ability to adjust is the core strength of free markets, and we should not weaken this with bad government or economic policy. In the past improved seeds, mechanization, planting, and harvesting techniques enable fewer people to produce more food. Greater productivity lowers relative prices. But for food and manufactured goods, lower prices do not always stimulate a corresponding rise in demand. How many refrigerators, after all, do consumers want? Again, in economics lingo, demand for manufactured goods is “price inelastic,” a 10 percent fall in prices does not increase demand 10 percent, but lower prices for manufactured products frees up money to spend on services, such as healthcare, education, travel, and more.

When wages go up some industries respond by increasing automation and reduce the number of jobs, this increases productivity per worker-hour. Another option is to move jobs overseas to take advantage of lower labor cost which could also increase efficiency but in the long run, this will cost America dearly.  All else being equal higher wages would increase unemployment in the short term and make America less competitive in the global market. Under the current conditions, where overall demand is low, an increase in the minimum wage would amount to redistribution to those most-likely to consume, if they did not see their jobs vanish. This would mean an increase in demand but we could still see it result in the loss of jobs. Any increase in wages would impact small business and labor intense companies the most, and this would directly impact future job creation.

Some sectors of the economy find it harder to increase productivity than others, or have fewer incentives to do so. The government's inability to allow the US Postal Service to drop Saturday delivery is a perfect example. Another sector that could be particularly problematic if minimum wages are mandated higher is health-care. From orderlies to receptionists, janitors, and home health-care aids, there are a lot of low-wage workers employed in the health-care sector. With so much of health-care spending socialized the incentives to innovate in response to a mandated rise in wages will not function. The initial impact of a hike in the minimum wage would likely be a spike in health-care inflation. Given the way Medicare and Medicaid work it would also lead to an immediate spike in Federal spending thus increasing the federal deficit.

It seems that the answer is in finding a better way for society and us as a nation to share the economic pie. If the average wage for a worker of a company earns $25,000 per year, it is inconceivable that the CEO of that same company makes 5 million a year or is worth 200 times that of the average employee.  At the same time, it is unfair or inconceivable that a person by virtue of merely being born can place themselves on the government teat and not work or raise a hand in toil to help themselves or their fellow man. It is economic insanity to create systems where people are almost encouraged to surrender and drop personal responsibility and transfer it to the state. By its nature the free enterprise system destroys unproductive and wasteful jobs, the exception is when it comes to situations that allow the government to distort this outcome. If in fact, we are an intelligent species we should have some type of hope that this can be sorted out. I suspect it will be addressed but until it is expect tough sledding ahead.

Footnote;  A big issue is at what point does a person become wealthy, one million, ten million, one hundred million or more? Many people in the lower part of this range would argue with great vigor that they are far from the promised land or secure. How income and our possessions are taxed is an important issue that shapes how we interact with each other and society. We should remember that those who choose not to labor or save should not be carried up the hill on the backs of those who do. Much confusion exists as to when a person becomes wealthy, believe it or not many people confuse millionaires with billionaires, see the post below,

Footnote #2; Below is a post on the related subject of unemployment and its effect on our culture and society.


  1. "The nature of free enterprise destroys unproductive and wasteful jobs"
    If the laws of supply and demand are limited to enterprises that produce some kind of benefit for society, I would agree that the "market" would police itself, but 90% of the paying "jobs" are simply opportunities to serve the unsustainable gambling casino that calls itself "The Economy". An intelligent species would have to distinguish between industry and enterprise. If all financial transactions were exclusive to necessary industry then the rest of human enterprise could be free, thereby "sorting out" the existing confusion.

  2. Well said, unfortunately the same can not be said of government supported enterprises. Government does not destroy "unproductive and wasteful jobs". Many of my post deal with the idea of overreaching and growing government. If you have time please glance back at some of my past articles, like those about the US Postal Service and the penny. It should be noted that much of Government lurks, and is hidden behind quasi government units like utilities and a massive and growing number of mandates.

    1. I am in the process of reviewing your entire blog with great interest! Nowadays, we are being encouraged to see "government" as a business, using terms like "revenue shortfall" and "deficit budget" to hide the ugly truth .... income tax is a multi-generational ponzi scheme, and the services that the politicians "provide" are being farmed out to corrupt lobbies based on either pork barreling or campaign promises. It is far from a government "for, of and by the people", and it is even farther from being "free enterprise". Government ought to be restricted to dictating what the citizens CAN do (civil rights), what they CAN'T do (criminal law and punishment) and what they MUST do ( licenses, permits, inspections, taxes etc.) All the direction for what benefits "society" should come from the communities in which people live.

  3. In fact, a big issue is at what point does a person become wealthy, one million, ten million, one hundred million or more? We should remember that this blog is not only one place where you can read information about this issue - read more articles. However, you may be interested in!