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The Economics of labor (Under Construction)

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COMMENTARY

FREEDOM, CAPITALISM AND GOVERNMENT

Contrary to anything else you might have heard, freedom is not at odds with Capitalism, in reality one beget the other.  Freedom came about when individuals had the opportunity to determine their own fate.  Capitalism was born of freedom as people followed natural laws to satisfy individual desire.  Capitalist believe and freedom allows that genealogy, inheritance, station or even intelligence is not the sole determination of a person’s future.  Rather it is hard work and/or human aspiration that gives each of us the opportunity to achieve goals.  Humankind is naturally interdependent one upon another and freedom allows us to improve our own life by giving others the freedom to choose between products or ideas.

Government has the responsibility to manage the economy.  Each dollar spent by government, each law, each tax, each regulation acts as a force upon the economy and each person in the economy.  The scientific capitalist has a firm belief that the impact of these forces on the total product and welfare of the citizens can be determined by calculating the affect on the allocations of labor as well as the demand on capital.  It is natural law that individuals endeavor to create the product or idea that will bring the greatest reward.  In the vernacular of the capitalist system this is the highest return on investment.  Laws, taxes, and regulation are forces that act on those returns and thus affect the allocations and apportionment of capital and labor.  By natural law our freedom will allow us to satisfy the greatest demand and to endeavor to produce them in the most efficient manner.  Our government impacts these decisions by using its forces to affect the amount of labor allocated to an endeavor or available to all endeavors.

In a modern complex society it is capital and ideas that are plentiful while the labor to exploit them is limited.  The idea that labor is a limited component is contrary to socialist as well as current capitalist beliefs.  Those who believe in socialism think government creates jobs to soak up the unemployment that capitalism creates.  Modern capitalist believe that without money and ideas individuals would be unemployed.   Both positions are naive in that workers in capitalist countries have the least job security and the highest employment.  In contrast, when job security increases, so to does unemployment.  Skills, locale, experience and even age are factors in matching an individual to a position and businesses will prosper or suffer on their ability to find the people to fill the job.

Viewing workers as a limited resource makes eliminating waste and increasing efficiency in government much more important toward improving lifestyles for the average individual.  Because we have government, the sick, the aged, the indigent, the wealthy, and of course children there are far fewer producers then consumers and thus by natural law each producer must create more than their own needs.  Each demand or force created by government acts as a burden on the limited few who produce as each force acts to reduce the number of those who are productive.  When the number of productive workers declines so to do the products produced while the burden of additional government workers is added.  If government reduces its demand on the workforce the amount of product would increase significantly, the public sector burden would decrease and wages would increase.

Government workers should live by the same rules of competition and efficiency as in the private sector.  It is the goal of the scientific capitalist to reduce the burden of government and to increase the advantages that freedom brings us.

Total product divided by/the number of productive workers = productivity per worker
Total product = number productive workers times productivity per worker

PHILOSOPHICAL NOTE

Both Right and Left view the structure of an economy as philosophical, an opinion, a politician’s playground or simply a means to acquire power.  Basic natural laws, however, exist and must be followed in order for an economy to guarantee the individual an ever improving lifestyle.  The belief and reality that anyone who works hard can improve their life must be restored. 

THE PENDING CRISIS FOR AMERICA

The burden of socialism and wasteful government in the US is not obvious because the strong dollar allows citizens to purchase goods made in less developed countries such as China.  The US trade deficit, however, is approaching a trillion dollars in goods and services that if made in the US would cost significantly more. Not only are wages low in China, for example, environmental and safety controls are lacking.  An item made in China might cost 10 to 20% of what it would cost in the USA and consumers are receiving an incredible benefit from this cost differential. 

Much of the reason for our ability to purchase foreign goods, while incurring an enormous trade deficit, comes from the world’s need for an acceptable currency subsequent to the fall of the USSR.  Economies are growing and an acceptable means of making exchanges is paramount to economic expansion throughout the world.  If the US were to balance its trade budget it would require tremendous advancements in technology and/or labor to produce the amount of salable goods for foreign markets or to replace goods made in undeveloped countries.  Comparable goods would likely cost several trillion dollars if made in the USA assuming the labor existed to produce them.

As long as the dollar is strong this is not a problem, however, as underdeveloped countries improve there own technologies and lifestyles the likelihood that the dollar will be devalued increases.  If a significant devaluation occurred it would result in substantial inflation.  The Chinese have already threatened to dump their dollars on the open market which would limit our purchases of foreign goods and drive our living standards down drastically.  This kind of move may not be in the best interest of the Chinese, but these are the same Chinese that let their people starve because of their poor productivity for decades.

This situation is not without precedent.  For over a hundred years England used it’s supremacy to insure cheap imports while bureaucracies in both the private and public sector of England reduced its own capabilities to produce.  England had to make a sudden adjustment not long after WWII when it lost its hold on the British Empire and the English pound was devalued by 50% against the American dollar.  Considering that America was once a country as backward as is China and that England once imported a substantial amount of its goods, this is significant.  Subsequent to this devaluation, England suffered labor turmoil, high inflation and slow, no or negative growth in its economy. 

