Posted on 12/20/2013 1:00:37 PM PST by MosesKnows
Yeah,unfortunately that’s a common management technique by managers who are otherwise incompetent. The whole “process re-engineering” craze was kicked off by people who started out making rational re-engineering cuts and then when they didn’t find enough gains, they just made arbitrary cuts to see what broke.
How much would average prices rise because of this tariff?
Under normal micro-economics the labor supply and demand curve tells you that the higher you set the price, the less demand for labor there will be. And that implies jobs are loss. And that's where most people stop.
However at the risk of sounding like a certain extremely liberal Manchurian president, there a "redistribution effect". If enough jobs are retained at the higher rate, so that more funds flow to minimum wage workers than would have before the minimum wage, then you may create additional indirect jobs that would offset the direct jobs loss.
For example imagine you have an economy with 1000 workers earning $5 a month (keeping math simple), so that altogether they are earning $5000. If you raise the minimum wage to $10 a month. You are going to lose jobs. But suppose that results in 800 people working at $10 a month, earning $8000. There's now $3000 additional funds going to those low wage workers. And they will spend that money somewhere. They might use those additional funds to hire another 300 people at $10 a month.
So you had a net increase of 100 workers. And the "velocity of money" concept says those dollars get respent more than once.
Now if you drop to 200 workers making $10 a month, and 800 unemployed, well...that's bad.
Under normal micro-economics the labor supply and demand curve tells you that the higher you set the price, the less demand for labor there will be. And that implies jobs are loss. And that's where most people stop.
However at the risk of sounding like a certain extremely liberal Manchurian president, there a "redistribution effect". If enough jobs are retained at the higher rate, so that more funds flow to minimum wage workers than would have before the minimum wage, then you may create additional indirect jobs that would offset the direct jobs loss.
For example imagine you have an economy with 1000 workers earning $5 a month (keeping math simple), so that altogether they are earning $5000. If you raise the minimum wage to $10 a month. You are going to lose jobs. But suppose that results in 800 people working at $10 a month, earning $8000. There's now $3000 additional funds going to those low wage workers. And they will spend that money somewhere. They might use those additional funds to hire another 300 people at $10 a month.
So you had a net increase of 100 workers. And the "velocity of money" concept says those dollars get respent more than once.
Now if you drop to 200 workers making $10 a month, and 800 unemployed, well...that's bad.
Depends on if domestic manufacturing takes up the slack, but a 10% tariff means a 10% price increase. The importer could eat the costs of the duty too.
Less than 1.4%. Imports are equivalent to 16% of our GNP. so 0.16/(1+0.16) = 14% * 10% increase = 1.4% impact on average prices.
In some cases the foreign producer may choose to forgo profits and keep the price the same to avoid losing market share. So it could be less than that.
Less than 1.4%. Imports are equivalent to 16% of our GNP. so 0.16/(1+0.16) = 14% * 10% increase = 1.4% impact on average prices.
In some cases the foreign producer may choose to forgo profits and keep the price the same to avoid losing market share. So it could be less than that.
Doubling their wages without doubling their output will reduce GDP. That will reduce total jobs
Imports are equivalent to 16% of our GNP, so the effect on average prices would be 10% * the portion of goods that are imports. It would be 1.4% on average prices.
Your calculation assumes domestic prices will remain unchanged. Why would that be the case?
Why would they?
Let's go back to oil. You make foreign oil 10% more expensive you give people an incentive to buy cheaper US oil. They bid up the price of US oil until its price matches the cost of the imported oil.
So now all oil prices have risen.
The only case that could be an exception is where an American producer still exists that competes against an import. When the import goes up, the American producer could raise prices. Or they could keep the price lower and take market share. It's not likely to be a very large part of the economy that falls into this category.
If this is only a small part of the economy, how will your scheme raise domestic employment?
Okay, that's certainly possible, but all utilities and mining (which includes oil) is only 4% of GNP. And oil only accounts for 25% of our energy usage. So you are only talking about a 10% increase on 1% of GNP. Plus, the less we buy from OPEC the harder time they have controlling supply. So prices could plummet.
"If this is only a small part of the economy, how will your scheme raise domestic employment?"
Well imports are equal to 16% of our GNP. That's not small. But a 10% increase on 16% is pretty small, but it may be enough to give the home team an advantage. A small increase has the potential of shifting the production for a lot of dollars. And we may well have to go above 10%. Still in the great scheme of things it's not going to raise the average price level that much.
But you said domestic prices wouldn't rise. Clearly you're wrong.
Plus, the less we buy from OPEC the harder time they have controlling supply. So prices could plummet.
