[Vision2020] I thought you might be interested in this article

[Andreas Schou]

On 8/30/06, Jeff Harkins <jeffh at moscow.com> wrote:
> Andreas,
>
> We can have a robust conversation but please try to avoid slurs about
> my knowledge and understanding of issues - I will not castigate or
> denegrate your knowledge and understanding.  Otherwise, I am
> confident that a dialogue would serve no purpose.

Jeff --

I wasn't accusing you of being an incompetent economist. I was
accusing you of being disingenuous, or at least of providing
chest-thumping boilerplate instead of actually talking about what is,
in fact, a very complicated issue that involves principles at least as
much as facts. What I was frustrated about was that I know that you
knew what you said below when you were responding before(1):

> Social mobility studies suggest that the friction that restricts
> movement of low income levels to higher income classes is highly
> correlated to education (quality and level achieved) and a set of
> transferable/marketable skills (ability to provide value added
> services). If one wants to enhance the opportunity for moving from
> one social class to another, improve access to quality education
> systems. Other significant factors appear to be indifference (don't
> care), place bound (not able or unwilling to relocate) or believe the
> shift would require too much effort on their part.

This is true but insufficient.

First, there is, at least for the forseeable future, the labor market
-- especially for intangibles, where there literally no disadvantage
to offshoring  -- is deeply imbalanced in favor of large employers.
National borders are permeable for large purchasers of labor, but
impermeable for individuals wishing to sell their labor. I cannot
follow my job to India, nor could an equally qualified Mexican worker
take my job.

Second, the employer gains bargaining power by being able to subject
low-wage employees to unacceptable levels of risk. I'm not talking
just about insurance, though the ability of an employer to extend or
remove an employee's access to potentially life-saving treatment is
certainly part of it. A person making $7.00/hr has no real capacity to
buffer themself against the potential of a lost job: even assuming
that they have the capacity to save, fixed costs -- like energy and
rent -- occupy a proportionately larger portion of their income. This
makes the consequences of a drop in income, and the potential anxiety
accompanying the threat of a drop in income, much more severe.

If I suddenly get poorer, I drop my cable Internet. If I stay poorer,
I miss a credit card payment, or several. If I suddenly drop to zero
income, it will likely be some time before my  landlord decides that I
am no longer welcome, or Avista decides that I'd be better off without
power. Even if I suddenly become grossly incapable of meeting any of
my financial commitments, I go live in my mother's basment and likely,
Mr. Harkins, harangue you from there, though I suspect with much less
credibility.

Third, you might note that higher social mobility correlates with
functional, well-administrated social welfare systems. This may have
to do with the fact that education  is a relatively high-order need;
one you are unlikely to be concerned with if you are worried about
what or whether you are going to be eating tomorrow morning.

> These same studies support the notion that human will/spirit is the
> prime element in moving from one income class to another.
>
> Your model would seem to imply that being a member of a society
> entitles you to a "social equity" income class - sounds like a pitch
> for welfare to me and not far removed from the "living wage"
> concept.

I believe in the distinctly un-leftist principle that work should have
something to do with wealth, which, at this moment, it does not. A
minimum wage is not welfare. A fair wage is not welfare. A living wage
is not welfare. Though, to warn you, I wholeheartedly recommend
welfare as well: the presence of a robust welfare state correlates
fairly well with social mobility. The absence of market controls does
not.

An aside: are you aware of what monthly TANF benefits are in the state of Idaho?

>  The fact there is no reason for a business entity to pay
> more for labor than the value of the labor in the production and
> delivery of goods and services.

This definition is circular. The value of labor is the consensus of
what employers are willing to pay.

And, again, you're arguing that the valuation of labor is
intrinsically rational. Though it has historically been, there's been
a total decoupling between productivity gains and median wage growth.
Unless you can tell me with a straight face that the gains in
productivity have almost entirely been restricted to the top quintile
(and have been in the high double digits for the top quintile of the
top quintile), the labor market is behaving in a way that appears to
be at odds with any rational valuation of labor.

> Thus, unless the employee
> contributes to the value of the enterprise (marginal revenue product
> exceeds marginal cost), there is no reason to employ that
> individual.  And over time, unless that individual enhances their
> value (e.g., added or improved skills, lower error rate), there is no
> basis for increasing the wage compensation of that individual.
>
> The fact is though - very little can stop the cream from rising to
> the top.

