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03/27/2011

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Xavier L. Simon aka Xavier

NEH, sorry I made a mistake with the steel statistics. My wife was calling me to dinner. When I saw scrap I thought that the numbers were for direct reduced or sponge iron. All the relevant numbers are in the bottom tables for iron and steel. The picture is actually better.

In 1950 raw steel production and steel product shipments were 88 and 72 million tons, respectively. In 2008 (I am avoiding 2009 because of the crash but the numbers are in the tables) they were 92 and 89 million tons, respectively. Not much of a change but still an increase.

Xavier L. Simon aka Xavier

Jack, re examples and ivory towers and econ, what do you tell me about the down to earth common sense and logic of those many millions that for many hundreds of years saw the sun return every day and still they insisted that the earth was flat and pointed to the ground in front of them as the example?

an observer

What you won't read on this blog

New study---future jobs will not support decent standard of living

http://news.yahoo.com/s/yblog_thelookout/20110401/ts_yblog_thelookout/future-jobs-wont-support-decent-living-standard-report

Posner and Becker, exactly how do you propose to solve this more-than-crisis

Jack

Xavier: Not sure what point you're attempting with steel production but you do have me fondly remembering a couple of cars I owned back then replete with steel skull cracking DASHboards, wheels and strikingly handsome chromed steel grills and bumpers. Not much of economic interest to be made of it, but were they in decent shape today they'd each command a higher price than a new, Cadillac.

Industrious, and synergistic, I thought of the Japanese who weren't blessed with a Masabi iron range to take much or our scrap and return it to us as shiny new fuel efficient cars, the quality of which (after QUITE a while!) awakened any number or our own long slumbering automobile designers.

While the aluminum that has replaced some of the steel is costly in terms of energy it's good in that it doesn't rust and can be efficiently recycled into new aluminum products. The plastic stuff? are they grinding it up for road filler, carpet fiber or other?

But steel is still important and as you say, we do well in specialty smelting and producing extremely high quality steel. Puzzling though to us Alaskans, who'd like to bring you guys cheap domestically produced NG through a seventeen hundred mile 52" pipeline that we still have to wait in line for Japan to roll the seamless pipe as we did back in the 70's for the 48" oil line. Geez, as many pipes as run through Canada and N-A plus the world market one would think that, still having domestic ore, we'd be right there with the front runners with a highly automated production facility.

Ahhhh......... the Banksters! I guess most of us would like to pulverize the "Too Bigs and vastly Too Arrogants and Greedies) and fill a prison or two with the worst of the traitorous miscreants, but! there does seem one flaw in the reflexive urge for justice. That is of the "Baby Bigs" being snapped up by offshore Mega-Bigs much as Wells and B-A mowed up small banks like dandelions from a spring lawn.

One idea I've been toying with, and it may seem a bit old fashioned or "New Dealish" is that of again separating insurance from lending as the too functions, though similar, can get quite confused if not handled at "arm's length". Also, and this may seem really a bit stodgy, but if a bank is handling primarily mortgages of a classic design with a small down payment, AMORTIZATION, to those presenting evidence of credit worthiness (say a job? for example) at roughly 10 times underlying assets, it strikes me that risk would be greatly diminished.

Also, it was probably wrong of LBJ who could be quite a slickster at times, to have sold our Fannie and Freddy off to nascent Wall Street thieves who recently matured into truly greedy monsters along with their brethren. While the current crop of WS thieves (and regular bankers) would like to have the whole mortgage sector to themselves to maximize fun and profit, I worry more than a bit that they'll tend to treat working folk much as they have in their Credit Card Gouging departments.

Thus in concert with those (am I going back too far?) who designed and implemented Fannie/Freddie originally -- I'd risk being tagged as "socialist" to again have the Fed government back (ie purchase) the loans made to those homes sold (coincidentally) to those earning about the income cut off for SS today $107,000, or even loans on homes up to $500,000 in the more costly markets.

Lastly, many will remember a lot of flap about Community Reinvestment Loans which tended to be small and not much of a problem until the wholesale madness and corruption took place. Given the wretched incomes of many hardworking Americans some means of housing "them" must be made available and somewhat of a subsidized loan program likely combines the least cost with a chance for families to own their own piece of the American Dream and even accrue a bit of capital over the years.

