Thoughts on the consequences of individual credit

[KevinKohler]

We could always encourage industries to locate here to absorb the excess through tax policy, energy policy, etc..., but it doesn't appear anyone is interested in leading that charge...

Decreasing corporate taxes means increasing someone else's taxes.






Unless you're a democrat or republican.

 

[specklebang]

Trapping you is one of my fave things to do on a rainy day. They don't call me Hunter, Tracker, Killer Kitty for nothing you know.:kitty:

So now lets try an evaluation.

As I've posted before, I used to live in Greenwich Village NYC on a minimum wage income of $40 per week. I spent about half and saved about half. That same job would now pay me $300 a week. Could I live on $300 a week? Better yet, could I live on $150 a week? I think I could but I don't have a lot of real world exposure. So, what do you think? No trap, real question.

My sense of it is that wages have not kept up with inflation and that everything costs 10 to 20 times as much now but wages have only gone up 7 to 8 times as much. But I certainly don't claim that as fact.

Trapped me didn't ya?

While wages in general (as in mean average wages) have kept up, they have been skewed towards the higher paid worker. I'm sure you have seen all the comments about how the average CEO pay is now something like 300 to 500 times the median wage, while 30 years ago it was only 40 times the median wage. That's not an inflation issue, that a disparity of income issue.

 

[KevinKohler]

And besides, it does us no good to entice industry to this country if all it does is create more low paying jobs as a direct result of maintaining that increasingly higher executive/share holder earnings.

 

[KevinKohler]

Trapping you is one of my fave things to do on a rainy day. They don't call me Hunter, Tracker, Killer Kitty for nothing you know.:kitty:

So now lets try an evaluation.

As I've posted before, I used to live in Greenwich Village NYC on a minimum wage income of $40 per week. I spent about half and saved about half. That same job would now pay me $300 a week. Could I live on $300 a week? Better yet, could I live on $150 a week? I think I could but I don't have a lot of real world exposure. So, what do you think? No trap, real question.

My sense of it is that wages have not kept up with inflation and that everything costs 10 to 20 times as much now but wages have only gone up 7 to 8 times as much. But I certainly don't claim that as fact.

Wow you're old.

300 a week in NYC? Hope you like homeless shelters.

 

[AlabamaPaul]

And besides, it does us no good to entice industry to this country if all it does is create more low paying jobs as a direct result of maintaining that increasingly higher executive/share holder earnings.

What makes you think competition for labor is a bad thing, or were you just being a bit sarcastic?

 

[KevinKohler]

The trick to "living" in NYC is to live at work. Work 7 days a week, 12 hours a day. This way, all you need to rent is a closet with a bed, which will still run you a minimum of 1k per month.

 

[imagep]

We could always encourage industries to locate here to absorb the excess through tax policy, energy policy, etc..., but it doesn't appear anyone is interested in leading that charge...

I'm interested. I'm a big supporter in lower taxes for the worker, and a flat lower tax rate on corporations, and improvements in our energy policies. Of course from what I am seeing on the news, energy isn't likely to be that big of an issue in the future in the US. Just today a new report was released which indicated that our total oil reserves are at least 50% higher than we thought 20 years ago.

But I really don't believe that those are the reasons why we import so much. I believe that most of our imports are due to really low wages in competing countries. Unless we are going to accept the 75¢/hr wage, there's not a lot we can do about imports, aside from tariffs.

 

[Sisyphus]

In 1980 the amount of credit debt carried per person (in inflation adjusted 2010 dollars) was about $58,000, today it's about $185,000 per person. That's $57 trillion dollars in total US consumer debt in 2010 (Source: The Fed).

To me the borrowing of money is a mixed bag of positive and negative consequences (mostly negative).

The first thing that strikes me is the reason that most people oppose minimum wage increases. People cite increased inflation and the increased price levels caused if you put more money into the hands of people at the bottom. The irony of that position is that raising minimum wage, in fact, does not create inflation in the traditional sense as the money to pay the increase does not come from adding new money to the money supply (thus no decrease in the value of the dollar). Since inflation is an increase in the money supply relative to goods and services, then it's not inflation in the traditional sense. Conversely, the issuance of credit to individuals from Fed member banks, does increase inflation as each loan increases the total supply of money in the economy. You may be tempted to remind me that the loan is usually offset by increases productivity, I would in turn remind you that in many cases the productivity comes before the loan, not the other way around.

