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Old 01-03-2012, 04:27 PM
jimM47 jimM47 is offline
Join Date: Apr 2007
Posts: 459
Default Re: Matt Yglesias: Creating Jobs by Cutting Wages

Originally Posted by miceelf View Post
My point is . . . that the balance of power has shifted so that workers have now less power to demand recompense for their labor than they did before. I agree with you that capitalism is indifferent to this . . .
It appeared to me that you were saying something different than this when you analogized the wages paid to middle class workers by the producers of middle class consumer goods to a free-rider problem. My point is that there is no free rider problem: if power shifts so that workers have the power to demand less recompense, and members of a higher social class can demand more, then producers of goods aren't stuck hoping middle class consumption was higher but stopped from using wage increases to make it so by a free-rider problem, they will just make products demanded by the higher class.

Rather, I am critical of a . . . [belief] that the way to create jobs is to simply shower corporations and the few wealthy individuals who head them with more wealth; that wealthy people create jobs naturally out of their excess wealth and the virtue that this wealth reflects, rather than that jobs are created from demand for goods and services and a populace living hand to mouth is in a less likely position to demand goods and services (or for that matter, to bargain for fair value for labor).
It seems like there are two distinct criticisms you may be making there. One is that economic growth isn't the result of giving the most productive economic actors better end-results in terms of wealth and money, it is the result of giving them better incentives and opportunities for finding profits. So doling out tax benefits in order to reduce the tax burden of a major company and increase its total revenue, will not predictably create jobs or growth. I, of course, agree with such a criticism.

But I do disagree with the other criticism you seem to be making, which is that the capacity of a particular segment of the population to consume is a necessary condition for the economy to run well. As long as your monetary/banking structure is working correctly, supply creates it's own demand. Even if it isn't laborers, someone is getting the return from production; and no one ever produces anything for nothing, they will demand things in return for that production (even if it is "excess wealth"). A populace living hand to mouth is bad for other reasons, but not because a society in which this occurs is incapable of sustaining full demand for goods and services; it is capable.

* * *

Now, I am also somewhat skeptical of the idea that the relative economic power of middle class has been, or is being, much eroded. (It has recently fallen in absolute terms, but so has the power of all classes, the rich moreso.) But if it is, a significant part of the solution is for members of the middle class to engage in less consumption and more investment, such that they capture some of the purportedly disproportionate gains that have accrued to capital over labor, but also such that they increase the relative scarcity (and therefore power) of labor.

Part of making that happen is to pull back on government interventions that are either aimed at, or had the effect of, increasing current consumption by the middle class at the expense of savings/investment. Such interventions chiefly include our failed housing policies and our misregulation of the financial sector, but they also include stimulus measures and proposed inflationary policy.
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