And The Flat Earth? Ha! Haven't you read Friedman's book of that name? In which he "sees" flatness where it may well not exist? Anyway........ as many of a scientific bent well know, things begin with a question, perhaps leading to a theory, and by experiment (example?) progress, perhaps to theorems.

Then of course there's ........ mythology too! I'm not sure how we decided to "teach" our kids that "flatness" was the order of the day before the disease carrying profiteer Columbus managed a trip to the "West Indies".

Truth is "roundness" had long been in the air so to speak with navigators knowing a bit about latitude and "experimenting" with longitude........ and, of course, savvy close mouthed fishermen from Portugal (among others) after raiding Icelandic stocks, slipping off to New Found Land for the cod that was the "secret weapon" of the Brit Navy. With low fat content it could be dried and salted giving a shelf life of three years.... a real boon in those days of slow travel.

As I mentioned, causes and effects are difficult even to those honestly engaged in seeking economic truths. WORSE by far! Is, as we've recently and disgustingly seen, is a band of Congressional twits who can call the best economic minds we have up before them, but still end up "feeling?" that the best use of VERY scarce federal revenues is to continue the trillion/decade tax cut for the wealthiest among us even as middle and lower income folk struggle desperately with the worst recession (truly a Depression) since the last Depression. Ha! and perhaps the best lesson of old Chris Columbus is that of the Queen sending him off in search of gold and all that glitters, .........not truth.

Thus American and the world suffers as a trillion of Keynesian spurring is applied to precisely the wrong income group.

Xavier L. Simon aka Xavier

Jack, the last two paragraphs and the general thrust of your proposals over time bring to mind something I have been thinking about recently but actually mulling over for more than fifty years. The big paradox of development and growth is how do you grow the pie while making sure it is distributed well, how do you improve output and the distribution of income? It is an equation that has to be solved simultaneously, yet, and here is the difference between you and me, and please, I understand and don’t begrudge you your position and have been struggling with it for over fifty years, and yet you want to distribute while I, mainly because thus far I have not been able to come up with a good distribution mechanism that respects rights and does not quell motivation, I want to grow the pie. And let’s please put aside the bad guys; we live in an imperfect world.

I’ve always had a mindset of producing, of growing the pie, while others want to take from those that have bigger slices; I was born that way. As a teenager I had many friends who were sold on socialist and even Marxist ideas. They argued for taking from the rich. I always wondered what they were going to take. The rich may have two refrigerators but once you got the extra one, and there are only so many rich people, then what? You will argue for the consumption and demand driven society. You are right but somebody still has to produce the extra refrigerators. And guess who produces them? The rich do; that is how they got rich in the first place. If you take their money, and all they really have are claims to money, which they have as a result of their superior organizational skills, you take away their capacity to make more refrigerators and perhaps even the motivation to do so.

Now, all of that has been converted into really fancy mathematical formulas by economists at MIT and elsewhere. I know. I even know the formulas well. But it helps to think in those terms in order not to lose sight of what it is that you are trying to do in the first place (something I am afraid economists too immersed in their fancy formulas forget). So I have the making the pie bigger part of the equation more or less resolved. What has proved incredibly elusive is the distribution part. For instance, you’ve heard me before on the free rider effect. That is one reason I don’t like the direct distribution route currently followed by the US. It just plain spoils people and takes away their motivation. There is an almost endless volume of scientific literature on the subject.

So we are back to jobs, and these are created by those rich people from which you would take more. Now don’t get me wrong, I do believe there is a good case to be made for a progressive tax, one that really works and the current one does not. Thus I like very much the solution proposed by the Deficit Reduction Commission, or whatever its name, to eliminate all deductions. Today the more you have the less taxes you pay. Thus famously Warren Buffett’s complaint that his secretary pays more taxes than he does; he can afford fancy lawyers but she can’t. Over the years I have dreamt up many schemes for improving income distribution while not violating the principles above.

Thus the theory or model that I have developed and about which I occasionally write. Again I was driven by a mindset of building before distributing, but trying to solve the latter as well. It is fairly complicated and based on engineering principles. But it does have a bottom line—the complications have to do with how to go about diagnosing the problem in particular circumstances and then fixing the problem also in particular circumstances. The bottom line is that people are unable to get jobs, unable to participate in the wider economy and even society itself, because there is always some obstacle or another in their way. Again, please don’t get hung up on those that are unfortunate to have disabilities of one kind or another; I have stated time and again that I would create safety nets for them. Other than that, rigidities do build up and down all of the economy, something you’ve also heard me on.