In contrast paying additional wages to those at the bottom can in some cases result in higher prices (somewhere between 0.1 and 0.4% depending on the study you want to beleive) caused by an increase in demand as more money is available to minimum wage workers. This is called "demand pull inflation", but any increase in prices is offset by the increased demand it creates, which in turn can offset potential hour cuts and layoffs due to higher demand for goods and services. The effect of demand pull inflation depends on what our productive capacity is as a nation. Clearly with high unemployment rates and capital resources idle, some demand pull inflation would be healthy for the economy. Demand pull inflation only becomes an issue once the country reaches a level of "healthy" productive capacity. Continuing policies after this point would be counter productive, something the LBJ learned in the late 60's.


Which leads me to my next point, credit taken as consumer debt has increased sharply over the last 30 years, while at the same time salaries and wealth of the top most wage earners have been increasing. Is this just coincidence? I don't think so.

The result of so much wealth moving to the top creates a vacuum of money in the productive economy. The bottom 80% of America makes 40% of the income in the US and controls less than 20% of it's wealth and if you remove the home as a source of wealth the amount controlled by the bottom 20% drops to under 9%. Think about that, while the economy is inflated with new dollar creation, either from government programs like QE or corporate and/ or private borrowing, the result is still a shortage or money in the productive economy where 80% of us live and work. A sort of deflation for everyday people, while the overall economy is inflated. So if the amount of money at the bottom is shrinking, why don't we see the effects? The answer is that new credit is making up the gap. It's hiding the lack of money in the everyday economy that most of us live and work in. Hiding the fact that an ever increasing portion of the total amount of money is being consolidated into fewer and fewer hands. The Forbes 400 make up just .00035% of the total number of people in the US, but control about the same wealth as the bottom 50% (160,000,000) of US citizens.

So whatever your ideology, left or right, our system is failing. Money cannot move strictly from bottom to the top. It will not and cannot work. The quantity of money available, not just in absolute dollars over the entire system, but in the parts of the economy that most of us live in work must be adequate or the economy stalls. Making up for it with credit increases only encourages inflation and creates an unsustainable credit economy.

At the end of the day it comes down to this. As a greater and greater share of the total amount of money continues to fall into the hands of fewer and fewer people, no amount of jobs or investment will overcome the lack of money at the bottom. In other words, the system has worked in the past because people have disposable income, the share that is left over after essentials are paid for for the majority of the country is shrinking.

As a greater number of people fall into poverty they will be ineligible to take loans for cars and homes and this will stall the economy. This will expose the problem for what it is. People will start to understand that without money creation out of thin air, the system (as it works now) will not work. It's not that there isn't enough money, it's that too much of that money is in the hands of too few people and those few people do not spend or invest enough of that money into the everyday economy to keep everyone else employed.

How do we ensure that money captured at the top is available to re-earn by those in the bottom 90% of society?

We can (and have) taxed it...

We could increase minimum wages...

We could overhaul the banking system...

We could change the way money is created...

We could make investment mandatory...

Thoughts?

Yes; ignoring wages and getting people into store by loosening credit requirements, works for a time, but is folly, since sooner or later the chickens come home to roost.

We have only one choice, now: get wages for the job we have going north, pronto. And quit thinking better paying jobs will serendipitously get us out of the hole that policies put us into.

 

[imagep]

Decreasing corporate taxes means increasing someone else's taxes.






Unless you're a democrat or republican.

We actually have very low effective corporate taxes. I think that it is the tax RATE that people perceive as being high. I'd be all for lowering that rate, if we simultaniously did away with the crazy tax breaks and deductions that we give many big companies. It's a trade off, and one that could be revenue neutral.

 

[specklebang]

Yes, I am old. I will be 70 on August 5, 4 days from now. My $1 an hour was in 1959/1960.

NYC has undergone radical changes over the years. But maybe someone can help out here.

I paid $8 a week for a furnished room with a shared bath for the entire floor. I had only a sink in my room. How much would a room like that be now? If we use the same guidelines, it would be 20% of my income, $60 a week. Do you think I could rent a room for that (about $250)? There was a "flophouse" on Bleecker St. that was 50¢ a night but it was kind of gross.