Why would we buy less foreign oil?
Well imports are equal to 16% of our GNP. That's not small. But a 10% increase on 16% is pretty small, but it may be enough to give the home team an advantage.
You just made plastic pink flamingos from China 10% more expensive, which home team benefits?
They won't rise much. If oil is 1% of our economy, then even if both foreign and domestic oil go up 10%, you're talking about 0.1% increase in average prices.
Why would we buy less foreign oil?
Because foreign oil just became a little more expensive. Which will increase investment in domestic production.
"You just made plastic pink flamingos from China 10% more expensive, which home team benefits
Have you looked at what China sells us lately. We're not importing a Trillion dollars of pink flamingos.
The stores are full of Chinese goods while Americans sit unemployed. As long as that continues, China gets rich and we sink in debt.
This year, through October, we've imported $231 billion in crude. That's about 1.5% of GDP.
Because foreign oil just became a little more expensive. Which will increase investment in domestic production.
About 0.0001 seconds after foreign oil becomes more expensive, domestic oil will become more expensive.
So you've managed to raise oil prices across the board.
Why does your scheme work better with things other than oil?
Have you looked at what China sells us lately. We're not importing a Trillion dollars of pink flamingos.
Who said they sold us $1 trillion in flamingos?
You just raised the price of that item, where is the higher employment as a result?
Okay 10% tariff on that would be 0.15% of GNP. It's not going to cause rampant inflation.
Higher employment starts when Americans can make things more cheaply than making them in China and transporting them here. It may take more than 10% to turn things around.
Still, America gets wealthy when Americans work. America sinks into debt when we pay the Chinese to work and pay Americans to sit on their backside.
When you add in the wealth creation effect, reinvigorate ghost towns that once produced something, the net effect will more than offset any price difference.
I am not convinced we the consumer really benefits from the slave wages paid now, I think all goes to the corp bottom line.
imagine you have an economy with 1000 workers earning $5 a month (keeping math simple), so that altogether they are earning $5000. If you raise the minimum wage to $10 a month. You are going to lose jobs.
But suppose that results in 800 people working at $10 a month, earning $8000. There's now $3000 additional funds going to those low wage workers
. . . brought to you, presumably, by the Tooth Fairy.And they will spend that money somewhere. They might use those additional funds to hire another 300 people at $10 a month.What you have just done is to assume that the employer is not one of those “undercapitalized” firms that Hillary can’t be bothered with - you know, the small businesses that, on net, create all the new jobs. Instead, you assume, the business is in a mature phase where it is wholly owned by someone who has made it, has no money worries at all, and is operating his business as a hobby. Such people exist - but their businesses aren’t going to be the ones to create new jobs in a big way. Been there, done that, in their minds.
For every business like that there are many which have few employees and an owner who doesn’t sleep so well because he goes to bed thinking about how he is going to keeping his cash flow positive this month. Now you lay on those owners the burden of being the Tooth Fairy who is going to provide the extra dough, and there is no way they are going to be hiring.
So, to review, your magic formula has reduced employment at the old-line company, and it has reduced hiring at the many startup companies. Any rationale such as you propose is, fundamentally, based on the conceit that the government can make slave labor out of the leaders of the economy known as “employers.” Simply by sending out an edict saying, “hire more people and pay them more money” to people to whom “failure is not an option” is a fantasy. Failure is an option.
The other option is, of course, accelerating inflation. The government can just print the dollars to cause increased dollar revenue, and business will pick up, momentarily - until prices respond at a higher level, and nothing is different than before, except that he holder of a dollar has less value in his pocket now because it won’t buy quite as much as it did before. So the government can then continue printing dollars at a faster and faster rate, in order to keep the economy at a slightly increased employment level - but eventually inflation gets bad enough that “we need wage and price controls because people have gotten greedy.” So the government imposes controls, but all that does is channel the inflation a bit, and create shortages a lot.Eventually even the people who were initially enamored of the scheme realize that “stagflation” is not only possible, it is the reality they are living in - and that the worst that you could have said about the way things were before you started your naive experiment, it wasn’t this bad. But by then, the only medicine that will work is to simply stop accelerating the money supply, live through (the rest of) a Recession, and wait for the ship to right itself and wait for “the bad old days” before your experiment started to return at last. Of course, by then the government will have raised taxes to exorbitant levels, and you do - with enough courage - have the option of cutting tax rates in the teeth of a badly unbalanced budget. That will help, a lot.
And on the off chance that you are a “young skull full of mush” who doesn’t remember the 1970s, that is precisely why the Nixon-Carter decade was such a mess - and why the Reagan years seemed miraculous in comparison.
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