Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”     Winston Churchill

February 22, 2007

The “New Rules” Economy

by Brad Warbiany

There’s a new group out there called ThirdWay, a progressive organization looking to find new ways to sell their policies to the nation. They’ve written a policy paper about “The New Rules Economy”.

I haven’t yet read the whole thing. It’s about 40 pages, so it won’t take long, and I’ll get to that tonight. But it’s not off to a really good start (emphasis added):

Over the past six years, conservatives have had their shot at coping with the economy’s new rules. In keeping with Reagan’s philosophy, they have tried to shrink government’s reach in the economy with massive tax cuts for mostly the wealthy, wholesale deregulation, and attempts to eliminate or privatize safety net programs for the elderly and those at lower incomes. By any objective standard, the results have been a disappointment. On the plus side, economic growth during this time of change has been generally steady. But it has also been alarmingly uneven: average wages have been flat, income disparity has widened, and there is widespread anxiety about the nation’s economic future. Other measures of economic security, such as health care and pension coverage, have declined.

So let’s look at the first of the italicized sections, “they have tried to shrink government’s reach in the economy with massive tax cuts for mostly the wealthy, wholesale deregulation, and attempts to eliminate or privatize safety net programs for the elderly and those at lower incomes”. For the sake of argument, I’ll grant that the tax cuts for the wealthy. Personally, I’ll take a tax cut any time I can get one, and I’m not sure that I even agree that it is “for the wealthy”, but that’s a talking point that is an axiom to the left, and not up for debate, so I’m not interested in starting that fight.

But first, they suggest that conservatives have tried to shrink their reach into the economy. If so, they haven’t done a good job, because the increase in government expenditures from $2.1T to $2.7T will necessitate reaching a heck of a lot deeper into the economy in the future. Second, I don’t see where the “wholesale deregulation” accusation comes from. Sarbanes-Oxley was a very large increase in economic regulation, and McCain-Feingold was an increase in political regulation. The last six years haven’t seen any deregulation, as far as I can tell. Last, they accuse conservatives of “attempting” to eliminate or privatize safety net programs. Well, maybe they attempted to privatize Social Security, but they’ve dramatically increased federal control and spending on education and prescription drugs for seniors. So all three points they accuse conservatives of doing over the last six years are false.

Then, look at the second italicized portion, “average wages have been flat, income disparity has widened, and there is widespread anxiety about the nation’s economic future”. No argument here that this has occurred. The question is why. I would point out that over the last six years, when the market went through a tough recession, the government resorted to fiscal policy to inflate the currency. When that occurs, you see all of these things. Wages for wage-earners can hardly hope to keep up with inflation, but the investor class can use their money to make more. This is where widening “income disparity” comes from. Those who can invest tend to move money into locations where it will track inflation, while salaries commonly lag inflation. While “core” inflation hasn’t yet spiked, it’s coming, and people vaguely see that on the horizon.

But what “progressive” policies will reduce inflation? One of the primary drivers of inflation, historically, has been socialist governments’ desire to buy things it can’t afford, forcing them to print money to pay for it. Look at Zimbabwe and Venezuela. It’s very rare that a country can balance on the head of socialism while retaining a stable currency (Switzerland, perhaps, being a good example, because they kept a 40% backing by gold until 2000). American leftists are typically Keynesian, who believe that government deficits and money supply can “prop up” an economy, and I don’t believe I’ve ever heard American progressives advocate for a return to currency backed by something more than government promises.

As I said, I haven’t even read past the second page of this document yet, but I’m already finding some fundamental disagreements with it… I’ll try to go through the rest, and I expect there may be more to come.

Hat Tip: Catallarchy

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8 Comments

  1. “In keeping with Reagan’s philosophy, they have tried to shrink government’s reach in the economy with massive tax cuts for mostly the wealthy, wholesale deregulation, and attempts to eliminate or privatize safety net programs for the elderly and those at lower incomes.”

    This is laughable! The only true part of the statement I can find is that taxes have been cut. Tax cuts that were very modest in my view. Where were the attempts to “shrink government’s reach in the economy”. Social Security was not privatized (perhaps my biggest disappointment of this administration) and to the degree it was supposed to be privatized was very small. Other than the tax cuts (which will probably expire after Hillary’s coronation), the government has been going about the economy “the third way”.

    And then there’s this crap about the “widening income gap.” A widening income gap is a good thing. These people act as though the line worker should make almost as much as the CEO. The absurdity!

    Comment by Stephen Littau — February 22, 2007 @ 8:03 pm
  2. Stephen,
    Either you know nothing of what other people make or you are just elitist and think those people don’t work hard and should work for nothing. Some line workers may perhaps want to make at least 2.5 percent of what a million dollar CEO makes. What line workers are you speaking of, the ones who are doing small electronic assembly? There may be some highly skilled, like a machinist, but they do not make even 10 percent. So widening the income gap, wouldn’t seem like a good thing if you are making 7.50 an hour, which remains static and that CEO continue to see an increase. The production people don’t benefit from any gains the company makes, unless they have some type of bargaining unit. Labor is now a commodity. Most CEO’s are adequately compensated even when they fail, the line worker sees the door. In case you don’t know, the line worker doesn’t get unemployment when they are fired.
    Not to worry you will not see anything like the French Revolution, because most of the line workers are off shore.

    Comment by VRB — February 22, 2007 @ 10:22 pm
  3. Line workers don’t get unemployment? Since when? Seem odd that anytime someone from my hometown gets laid off or shitcanned, the first thing they do is go sign up for unemployment if that’s the case.