The cheapest food I could find was beans and coffee. It was 15¢ for a meal. Could I buy a meal now for $1.05?

I think it's possible that I would not have to resort to a shelter. But I don't know.

Wow you're old.

300 a week in NYC? Hope you like homeless shelters.

 

[KevinKohler]

What makes you think competition for labor is a bad thing, or were you just being a bit sarcastic?

Half sarcastic, half serious.

Our current unemployment is, what, 8%, give or take? With a population size of close to 400 million, correct? How many jobs created by enticing industry here do we really think we're gonna make in each state?

Full employment, or anything close, is gone. A footnote in history. We once passed a law in this country concerning hours worked per week over 40. Reduced the hours people worked, on average, which increased the number of employed. Just one idea, and hey, it worked.

 

[AlabamaPaul]

I'm interested. I'm a big supporter in lower taxes for the worker, and a flat lower tax rate on corporations, and improvements in our energy policies. Of course from what I am seeing on the news, energy isn't likely to be that big of an issue in the future in the US. Just today a new report was released which indicated that our total oil reserves are at least 50% higher than we thought 20 years ago.

But I really don't believe that those are the reasons why we import so much. I believe that most of our imports are due to really low wages in competing countries. Unless we are going to accept the 75¢/hr wage, there's not a lot we can do about imports, aside from tariffs.

We still import due to the desire to appease the Greens, who don't want the country to be energy independent if it means utilizing conventional resources. All those dollars leave the economy rather than remaining here and creating jobs...

 

[AlabamaPaul]

Half sarcastic, half serious.

Our current unemployment is, what, 8%, give or take? With a population size of close to 400 million, correct? How many jobs created by enticing industry here do we really think we're gonna make in each state?

Full employment, or anything close, is gone. A footnote in history. We once passed a law in this country concerning hours worked per week over 40. Reduced the hours people worked, on average, which increased the number of employed. Just one idea, and hey, it worked.

I think you might be surprised as to what could be accomplished since the size of our economy is so large. Everyone wants to know what changed in the seventies when we began losing jobs. It's because we no longer cared about producing what we consume in this country and had the illusion that we could become an economy of consumers while no longer producing what was consumed...

 

[KevinKohler]

I think you might be surprised as to what could be accomplished since the size of our economy is so large. Everyone wants to know what changed in the seventies when we began losing jobs. It's because we no longer cared about producing what we consume in this country and had the illusion that we could become an economy of consumers while no longer producing what was consumed...

I would be more than happy to "buy American", but can rarely afford it, and rarely feel like supporting unions.

 

[imagep]

Trapping you is one of my fave things to do on a rainy day. They don't call me Hunter, Tracker, Killer Kitty for nothing you know.:kitty:

People do seem to enjoy doing the things that they are very good at.

So now lets try an evaluation.

As I've posted before, I used to live in Greenwich Village NYC on a minimum wage income of $40 per week. I spent about half and saved about half. That same job would now pay me $300 a week. Could I live on $300 a week? Better yet, could I live on $150 a week? I think I could but I don't have a lot of real world exposure. So, what do you think? No trap, real question.

I honestly don't know. I suspect that if you lived today, with the same standard of living that you lived back then, you could live on $150.00 per week. For a while, while in college, I lived on a part time minimum wage job, bringing home just over $100/wk. $250/mth rent, $50/mth utilities (no heat or air or cable tv), no insurance, $150/mth car payment, and something like $20 a week for food/sundries (school/books were paid for by financial aid).

But, on that part time minimum wage income, I couldn't have afforded a doctors visit, or a car repair, or any savings. So I certainly didn't consider that an "adult" income.

My sense of it is that wages have not kept up with inflation and that everything costs 10 to 20 times as much now but wages have only gone up 7 to 8 times as much. But I certainly don't claim that as fact.

Apparently you are correct, at least for minimum wage workers:

But when I look at the graph below, it becomes apparent that income disparity has been increasing:

So, maybe if minimum wage was indexed to inflation, the full time minimum wage worker would be able to save a few bucks like you did, and income disparity would be lower. Since the distribution of income is zero sum (in terms of % of GDP), when the rich are getting a larger percent of our national income, someone else has to get a smaller percent - apparently that "someone else" is mostly those who make minimum wage or not much more than minimum wage.