Thus also why I would remove some of the straightjackets to new investment that I do believe are out there. I have more than second hand experience. For some years I was charged with managing the capital budget of a multinational. Believe me when I say that there were many new job creating investments we shied away from because of the regulatory gridlock and interest group pressures surrounding the particular product, or because we believed a particular labor pool was unprepared (more below). But let me not digress into details and examples—as I’ve said before, the latter are dangerous in isolation and understanding by others of their full context.

Since this post is supposed to be about unions, what I would advise them is that they don’t stand on the way of change, and that instead they work with management in the creation of yet more job opportunities. Otherwise everything else is fair game. Oh, and by the way, in my earlier life I did have to negotiate across a table with a number of unions. I always found them to be reasonable provided you were honest with them and took the time to explain the rationale behind your proposals, including even why we couldn’t distribute the extra profits the way they wanted us to do. (And again let me remind you of my earlier admonition: let’s please put aside the bad guys; we live in an imperfect world.) I remember one time explaining quite graphically why we had windfall profits and what we now had to do with them. On seeing the reason they immediately backed down from some of their demands. To this day I am proud of having worked together successfully with those workers; they were my allies and even helped me solve problems that the fanciest of engineers quite literally couldn’t solve.

Back to the obstacles or rigidities, in the case of unions very often the stubbornness they exhibited was a lack of understanding about how a company works and finances itself. Education and knowledge, or the lack of them, are among the largest obstacles to distributing the pie better. That is why I weighed in when Prof Becker and Judge Posner expounded on the subject. I would like to see much more education. You said that you didn’t see my point on steel. NEH had complained that production was down. I wanted to show that the absolute numbers told a different story but much more important was that over the past 50 or 60 years many steel workers have transitioned to better and higher paying jobs as a result of higher productivity and education. Come to think of it, unions should be at the forefront of getting a better education for their membership.

an observer

Xavier

You mental model of income distribution is flawed. Distribution of income is only a political question, as I have demonstrated before.

Building a better mouse trap doesn't result in one making a higher income. Preventing others from offering the same mouse trap does (patent).

Markets never fairly allocate income, regardless of how one defines fair. Markets allocate income solely based on leverage, the ability to control price.

In fact, competition is horrible. No business or firm can survive in the chaos that would accompany "perfect competition" No one would invest in any firm or business facing "perfect competition," which is why the smaller the firm the harder it is to obtain credit. A small firm is less able to exercise power, excluded competition, and maintain some control over prices.

Once one realizes this reality, one can see that one is asking the wrong questions and getting useless answers. For example, firms and individuals profits should be limited to the extent they are necessary to achieve capital investment (profits at Goldman Sachs would be limited, but not Ford). Free riding should be recognized and taxed (Microsoft and trucking companies are both free riders). Microsoft free rides the trillions invested by tax payers in the public and private education of its employees. What would it cost Microsoft to educate its work force? Why isn't it paying to do such?

What would it cost trucking companies to have interstate highways? Why aren't they paying for such?

The "capitalism" sold today is nothing but propaganda favorable to those in power, in an attempt to assure that free-riding and rent seeking will continue.

Look at the BS tossed out by some who suggest that "capitalism" or markets can prevent pollution or will not tolerate discrimination, when in fact one is nothing but free-riding and the other is implicit slavery--discrimination results in lower than market wages for the victim. Captialism works best where discrimination is rampant. If you think not, look at the South which insisted on keeping slavery at any cost. The plantation owners clearly understood the economic benefits they were reaping.

Until you understand that the world works on a more basic level of psychological incentives you have nothing. Capitalism is flawed, today, because the incentives are all wrong. Socialism, communism, etc. are equally flawed because there incentives, albeit different, are equally wrong in their own way.

In sum, there is no higher order or moral force or aspect to the organization of an economy, there are only antidotes. Charlie Munger is the principal architect of this understanding. When you can get your head around the idea that a cash register has done more for capitalism than any government---it is an antidote to embezzlement and permits the owner or boss to own multiple stores---you may come to realize that the answers do not lie in big theories, they lie in blocking and tackling on a small scale.

