Fri 31 Jul 2009
Fun With Numbers
Posted by USA / Simpleman under Balkers
[17] Comments
As of July 24 2009 minimum wage increased to $7.25 an hour. A person working 40 hours would make $290, after 52 weeks would gross $15,080 a year. Comparisons of income in table below.
Yearly Income Hourly Wage # of $7.25 hr. workers
$1 million $480 66
$10 million $4,800 662
$20 million $9,600 1,324
$100 million $48,000 6,620
The arithmetic I understand . Economist using political mathematics to justify these liberal wages as capitalism confuses me.
Restating this issue so it’s not U.S.-centric, we clearly have a globalized free-market economy now (as it should be). Some nations are applying appropriate limits, protections and safety-nets on the capitalist engine / others (like the U.S.) have been ignorant of that need.
Or a nation may be behind on safe-labor standards, and/or environmental protections. But we pretty much all face the question of wage disparities – and they can indeed be quite wide.
I believe the incentive to potentially earn a fortune, drives both new investment and innovation. And those are both critical elements to creating prosperity in any society. Yet we also see many people in top corporate positions seemingly not under any such requirements – or at least failing to grow anything new – still earning a thousand times what the laborers in that same organization earn.
(And then there is the separate conundrum, of the many millions paid to professional athletes… ;^)
A progressive income tax structure such as existed pre-Reagan would go a long way toward resolving the extreme wealth disparities. The top tax bracket was historically 70-90% for much of the 20th century. Now, with the tax on long term capital gains at 15%, that makes it the top tax rate for many of the super wealthy.
Payroll taxes for social security and medicare are regressive taxes as they are presently collected and make up a significant part of the shift in taxation from the top to the bottom of the wealth spectrum. Reestablishing a steeply progressive income tax structure that integrates payroll taxes and treats all types of income equally would go a long ways in eliminating the disparities that have come to benefit the already wealthy.
Welcome back IBDaChief. Amazing how the GOP got that switched around after the election of Reagan in 1980, isn’t it… ;^)
It is regressive in the U.S. For those who may not have ever heard the logic behind progressive tax rates (it’s been decades since they really were) – it’s just a statement that says the more you are prospering in your society, the more you should give back to it. And you’re not going to get hammered if you’re struggling in it.
Reduction of upper tax tiers was sold to America by Reagan charlatans as a “Trickle-Down” economic philosophy. The contention was that if you just alleviate the burden on the most wealthy, they will go invest those dollars and prosperity will flow from all fonts and lift all boats. And by the way, let’s hack out a lot of these burdensome regulations also – say for the environment, food & drug safety, health care and the banks. These guys will police themselves…
So we lived to see the point of implosion (2008), of Reaganomics. Now we need to reassemble the carnage, and ask what works from here. You turn to a Progressive for that, as America did with the election of Obama.
But most Progressives have no problem with putting tax breaks in, if you really will invest your holdings in a new operation. That’s the logic behind targeted capital gains cuts first brought forward by Bill Clinton. It should only apply to operations you startup or expand, not to trading your existing shares on the NYSE or taking profits from an established business.
If you’re in the minority in America whom prospered over the last 3 decades, and you’re not investing your wealth into new operations, it’s indeed time to cough up in my opinion – for the society that you earned it in, that now is in fiscal crisis. Either top tiers go back up – I think to maybe 50% for earnings over 500,000 per year – or we’re kicking the debt down the road to future generations. The capitalism-failure bailouts & Bush’s War on Iraq, already happened. You’ve only got those 2 choices now for how to pay the bill for them…
The counter argument.
“If we tax the rich then they will take their wealth to some other country where they are treated more fairly.” (read better since fair is not really a factor.)
Like it or not, under our current international agreements, this is indeed a real concern. It is only a concern because over the years we have allowed this tiny minority to accumulate such a substantial portion of our nations total wealth.
They may move their operations over seas which will further reduce employment opportunities here. The solution is more complex than I could put into a short and simple post but the simple part is understanding that the rich will invest where there is the greatest likelihood of overall profit taking taxes into consideration. A multifaceted approach is needed and simple changes to taxation will not solve our problems.
It’s too late for that.
Welcome aboard Jason. I would counter that a nation can’t be paralyzed from making the tax code closer to fair (progressive not regressive), out
of those kinds of worries. It effectively makes that nation hostage to it’s wealth holders.
But as I mentioned I don’t know many Progressives (capital P), that have
a problem with building in tax breaks for earnings on legitimately new operations. But they usually have a problem with a 15% tax rate (blanket capital gains) for the long-established earnings, of those earning the most
in society. In fact the 2 wealthiest people in America – Bill Gates and Warren Buffett – both made that specific point in a show airing now on
PBS; “Buffett and Gates Go Back to School”
A video link to portions of it is below. Both these entrepreneurs are relatively Progressive politically, and they both said on that broadcast they are taxed less than their workers are, and that their taxes should be higher. (In their individual cases, they are handing much of their wealth back to the world philanthropically – still it was telling to hear them acknowledge the imbalance).
