Tilted Forum Project Discussion Community - View Single Post - "You Can't Soak the Rich"

aceventura3 · 09-21-2010, 08:42 AM

Quote:

Originally Posted by Baraka_Guru

But let's stay on topic: you were implying that government "interference" got in the way of the recession. Canada's own government (a minority conservative government) issued a 2-year stimulus package worth about $35 billion—as a benchmark, our 2009 GDP was approximately $1.3 trillion. While the U.S. package is now estimated at $862 billion, the U.S. 2009 GDP was $14.3 trillion.

So you have stimulus spending in both economies. But you will note that the U.S. package was 25 times larger than the Canadian one, yet the GDP of the U.S. was only 11 times larger. To say there is a big difference would be a fair judgement. However, there are different factors to consider: we didn't have a mortgage meltdown, our banks didn't start evaporating en masse, and our economy is a bit different in terms of the distribution of regulatory practices and government ownership.

In part you argue in support of my point, if you are saying Canada's government did less to micromanage its economic slow down compared to the US and Canada's economic slow down was less severe. I am not arguing that given current conditions, government spending and deficits in the US, that the US will be a world leading economy in the future. Given Canada's mortgage market, Canada exercised greater discipline than the US. However, most US banks remained healthy during the "melt down" and would have done o.k., government action made matters worse and spread the problem of excessive risk from unhealthy institutions to healthy ones, and the government allowed situations like Goldman Sachs to get paid 100% on the dollar making record profits from the bailout of AIG on the back of the tax payer.

Quote:

There are several factors actually. And this is what I'm getting at. The stability of the Canadian economy is due in part to our more balanced mix of free market economy and government regulation, ownership, and monetary/fiscal policy that is more Keynesian than it is monetarist or supply-side.

Let's slow down a moment.

Canada's primary industries are in minerals, natural gas, oil, and other natural resources. During the global slow down, many of Canada's major industries where getting historically high prices for commodities. During the past 10 years Canada's economy has grew, but with an increased dependence on China's economic growth.

I think the above may be a bigger factor than anything else for Canada.

Quote:

That's it in an nutshell. Our recession was less severe and shorter than everyone else in the G7, and it wasn't a fluke. It was a result of a balanced, reasonable, and rational approach to governing our economic system.

I hope Canada manages the current opportunity as you describe. Given the resources in Canada, the country can move up the ladder of world economic rankings, not that the current rank is bad, I believe it in the top 10 currently.

---------- Post added at 04:42 PM ---------- Previous post was at 04:31 PM ----------

Quote:

Originally Posted by roachboy

right ace. i'll let you have at your private world, then. enjoy yourself.

I do enjoy the folly in flawed ideology. I came across this in today's IBD and I thought of you because I imagined how you have or would.

Quote:

Henry Ford more than doubled the average wage of his workers to five dollars a day in 1914 and started selling more cars. This led to the persistent belief that Ford paid higher wages so his workers could buy more Fords.

Despite being transparently silly, this belief continues to resurface as a justification for increasing purchasing power and employment with government policies that reduce production.

Ford was smart enough to know that his workers would not spend their increased wages entirely on Fords. If he had wanted to subsidize his workers' purchases of Model Ts, it would have been much cheaper to give them a discount.

The desire to increase his profits by reducing the cost of producing cars was the real reason Ford raised wages. It worked.

In 1913, Ford had an employee turnover rate of 380%, which required hiring 52,000 workers annually to maintain a work force of 13,600. In addition to the cost of replacing workers, productivity suffered from a 10% absentee rate, and the workers who showed up were inexperienced and commonly shirked as much as they worked.

Higher wages remedied these problems. Anxious prospects lined up in hopes of being hired by Ford, who employed only those whose personal habits indicated they would be dependable workers as determined through investigations, including home visits, by his personnel department. Ford paid for dependability, and he got it.

In 1915, Ford's turnover rate fell to 16% as productivity soared. He reduced the Model T's price by 10% each year from 1914 to 1916, and his annual profit increased to $60 million from $30 million. Ford was quoted as saying that more than doubling wages "was one of the finest cost-cutting moves we ever made."

Ford increased the purchasing power of his workers by paying them more. But far more importantly he increased the general purchasing power by reducing the production cost, lowering the price and increasing the output of a product consumers wanted.

In other words, he increased purchasing power almost entirely by increasing supply, not increasing demand.

Ford's wage increase was remembered during the Great Depression, but not its supply-side lesson. The prevailing view in the 1930s was that increasing wages and prices would increase purchasing power by increasing incomes, and therefore demand.

This view was the justification for polices that raised hourly wages by strengthening labor unions, shortening workweeks and restricting pay cuts, and raised prices by destroying agricultural products and reducing competition. interpreted Ford's actions.

Unfortunately, the critical difference between these policies and Ford's pay raise was ignored. The political approach to increasing purchasing power was to reduce production, while Ford's approach was to increase production. The political approach failed because any policy that reduces the production of goods and services that people want to purchase necessarily reduces purchasing power.

This is just as true today as it was in the 1930s. Yet, almost without exception, the Obama administration's hope for economic recovery relies on the demand-side fantasy that purchasing power can be increased with policies that reduce supply by increasing production cost or destroying what has already been produced.

The "Cash for Clunkers" program required the destruction of perfectly good cars. Companies bankrupted by high production costs were bailed out with taxes on the profits of companies that kept production costs under control.

The recently passed health care legislation is poised to increase the cost of doing business in ways that are complex and uncertain. Firms are threatened with proposed legislation that would increase the cost and reduce the productivity of workers by eliminating secret ballots in union elections.

All these policies, and more, are being justified by the Obama administration, at least in part, as a way of increasing purchasing power and generating jobs.

But they are retarding the market adjustments needed to lower production costs and expand the supply of goods, which increases in real purchasing power and real wages depend on.

Increasing productivity is the cause of greater purchasing power and high-paying jobs, not the other way around. This is the supply-side lesson that most politicians have yet to learn from Henry Ford's five-dollar day.

The Supply-Side Lesson Of Henry Ford - IBD - Investors.com