England’s crisis took years to affect the homeland and the US may continue for years without appreciable affects.  The crisis, however, will occur unless steps are taken to reduce the government bureaucracy and its burden on the general population.

GROWTH IN A CAPITALIST ECONOMY CREATES UNEMPLOYMENT AND JOBS

BIG GOVERNMENT CREATES UNEMPLOYMENT AND LOWER WAGES

Let’s face it that when a business innovates it often means a lesser demand on the job market and sometimes people get laid off.  That, however, is how the economy grows because a growing economy needs a growing work force to convert new ideas or demands into reality.  Socialist, communist, politicians and the general workforce deem job cuts as the curse of capitalism.  Think of this, however, if people weren’t replaced by innovation most of us would still be farming.  In fact, Karl Marx thought that we would all be better of if we were still farming because we would all have jobs.  He also recognized that as impossibility. 

Karl Marx was right both times.  A rural based economy is often a very stable economy except for war, famine, plague, natural disasters, pillaging and etc because people have the skills to survive on their own.  Once progress begins thousands and eventually millions of people lose their livelihood to innovations such as the farming tractor. These same people, however, often moved to cities and find work producing the very innovation that cost them their jobs.  A growing business will also create other jobs manufacturing, construction, the public sector and other businesses.  And, with the individual knowledge that workers carry with them, an inventive nature may create even more innovation and jobs.

In the initial growth (Transitional) stage of capitalism an economy is unstable because innovation can have an enormous impact on employment.  A single industry can represent a large portion of the economy and investment decisions can skew demands on labor and cause large shifts and over production.  The labor market in this stage is narrowly diverse while many of the skills for self preservation have been lost.  This means an unstable economy in which recessions and depressions can occur with frequency.  The 1929 Great Depression, in which millions were laid off and thousands of businesses went bankrupt, has had a huge impact on economic thinking. Average working people have placed demands on government for protection from the loss of jobs or sought refuge in unions and associations that limit competition.

Socialism and communism flourished throughout the world in the years preceding and following 1929 depending on when and how a country was affected by the instability.  There is no doubt that capitalism was unstable in that Transitional period.  Jobs were focused in industries so large that layoffs in the steel industry could cause a recession.  Unfortunately, many political leaders adopted an ideology that without government creating jobs and providing welfare that capitalism was too unfair to provide the stability that Karl Marx wanted.  As a result they have been taxing and burdening the private sector with every manner of spending and regulation conceivable.  And, any program once funded by government is never eliminated for fear of laying people off.  The unnecessary and wasted spending goes on and on because economists and politicians do not recognize that capitalism has become more stable with the complexity and diversity of the labor market and industry.

Over the years capitalism has changed.  No single industry, except government, controls any significant number of workers.  Jobs are so diverse that neighbors rarely do the same work and when they do each will likely focus on different aspects of a similar trade.  The entire steel or auto industry could go bankrupt and the effect would be an economic hiccup.  Capitalism has reached a Complex stage wherein thousands of new job classifications (not to mention specialties) have been developed in the last decade.  Innovation now simply causes recycling of workers into more productive or more specialized positions.  A developed (Complex) capitalist economy, like the United States is now, is a stable economy.

Government, however, is a cause of instability.  New taxes and/or new spending force businesses either to find cheaper labor, go out of business or to eliminate industrial expansion until the economies of doing business become more favorable.  Instead of workers becoming more valuable, growth in government is causing thousands of workers to be recycled downward into lower paying and less benefited jobs.  Incomes for the average worker have in fact declined, not because of innovation and efficiency in the private sector (which would have the opposite affect), but due to inefficiency, waste and unnecessary spending in the public sector. 

To understand this look at it this way; the expenses of a typical business can be broken down into two parts (not labor and material – material is just labor from another business), 1) the net after tax cost of labor and 2) the cost of government including labor needed to meet government regulation and law.  The cost of labor can be negotiated, the cost of government cannot.  Management can renegotiate with unions, eliminate or reduce raises, cut benefits and make other changes to reduce labor’s cost.  The other, the cost of government, can not be negotiated without risking penalties, prosecution or law suits.   To accommodate government costs, labor’s price in the private sector must almost certainly go down. 

Businesses can’t simply raise market prices to compensate for cost increases and consumers don’t suddenly begin making more money.  Consumers are more likely suffering losses from other government costs or taxes.  (Only government workers have a near cast iron guarantee of wage increases.)  In general business has these options.  !) Renegotiate a contract with workers or simply reduce non-union wages and benefits. 2) Skip or reduce wage increases and bonuses. 3) Move the work to another jurisdiction within the country.  4) Close homeland facilities and contract the work to another country. 5) Close the facilities as to costly to maintain. 6) Layoff high paid employees and hire lower paid replacements. 7) Increase efficiency.  In any of these cases workers either loss income or lose their jobs with fewer prospects for a better or even equal paying job.  Businesses must make money so as to replace its capital and borrow needed cash or fail.  In any case the burden of government is transferred, not to the business, but on the back of the capitalist worker. 

So while it is true that capitalism creates unemployment so as to supply a constant stream of workers to expand the economy, the government causes unemployment and lower wages so as to fund bigger government.  In one case the prospect for higher wages and more consumption are nearly assured, in the other a loss of wages and less consumption is the most likely result..

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