One example, and then I close. In our talks about unions we did not mention an important fact why unions don't work and that is that it is impossible to protect union firms from non-union firms. If a firm is unionized and wages are raised, the firm becomes vulnerable to non-union firms that do not pay fair wages.

If one can take all this in, one can see that we need a total re-work of everything. For example, because of enforcement costs and avoidance, etc., we need to abolish income taxes, going to direct, graduated taxes on gross receipts, wealth and consumption, which can be enforced with little expenditure and which cannot be avoided.

In sum, I return to my basic thesis. Liberals are not up to the intellectual challenge before them.

Jack

Xaiver: Here are my main suggestions:

"So we are back to jobs, and these are created by those rich people from which you would take more."

............ Well No. But it is a hugely popular myth among the grass root supporters of the ALL FOR THE RICH AGENDA of those paying for the propaganda. In the south it must have come down from the plantation days as the conversation ending "Well ah never had a poor man GIVE me a job".

Ha! As though he had NO marketable skills and but for the grace of god expressed through the benefice of the "rich man" the fellow hoping to sell the fruit of his labors (for, by definition LESS than the value of the production) were a poor serf to be taken into the castle as a favor. But don't feel bad as a goodly number of our Congressional "reps" parade out the aging myth often.

Truth is it ALL begins with DEMAND. Without hunger (and something to trade) there'd be no farms. The entrepreneur (who is really a hero of capitalism) identifies the demand and engineers a profitable means of satisfying that demand. Some capital is typically required even if it's a snow shovel, and job creation costs vary widely as say in a roboticized engine plant of very few employees, but last I looked averaged about $50k investment per job. You can look far and wide but there will not be a successful business where there is not demand for its products.


"Now don’t get me wrong, I do believe there is a good case to be made for a progressive tax, one that really works and the current one does not. Thus I like very much the solution proposed by the Deficit Reduction Commission, or whatever its name, to eliminate all deductions. Today the more you have the less taxes you pay."

........ Agreed. We adopted a functional progress tax when the slope of income inequality was FAR less steep than it is today. Assuming "we" want to reject unions, min wage laws, or other means of preventing the ever increasing consolidation of income in yet fewer hands -- with an ending something like that of a game of Monopoly, income taxes should be MORE not less progressive. Otherwise the machine simply will not work.


"Thus famously Warren Buffett’s complaint that his secretary pays more taxes than he does; he can afford fancy lawyers but she can’t."

....... Well it's worse than that as hedge fund scammers creaming a billion/EACH have much of their gleanings taxed at 15% cap gains rate. Since Republicans are such an easy target in the ALL FOR THE RICH agenda, I'll mention Sen Schummer D of NY as one of the main culprits using his powerful cmte position to stall legislation that would reform some of the excesses of our WS thieves.

With good reason too! NY income went from 1/8th from "finance" to over 1/3rd as the "financial sector" once meant to facilitate industry has instead become a huge cancerous tumor obsessed with only its continued growth and enrichment.

"To this day I am proud of having worked together successfully with those workers; they were my allies and even helped me solve problems that the fanciest of engineers quite literally couldn’t solve."

......... I find it puzzling that you had this hands on experience yet quickly revert to the caricature of organized workers being ignorant, stubborn and unproductive. As for not "rigidity" and "not understanding how the company works" it appears that you also had first hand experience with the benefits of union organization which provides a better, two way path, for settling grievances and educating their workforce and gaining the insight provided by day to day closeness with the production system and its many individual tasks.

Xavier L. Simon aka Xavier

observer, your observations show what happens when we jump to conclusions. I did based on your attack on liberals. Wow, did I ever goof. I now see you are not anywhere in the normal spectrum that us mere mortals live in after the failed monstrous social experiments of the 20th century. I see now that Sutter on 03/30/2011 at 03:49 PM tagged you very nicely. Even Jack, who would do some limited central planning and even run some of the show, at least the VA, is a conservative by comparison so I fail to see how you were attacking him for being a liberal. And…

Jack, listen up. Observer has me labeled as a liberal! He must mean the original liberals of the Enlightenment. If so I don’t mind being tagged a liberal, although on some social issues I am as liberal by the current definition as all the others.

observer, two other observations. First, I suggest you look up the definition of free rider in economics, anthropology and even psychology. Second, if you believe that my “mental model” is flawed because income distribution is “only a political question,” may I suggest that you didn’t understand what I wrote, or you don’t really understand the meaning of political, or both. On the other hand, if all you are doing is looking for a platform to knock markets and man’s individualism and freedom then I suppose all of us make good targets.