Again, it's my position that it isn't an inflation issue, it's a disparity of income issue, possibly at least in part brought on by the fact that we never bothered to index minimum wage to inflation.

 

[AlabamaPaul]

I would be more than happy to "buy American", but can rarely afford it, and rarely feel like supporting unions.

I have no love for unions, but that's not the issue. The issue is promoting, not restricting, manufacturing in this country and making the country energy independent in a way that provides cheap power to run those industries...

 

[imagep]

I have no love for unions, but that's not the issue. The issue is promoting, not restricting, manufacturing in this country and making the country energy independent in a way that provides cheap power to run those industries...

I have no issue with unions. Collective bargaining is likely the most effective means for the worker to gain negotiating power. Many highly paid people hire third parties to negotiate their contracts for them, it's only fair that the lowly worker be allowed the same right.

What I object to are state laws that give unions more power than would happen with just collective bargaining alone. Like being required to join a union, or being required to strike if the union strikes, or being denied the opportunity for a union member to negotiate compensation on his own (without union involvement).

 

[specklebang]

Justt did some research and the best deal I could find was $800 monthly for a furnished room. That means my rent has gone up about 25 times. So, there goes the wages keeping up with inflation theory.

People do seem to enjoy doing the things that they are very good at.


Again, it's my position that it isn't an inflation issue, it's a disparity of income issue, possibly at least in part brought on by the fact that we never bothered to index minimum wage to inflation.

 

[polgara]

I think you might be surprised as to what could be accomplished since the size of our economy is so large. Everyone wants to know what changed in the seventies when we began losing jobs. It's because we no longer cared about producing what we consume in this country and had the illusion that we could become an economy of consumers while no longer producing what was consumed...

I don't recall the arguments used on exactly how we were going to be able to consume when nobody was making money by producing, but the American people apparently liked what they heard, and few questioned it, so we started living the "Me Decade of the 1970s." I wonder what this current decade will be called, with millions totally dependent upon government in one form or another; debt nearing $17 trillion dollars, and growing at $10 million dollars a minute; social unrest; racial unrest; economic envy; and greed and gridlock in DC.

Utopia is not a word I would expect to hear! :shock:

 

[AlabamaPaul]

I don't recall the arguments used on exactly how we were going to be able to consume when nobody was making money by producing, but the American people apparently liked what they heard, and few questioned it, so we started living the "Me Decade of the 1970s." I wonder what this current decade will be called, with millions totally dependent upon government in one form or another; debt nearing $17 trillion dollars, and growing at $10 million dollars a minute; social unrest; racial unrest; economic envy; and greed and gridlock in DC.

Utopia is not a word I would expect to hear! :shock:

The decades since the seventies have relied ever increasingly on the government to provide for basic needs to the point where now we even provide cell phones as a basic need...

 

[imagep]

Justt did some research and the best deal I could find was $800 monthly for a furnished room. That means my rent has gone up about 25 times. So, there goes the wages keeping up with inflation theory.

You can rent a pretty decent house in a decent neighborhood in my part of the world for $800 a month. Did you live in Vegas when you made $40/wk?

 

[polgara]

The decades since the seventies have relied ever increasingly on the government to provide for basic needs to the point where now we even provide cell phones as a basic need...

I wonder why Verizon keeps sending me a bill every month? Don't they know that a cell phone is a basic need? Sheesh! :shrug:

 

[AlabamaPaul]

I wonder why Verizon keeps sending me a bill every month? Don't they know that a cell phone is a basic need? Sheesh! :shrug:

I'm sure their billing department will be sympathetic to your concerns... :mrgreen:

 

[polgara]

I'm sure their billing department will be sympathetic to your concerns... :mrgreen:

Oh yes, I'm sure they will. :lamo

 

[specklebang]

What? You didn't memorize my life story? A man can't get no respect around here.

No, I lived in Greenwich Village in Manhattan NYC when I made $40 a week. 6th Ave. and Waverly to be exact.

In Las Vegas, right down the street, you can get a shared bath/kitchen for $300 a month. So, yeah, you could live here on minimum wage, no problem.

You can rent a pretty decent house in a decent neighborhood in my part of the world for $800 a month. Did you live in Vegas when you made $40/wk?