    And another thing, you show me a “skilled” machinist making $7.50 an hour. It isn’t going to happen.

    Nick

    Comment by Nick M. — February 23, 2007 @ 9:15 am
  4. VRB & Nick,

    I believe you’d get unemployment in every state. Now, if you’re not considered “full-time”, that may not apply. But for a full-time worker, you’d get anywhere from $144 to $204 per week, depending where you live, as a single individual with no dependents making $7.50 per hour.

    See this unemployment benefit calculator for more information.

    Comment by Brad Warbiany — February 23, 2007 @ 11:15 am
  5. “Either you know nothing of what other people make or you are just elitist and think those people don’t work hard and should work for nothing.”

    VRB, you have no idea what I make (probably as much or less than you) and I assure you I don’t make an executive’s salary but that’s completely irrelevant. Whether or not a worker ‘works hard’ is also irrelevant when it comes to compensation; what is relevant is the type of work and the value of the work to the employer. Anyone who ‘works for nothing’ is doing so by his or her own free will because last time I checked, slavery was illegal in this country. In the quasi-capitalist system we have, wages are mostly set by the market. If you are a line worker, or any other kind of worker for that matter, and feel that you are not making enough money, there are several things you can do even if you work in an industry that has limits on upward mobility.

    You of course have the ability to move up by acquiring new skills by going to college or even an associate’s degree. But if you have the attitude that you can work in the same job and acquire no new skills yet you still think you deserve to make anywhere near what the CEO makes, than you are diluted. It’s up to you to shrink the income gap for yourself.

    By the tone of your remarks, I also get the sense that you do not believe that CEOs work hard and are overpaid. Who is to say that is so? Most Fortune 500 CEOs make an average of $1 million a year. The rest of their earnings usually come from meeting performance targets and from the company’s stock options (a little detail usually left out of these news stories).

    Do CEOs work hard? How can that be measured? CEOs do work very long hours though regardless of if they work ‘hard.’ Fortune 500 CEOs work a minimum of 60 hours a week.

    The next question would be: Is a CEO really ‘worth’ that much more than a line worker? The answer is yes because the CEO has greater responsibility and more impact on a company than the line worker. Many Fortune 500 companies have more wealth than some smaller countries; being CEO of one of these companies is not much different than being a leader of a country.

    Take Macintosh for example. Macintosh was in the toilet several years ago because it could not compete with the PC. Enter CEO Steve Jobs. Jobs has turned that company around. There are probably many people who worked for Macintosh before Jobs was CEO. Is it their increased productivity that has made Macintosh more successful or is it a talented and visionary CEO? The bottom line is this: what would affect Macintosh more, Steve Jobs resigning or a line worker resigning? Do you still not think the income gap is not justified?

    I wrote more about CEO compensation and the income gap here: http://fpffressminds.blogspot.com/2006/04/10-terms-and-phrases-to-be-wary-of.html

    Comment by Stephen Littau — February 23, 2007 @ 2:44 pm
  6. Does anyone ever read and understand what I say?

    First, I said you don’t get compensation if you’re FIRED.

    Secondly, I did not say that a line worker should make the same as a CEO, but if the company is doing well don’t you think that if the CEO gets benefits, that the line worker should benefit too. If no product, no profit! When the gap gets wider, does that mean that producing a product has absolutely no value? I think if you work continuously long hours you are probably not working efficiently. I would actually have to see exactly what the CEO does to know if he worked hard or not. Most everyone makes hard decisions in life, whether it be about a loved one or a corporation.

    Thirdly, I did not say that machinist made 7.50 an hour.

    If you are young and male your chances are better for moving up. Stephen, get that degree as fast as you can. Seriously.
    I am old and female, and I have found out recently it doesn’t matter what you do to improve yourself.

    Comment by VRB — February 23, 2007 @ 6:50 pm
  7. VRB,

    Yes, if you get FIRED, you don’t get unemployment. But when the company isn’t doing well, it’s a lot more likely that you’ll be LAID OFF rather than fired, in which case you do get unemployment.

    If you had to “see” what a CEO does, you probably wouldn’t accept it as being “hard work”. Most of what they do is setting the high-level direction of the company. They take the information they have from the market and their employees, and decide what the company needs to do to best take advantage of that. They then align the company to do it. In my employer, for example, the CEO is too high up for me to see what he’s doing. But the VP of Sales (who heads my division) does quite a bit. Of course, you probably won’t see what he does very often, because he’s rarely in the office. He’s traveling between our two main branches, Taiwan, and to customers. He’s the guy that gives big-wigs at a customer the “warm-fuzzy” feeling they need to choose us as a supplier, analyzes the company to see which departments need more manpower and which products are best to highlight, and is the guy who can get support from corporate when it’s necessary. He spends a lot less time than I do sitting in an office “doing work”, but at the same time, it’s not my contribution and planning that has caused explosive sales growth the last 9 years.

    But as for your personal situation, if you find that the “corporate environment” doesn’t offer you better opportunities than you currently have, why don’t you start your own business? It’s the one way to ensure that absolutely nobody is keeping your personal improvements from improving your earning power.

    Comment by Brad Warbiany — February 24, 2007 @ 10:41 am
  8. Brad, I am not a child. I do not have to have things dumbs down to me.

    Its easy for you the to say, there can only be so many push carts in the world. If I could have started a business I would have. You can not have 300 million entrepreneurs and not everyone skills would fit in to an entrepreneurial enterprise.

    I would like to be like the young male and be able to use my newly acquired degree. I could ask you why didn’t you start your own business. What wrong with you?

    Comment by VRB — February 24, 2007 @ 1:05 pm

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