I have only two questions for you: how would you fix the world. In your answer please address the “more basic level of psychological incentives.” What are they and how would you deal with them?

Xavier L. Simon aka Xavier

Jack, just one question. Pray tell where in God’s name do you get the idea that I “quickly revert to the caricature of organized workers being ignorant, stubborn and unproductive?”

Jack

Xavier, well there are the following hints in addition to comments on "superior organization skills" and more. While organization skills are crucial to most endeavors, so too are the hands on labors and skills that result in a home, office tower, bridge, airplane being built or complex machinery machinery assembled and maintained.

"Back to the obstacles or rigidities, in the case of unions very often the stubbornness they exhibited was a lack of understanding about how a company works and finances itself."

"Come to think of it, unions should be at the forefront of getting a better education for their membership."

Ha! perhaps even our sports, often used as metaphor for capitalist "competition" convey the wrong message with their emphasis of "owners" vs mere "players" as compared to the T E A M it typically takes to accomplish things great and small.

Xavier L. Simon aka Xavier

Jack, let me qualify my earlier statement on unions because there are elements about them that in fact I do not like. In all cases that I can think of it is their leadership when they accumulate too much power. The Founding Fathers had it right that too much power corrupts too much. In very large unions the leaders I’ve known have developed personal or other agendas that don’t serve their membership or the clients of their membership.

The most obvious cases are the teachers unions. The two most galling examples to me are how they protect incompetent teachers, and yes, there are some. But then there is also the TJ High School of Science and Technology that I wrote about in the education posts. TJ is the best example that I know of in this country of how learner centered public education can be made to work and do miracles. Yet the teachers union in the area has been trying to undermine it for fear that it serves as an example that could undermine teachers in regular schools. These cases really bother me because it is the children that ultimately have to pay the price for bad teachers or a bad educational system.

Another example is from many years ago when I tried to negotiate a new pay scale for a plant with a union that covered many other companies. We had worked hard on the pay scale to provide more merit incentives. We devised it in conversations with our workers. Remember I said I had a good working relationship with them. Well, to my amazement the leader didn’t want to accept the pay scale because we were giving too much and it might set a bad precedent with his other companies! In the end we had to compromise and we did it at the expense of the workers, not our company.

Other than that the headaches are only those normal to any tough negotiation.

Now, with respect to organizational capabilities and equating these with good honest hard labor I must take issue with you. When we start equating rare skills with others in plentiful supply we begin to slide down the road of “from everyone according to their abilities and to everyone according to their needs.” If that is your position then say it outright. It would save a lot of effort and ink. We might as well forget about the idea above of incompetent teachers. I know some—my wife used to be a teacher so we know many socially—and they are in fact very nice hard working people but I wouldn’t want them to educate my grandchildren. What do you suggest be done with them?

Jack

Observer has it about right in that capitalist markets DO tend to accrue more capital and wealth to the "owner" class.

Actually the soaring inequity of wage distribution we've experienced in the US is worse, as those at the topmost tiers have wielded economic power to buy political power. Examples include union busting regulations, dealing themselves unaffordable tax breaks at the expense of programs that benefit working folk and those cast out of the work force, utter negligence in protecting working folks from being preyed upon by a financial sector gone mad, from mortgages to credit card gouging.

The Walton family heirs along with just a handful of other super-rich who'd favor passing on a dynasty rather than a meritocracy were able to purchase the temporary ending of the inheritance tax and spend millions convincing those whose chances of ever having the "problem" of passing on more than $5 million before, gawd forbid! paying any inheritance tax that it is a "death tax" as if our typical pauper at death were not to be buried w/o paying up.

Observer: some of your laments are due to our never having adopted a the "pure" capitalism of the dreams of Libertarians on speed, and to a lesser extent some of the "Chicago School". No, instead we (Horace Greely) recognized early on the benefits to ALL of universal public education. That's why our financing system for K-12 is spread across all of us regardless of family size, and as much of school funding comes from property taxes, tends to be somewhat progressive.