I don't mean to discount the importance of personal accomplishment,
but the history of "self-made men" is one of the merely well-off
transforming themselves into the obscenely wealthy. Bill Gates'
parents were millionaires. J.P. Morgan inherited a ten million dollar
fortune. Henry Ford's parents owned one of the largest farms in
Michigan. E.I. DuPont was descended from French nobility.

Andrew Carnegie's family, though, was pretty much broke. There's one for you.

> Persistence and determination, coupled with observation and
> ingenuity will nurture a robust opportunity for individuals to move
> through the social stratums. There seems little substitution for
> effort and achievement.

This is a statement of faith as much as it is a statement of fact. I
believe in individual acocmplishment, and I believe in the strength of
markets, but I don't believe in the infallability of markets. This is
the same sort of magical thinking disguised as economic theory that,
for instance, brought us the Laffer Curve.

> You seem to confuse achievement with consumption. Why would you
> define the "American Dream" in the context of a gold-plated Rolls
> Royce?  The American Dream that I subscribe to is built on the notion
> that "if you are willing to make the necessary sacrifices and
> efforts, you have a great likelihood that you can be what you want to
> be. In this world, there is no free lunch.

The economic system in this country is a gaming table where certain
people are betting their pocket change and others are betting their
lives. While I don't recommend the equal distribution of money and
misery, the idea that both groups are rational economic actors in
exactly the same sense is a convenient pretense and very little more
-- and the ways in which the working poor cannot make what would
otherwise be rational economic decisions are being exploited, very
much to their detriment.

-- ACS

(1) This is not a very well-constructed sentence.

> I've read volumes about the captains of American Industry. I've
> carefully selected the recommended biographies.
>
> At 11:03 AM 8/29/2006, you wrote:
> >On 8/28/06, Jeff Harkins <jeffh at moscow.com> wrote:
> >>Bill,
> >>
> >>Here is a simple thought for you to ponder ...
> >>
> >>The ultimate force that assures that competitive behavior and free
> >>choice will provide a check on greed is that there is nothing that
> >>can prevent you from becoming the next CEO earning $200 million - you
> >>simply have to be willing to commit to that agenda and be willing to
> >>make the sacrifices necessary to achieve your goal.
> >
> >This is utter nonsense, Jeff. As an economist, you should know
> >full-well that it's utter nonsense.
> >
> >Social mobility has declined since the 1970s. 42% of people born in
> >the lowest income quintile die in the lowest income quintile. 24% move
> >up a quintile. Less than 5% reach the top income quintile. Likewise,
> >36% of people in the top income quintile remain in the top income
> >quintile. Note, also, that this is lifetime social mobility --
> >including the expected increase in wages over a lifetime. This is a
> >problem, both in terms of social equity and in terms of efficiency:
> >talent is spread more widely than income, and we are insufficiently
> >capitalizing on the talents of our low-income citizens.
> >
> >For God's sake, Jeff, social mobility is higher in Finland, Norway,
> >Germany, France, Canada, and Denmark. Only Britain has a lower degree
> >of social mobility than the United States. The "American Dream", at
> >least insofar as the "American Dream" involves becoming a
> >multi-billionaire capable of gold-plating his Rolls Royce, is, in the
> >21st century, a collective hallucination on the part of the American
> >people.
> >
> >>Yes indeed - you could be the CEO of WalMart and you could then
> >>restructure that company or any other multinational firm as you see
> >>fit - as long as you satisfy the return on capital demands of the
> >>shareholders and the expectations of the capital markets.
> >>
> >>It really is that simple.
> >>
> >>You might consider reading the biographies of Dupont, Firestone,
> >>Ford, Hughes, Vanderbilt, Osborne - even Gates (to name a few) to
> >>gain a sense of how this is possible.
> >
> >You might want to consider reading the biographies of Paris Hilton,
> >John E. Du Pont George W. Bush, Edsel Bryant Ford. You might then want
> >to take a chance with the biographies of the second generation of
> >robber barons: the children of Astor, Morgan, Carnegie, and
> >Vanderbilt. Then you might take a moment to remember that Ford was a
> >vocal pro-fascist who used his considerable wealth to promote very
> >little other than anti-Semitism. Then you might take a moment to
> >consider the social good acomplished by ridiculous and unprecedented
> >concentration of wealth in the hands of a small number of people.
> >
> >-- ACS
> >
>
>
>