Quote of the Day: Low wages, low prosperity

"The human cost of low wages is obvious and has been extensively documented. But there are important economic and business costs to low wages that are far less clear and little understood. Many of America’s largest employers pay as little as possible, driving down the consuming power of their workers, and then wonder why their customers are unable to spend."

"Henry Ford's Genius Wage Hike", Daniel Gross, The Daily Beast, 2014-01-06.

Some of the comments add a bit more nuance, such as Henry Ford was not all that angelic in paying "all" of his assembly-line workers that much.  They had to meet certain personality standards with home checks that few people would tolerate today.

Henry Ford, at least partially, was following Adam Smith's advice:

"The liberal reward of labour, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the labouring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition, that they are going fast backwards."

His contemporaries and his successors seem to be bent at making things go "fast backwards".

For more ignored advice from Adam Smith, see "The Invisible Adam Smith".

Immigration and High-Tech Innovation

Webform to Sen. Amy Klobuchar on Immigration Bill to Boost High-Tech Innovation

In the larger picture, I'm all for people moving wherever they want in the world, but when it comes to immigration to increase "high-tech innovation" there are several caveats to consider:

Companies have narrowed their "skill sets" to be check lists rather than overall considerations, thus limiting the number of Americans available for the jobs offered.

Companies seek to pay the lowest wages possible; increasing the number of immigrants allows them to select from a larger pool of workers who will be satisfied with smaller wages.  See "Norm Matloff's H-1B page: cheap labor, age discrimination, offshoring", updated in 2011 or later.  Rep. Zoe Lofgren found that the H-1B wages were $40,000 less than the average wage for computer systems analysts in her district.

Companies are unwilling to pay the taxes to provide the education needed to create a large pool of knowledge workers.  They would rather that other countries pay to educate a significant number of their workers.



[I didn't include this in my webform to Sen. Klobuchar, but see also "Is There a Tech Staff Shortage?"  I wrote it for the Northland Reader in October 1999.]

Adam Smith warned of special interests like this in "Wealth of Nations":

"The proposal of any new law or regulation of commerce which comes from this order [capitalists], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

Fair share of taxes, what's that?

Charges go back and forth about taxes.  Some say the rich should pay their fair share of taxes; others say that taxes hinder entrepreneurship.  As usual, the extreme positions miss the truth by a couple miles or a hundred.

First, what is a fair share?  Is it the same percentage as everybody else?  Is it a progressive rate without a lot of gimmicks to reduce taxes.  Or is it a share commensurate with the benefits received?

Second, how many rich people are really entrepreneurs?  Few of us really know.  Some have inherited their wealth and are just "clipping coupons", an old phrase for getting the interest payment on bonds.  Some have invested in stocks, but how many were original investors?  Aren't many "investors" really traders trying to take advantage of the variations of stock prices?  About the only social benefit traders provide is liquidity.  Some rich people are executives of companies that they didn't create, but have managed by one means or another to gain control, sometimes with disastrous results for the shareholders, employees, and society.

Let's look at the hypothetical entrepreneur to determine what his "fair share" of taxes should be.

Bugs Bunner has forty acres in which he has planted carrots.  He starts by plowing his fields all day in the early spring.  Then he uses a planter to put in rows and rows of carrot seeds.  He spends many a day cutting the weeds down and keeping the deer and rabbits out.  Come fall he takes his carrots to market and hopes to cover his costs and make a profit.

One year he finds a carrot variety that keeps well and tastes great even after a year of cold storage.  Grocers all over the state seek his carrots out.

Now we get into the first problem of being a self-sufficient entrepreneur.  How do his carrots get into the stores?  On public roads.  How do the roads get paid for?  By taxes.  What is Bugs Bunner's fair share of the cost of the roads?  Is it a share of his  income?  Is it the cost of his use of the roads?  If everything was truly free market, he would pay the owner of the roads a toll for every use of the roads.

Bugs Bunner's carrots are so popular that he buys more land and plants even more carrots.  His plantings get so extensive that he can no longer do all the work himself.  He has to hire farm laborers.  How much will he pay them?  It partly depends on the supply of labor - low supply, high wages; high supply, low wages.  Let's suppose there is a high supply of labor and he pays low wages.

Will he pay enough for decent housing, for health care, adequate food, and so on?  If not, who pays for making sure the needs of his work force are met.  Would that be called welfare?  Welfare is often paid for by taxes.  How much of these taxes should Bugs Bunner pay?

If he requires literacy in his laborers, who pays for them to learn to read?  Their parents?  But if the next generation of his laborers are the children of his current laborers, can the parents afford to pay for their children's schooling?  If the parents can't afford to pay for schools, then the government will have to pay for the schools.  Guess what?  This requires taxes.  What is Bugs Bunner's fair share of these taxes?

On and on it goes.  Until we recognize that "no man is an island unto itself", we will continue to argue what a fair share of taxes is.