Our highways the same. Though I may use them infrequently they're there when I need them and return benefits in the distribution of goods. You are right in that transportation lobbies keep trying to cut themselves a deal, and that in the post WWII era GM and others set the stage for truck and highway over rail. Today, as we face energy problems what a benefit it would be if we were set up to do most of our long distance "trucking" on rail with trucks doing the last few miles to the destination.

Observer sez:
"One example, and then I close. In our talks about unions we did not mention an important fact why unions don't work and that is that it is impossible to protect union firms from non-union firms. If a firm is unionized and wages are raised, the firm becomes vulnerable to non-union firms that do not pay fair wages."

There will always be such tensions. Though car mfgs once had an advantage by being close to steel factories and to ocean going seaports. Detroit may offer similar advantages if we are successful in building wind turbines and blades or other huge bulky items for export to other nations. As we've matured? (haha!) into a "service" economy the teaching of NY kids or a popular Manhattan cafe can not flee to a "right to work (sans pay) state. And! in the longer view once capital and equipment is tactically deployed to MS or AZ and the wages of its working folk systematically beaten down....... voila! internet enabled collective bargaining is VERY likely to take hold.

"If one can take all this in, one can see that we need a total re-work of everything. For example, because of enforcement costs and avoidance, etc., we need to abolish income taxes, going to direct, graduated taxes on gross receipts, wealth and consumption, which can be enforced with little expenditure and which cannot be avoided."

.......... These easy-squeezing "simple" fixes are not so simple to implement. As for "gross receipts taxes?" Consider, a nearby wholesaler grosses $10 million/yr with the owner working on razor thin margins takes home $50. Not far from his shop is a law office that grosses $150,000/yr of which the sole attorney takes home $98,000. Ah! Simple? Deduct cost of goods? then freight? storage costs? and here we go into the land of many deductions.

TRUST that ANY "consumption" tax is MORE of a sucker trap that even S. Forbes "flat tax" and other scammer's "fair tax". Those of median incomes must spend very nearly every dime coming in so as to survive. At higher levels of income there is the choice of saving or spending. And at CEO land of $15 million/year?? There is NO way to spend that much. All that is taking place is that of building family fortunes and an "owner" class dynasty our founders and later those implementing the inheritance tax wanted to avoid.

The prescription? Indeed simplify where we can (given a Congress that IS a wholly owned subsidiary of our?? corporations and the very rich. Return, at least! to the progressivity of the Clinton era schedules that paid the bills.

ADD taxes to ALL fossil fuels in a more or less "revenue neutral" move from income taxes. As the taxes further spur conservation and alternatives WE will benefit from every bbl of oil and every tanker of LNG that does NOT come here and take our few hard earneds to the economies of the M/E and others. Had we done this when the first warning bell went off in the 70's we'd NOT have built the worst gashogging fleet of SUV's and oversized P/U's the world has ever seen. Might have properly windowed and insulated the 50 million homes built since the 70's as well!

Observer surmises:

"In sum, I return to my basic thesis. Liberals are not up to the intellectual challenge before them."

......... of those rebels in Libya's streets and deserts there are surely intellectuals who've "done the work" for decades. Now they are up against the oppressors in the REAL world. So it is here.... we know, but it's NOT going to be easy clawing back what has been lost over the last half century.

an observer

Xavier

I have never described you as a liberal, unless such was a typo

Beyond that, if you believe that distribution of income is not a political question, give us one example where that is true in America today?

Further, there is no connection, logically or otherwise,between "markets" and man’s individualism and freedom.

What you call "Markets," is about to give you the choice between an ATT cell phone and Verizon cell phone. This is many things, but is neither individualism or freedom and the reason why such is happening is that you don't understand how to control private activity to assure individualism or freedom.

Economic life under perfect markets (pure competition) would be impossible. The game is only of balance---what collection of antidotes to human behavior gives us the best overall outcome?

Antidotes is another word for checks and balances. Just as we need checks and balances on gov't action, we need checks and balances on private action.

We are in trouble because our design of gov't and checks and balances on gov't action are designed for a world at the end of the 1700s. I have already explained out need to get rid of states, replacing them with one layer of regional or city gov't.

The republicans are right---we have way too much gov't; they are wrong about its location---it is at the state and local level where we need to rid ourselves. States have no useful economic function.

We need to take other steps---direct election of the President, longer house terms, perhaps elimination of the senate or some of its prerogatives (approval of executive dept. officers).

We are also in trouble because we have no effective antidotes to private misconduct. Look at too big to fail. We have no effective antidote and will never, because the Big Banks own the Republican Party.

The FTimes just had a great piece on the irrationality of the bridge loan for ATT to buy TMobile. Even the credit agencies are balking and yet it is happening because the Republicans would not permit any meaningful financial reform bill to pass. Too much in campaign contributions was at stake.

Jack

"The republicans are right---we have way too much gov't; they are wrong about its location---it is at the state and local level where we need to rid ourselves. States have no useful economic function."

.......... Probably not fair for me to comment as Alaska is a region, perhaps three regions and a state. But the larger mid and western states too are nearly regions. I don't see much of a problem, overlap of responsibilities or "savings" to be had. The problem of rural counties "holding back" the more progressives politic of the cities would not be lessened either.

Direct election of the Pres would have changed things only occasionally, though this last "whoopsie" was a REAL whopper of a costly mistake. Campaigning for a nationwide popularity contest would focus on the megalopolis' of the coasts and largely ignoring "fly over" country. Not easy to tally up the unforseen cosequences!

Yeah....... our "competitive" cell phone biz has resulted in far higher costs, slower build-outs and poorer service than those of the "socialistic" solutions of other nations. Add TWO credit card outfits calling the tune for the nation as well. Merchant "swipe fees" of 2% or so here are zero in Canada and a small fraction of a percent in the EU where they've a far more consumer protective and simpler card contract that disallows the incredible tack-ons, usurious rates and penalties that cost Americans billions.

Good thing we ARE productive! A less fatted "golden goose" would have been pecked to death long ago!

Alfonso Fanjul

If unions are not allowed to bargain collectively, taxpayers will certainly pay much less for the government machine, but that lower price-tag is an inefficient one – because the taxpayers would under-compensate public employees at a wage level below the competitive equilibrium.

Jack

Alfonso: Yep! and what's the long term result of paying below market? You get the dregs who were unable to get or maintain the higher paying jobs.

Has America and our Profs forgotten the productive benefits of a smaller, skilled team over a larger, more difficult to manage one of lower skill and higher turnover?

PP

If unions are not allowed to bargain collectively, taxpayers will certainly pay much less for the government machine, but that lower price-tag is an inefficient one – because the taxpayers would under-compensate public employees at a wage level below the competitive equilibrium.

...and public employees would simply abandon the public sector and seek employment in the private sector until taxpayers pay the equilibrium price.

an observer

Alfonso and PP

Thank you for posting such common sense observations, which are totally disregarded by Posner and Becker.

I noted the corollary of this rule---that high public wages would drive up private wages---as firms compete for workers

Xavier L. Simon aka Xavier

Observer, it is quite amusing and ironic that you praise Alfonso Fanjul’s strange interpretation of economic equilibrium—I suspect that he either didn’t understand his economics or he is making the mistake I’ve mentioned repeatedly: he is so immersed in the formulas that he loses contact with the real world and particularly the underlying assumptions—while you insist that income distribution is a purely political matter. By the way, on this latter I don’t disagree; at least I haven’t found a way to do it strictly through economics without some political intervention, in my case to break up excessive concentrations of power. You just keep failing to understand what I say.

Xavier L. Simon aka Xavier

Observer, it is quite amusing and ironic that you praise Alfonso Fanjul’s strange interpretation of economic equilibrium—I suspect that he either didn’t understand his economics or he is making the mistake I’ve mentioned repeatedly: he is so immersed in the formulas that he loses contact with the real world and particularly the underlying assumptions—while you insist that income distribution is a purely political matter. By the way, on this latter I don’t disagree; at least I haven’t found a way to do it strictly through economics without some political intervention, in my case to break up excessive concentrations of power. You just keep failing to understand what I say.

an observer

Xavier:

When you set wages below market you, by definition, forego quality, for what you have is the old, hated wage price control in reverse.

My state has destroyed itself with this means and method. Many years ago we adopted a rule limiting tax increases, to the rate of inflation.

The problem is that salaries for high quality university professors has been rising faster than the rate of inflation.

Accordingly, we have been hiring the dregs. Consequently, in national rankings, the quality of our state university has fallen from 45 +/- to 120 +/- in national rankings.

Second, I am glad that you concede that all distribution of income is a political and not economic question.

If you start applying such you will quickly come to understand that my checks/balances, antidote model is far superior to any other approach to public policy.

As for what you say, I understand such---you, however, never actually attempt to model how to break up excessive concentrations of power.

Take healthcare, if this was you stated goal you would favor: (a) ending tax deductions for health care; and (b) outlawing health insurance (talk about a concentration of power). Instead you would, as I do, support a buyers cooperative---everyone must join a non-profit co-op that buys your health care for all members on non-discriminatory terms. The co-op could hire direct or contract for services or both.

PP

Exactly Jack, I’m happy someone understands elementary economics of supply and demand…

So the same [need for unionization] holds for say orange farmers. They need to belong to a union, otherwise consumers would underpay them for oranges. Same for apple farmers, wheat farmers, surveyors, air traffic controllers, technicians, actors, engineers, janitors, construction workers, inventors, doctors, football players, auto workers, store owners, financiers, airline employees, secretaries, tellers, scientists, nurses, musicians, teachers etc. …They all need to belong to a union otherwise those buying their services would underpay them.

Essentially a nation where everyone is a member of a union trying to collectively extract higher compensation from everyone else for less work, through the collective political process rather than through individual competence, is…well… a prosperous nation.

This is because, as observer brilliantly points out, prosperity is a political process. What goods and services, innovations etc. a country produces is secondary. Even if overall production stays the same (or even decreases from unions bargaining for more compensation for less work) prosperity (i.e. the total goods and services enjoyed) CAN actually be increased through the political process. Production is irrelevant. Goods and services that increase people’s standard of living can be created out of thin air, or foreigners can be suckered into supplying a country’s domestic difference between production and consumption for nothing in return. Politics is what determines prosperity – incentives for competent people to produce are largely irrelevant.

Those of you having difficulty understanding the concepts of how prosperity can be magically created without increases in production, should read Paul Krugman. He is brilliant at explaining how more prosperity can be created through lower incentives to produce.

an observer

PP

The ideas did not originate with Krugman. They are actually what Madison and Hamilton hoped with happen (and the central purpose of the interstate commerce clause)

The Federalist Papers write about the intent of the Constitution being to create a balance of power between the interests or factions, which Madison and Hamilton saw as the "often-agitated question between agriculture and commerce."

Nothing has changed expect that we now have more factions and 200 years of experience showing us that Madison and Hamilton did not achieve the balance they sought.

Jack

"while you insist that income distribution is a purely political matter."

........ this one's a mixed bag and a tough one to sort through at that. Assuming (ha!) no political intervention, surely capital deployed by the savvy reaps the highest returns -- and perhaps that's as it should be -- IF the savvy deployment most often adds to productivity, efficiency and a high std of living.

Next, of course, are those who have a valuable franchise such as sports stars, Docs, Lawyers and other scarce talents. (It's easily argued that the franchise of docs and lawyers are enhanced by the "unions" of the AMA and the Bar Assn) "Supply and demand" serves the group who speak of "compensation" contracts etc pretty well.

It's the FAR more numerous who ask "What are "THEY" paying" who are the price takers, with individually NO market power who MUST rely on collective bargaining, work rules, min wage laws etc. The land of politics. And! of course the most powerful, case number one too is IN the land of politics and benefit greatly (more than any other group) from every manner of Congressional and regulatory benefit.

In finality, here, you'll note most of the handwringers "concerned" about "unions breaking the bank" speak only in vague, ideology driven terms, and cite anomalies like the UAW negotiations (they don't understand) to "make their case".

Let's take a look at the real world: Arguably the two teachers "unions" have the most "public employees"; how have they done?

Well, these folks with 5 years of college, continuing education, and years of experience in the classroom average $40,000/year and their "jealousy inciting??" retirements are $19,000. (Many teacher retirements are "instead of SS") Does anyone here see a nation breaking "union" premium in these pay rates? If so what do you "feel" the teachers of our next generation "should" be paid?

an observer

Jack

Sans a legal system or government, there can be little if any trade. Why pay for what I can steal?

Hence, all economics depends upon a political and legal system.

The Deputy Mayor of New York was just on CSPAN, giving thoughts similar to ones I have mentioned.

He even had a term---Post Progressive

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