I agree however about a multi-faceted approach being needed at this point, after decades of neglect bringing about multi-faceted social & economic problems in America.
Buffett and Gates Go Back to School
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Thank you for the welcome and for the link. I will have to find the complete PBS show.
We do need a fair tax system but I think the larger problem is that government interferes with business on so many levels. Adam Smiths invisible hand has been lopped off. Certainly we need business to abide by common sense laws to protect the public but the interference in the success and failure of business goes way beyond that. Companies that should die are kept alive by tax dollars and others that should thrive are hindered by regulations and unfair favoritism. Profits are made by edict rather then good business practice. The logic is that a massive corporation creates more revenue (in multiple ways) than a small business so the corporation must be protected but it’s flawed logic.
We often hear of the separation of Church and State and I believe that such a separation is a wise thing. But, I wish the framers had also added a separation between private business and government because that alliance is a far more insidious threat.
JasonH, thank you for the interest in my Balk. The framers Thomas Jefferson and Alexander Hamilton argued about the collusion of business, banks in particular and government. That’s the arithmetic.
The other separation you speak of is the political mathematics I find confusing. Has it not been these two through history that ignored exploitation of workers by business? Eternal damnation and prison only applies to the working class. The only different is the way they spell profit. The three combined are not a threat but the problem.
You are welcome Simpleman. I love economics and political discussions. I am a fan of religious discourse as well when it can be reasonably discussed. Thank you for starting this discussion.
“Has it not been these two through history that ignored exploitation of workers by business? Eternal damnation and prison only applies to the working class.”
I can tell that you have been exposed to some extent to Karl Marx or those who followed him. Marx wasn’t the devil some make him out to be but he did have a problem of not seeing the forest through the trees. He recognized real problems that he could observe with his own eyes but did not recognize the cause of those problems. The truth is that people are not born to a “worker class”. Labor is a resource like grain or iron or energy. People normally sell their labor for the best price they can get for it. The quality of their labor determines the price. Their native skill, dedication, education and experience determine the quality. Assuming no one throws a sabot in the works, a worker will be paid a fair wage for their labor and will use that wage to satisfy their individual needs and wants.
Now look to the left or the right and see government tossing the sabot. If government sets controls on wages and benefits to any extent than they change the demand of labor. If government limits the business that purchase labor by zoning or licensing or unfair competitive practices than they also change the demand for labor. Changing the demand for a resource changes the price it is worth. Normally the relationship between the business owner and the worker is a fair one. The owner needs labor the worker has it and sells it, they both agree on what it is worth. If there is a surplus of workers than some will become entrepreneurs because labor is cheap. If there is a shortage of workers than business will pay more and some business will fail creating unemployment and more available workers who will alleviate the shortage.
But what if government prevents a business from failing? What if government sets a minimum wage that starting entrepreneurs cannot afford? What if government demands a benefit that effectively raises the cost of the labor? What if government only allows one business of a particular type to operate in a particular area? Or, offers an unfair advantage to competitors of a business? What can happen is that workers cannot demand a fair wage but must settle for what they can get. That is what disenfranchises the workers. That and ignorance of the value of their labor.
Now don’t think I am one of these anarchist who think all forms of government should be abolished. We need government. It is a necessary evil. But government should generally have nothing to do with private business aside from enforcing the common laws that prevent anyone from harming their fellows or restricting their rights.
Jason that theory is straight out of Adam Smith or Milton Friedman manifestos, i.e. pure free-market capitalism with government keeping out of it. It is supposed to create wealth that gets spread around so everyone or most can benefit, and of course will supposedly be able to police itself.
Problem is, it fails every time America tries it. The economy ends up crashing every time, then new regulations are put on it out of necessity to try to curb the harm it caused to average citizens. The Great Depression after the 1929 stock market crash, brought in the Social Security program that gives the elderly a living stipend after they can no longer work, and it created the FDIC.
Social Security has nearly eliminated the problem of destitute and homeless elderly in America, and there is simply no recinding of it now, Republicans have tried and the public won’t have it. Without the FDIC last year, we would have had total anarchy with the bank failures of 2008 and 2009. But because we had it, Americans knew there personal deposits were safe and panic runs on all banks was averted.
The fact the major banks could get invested in these crazy derivatives from bad sub-prime home loans, all the way to the extent of it causing losses so steep that free-market Republicans had to ante up 1 trillion tax dollars to bail them out last year, proves the case for regulation right there. Leaving them to their own governance was a disaster. Same as it was with the Great Depression bank failures, and the Savings and Loans failures after Ronald Reagan deregulated them in the 1980’s. Same as the free-market hasn’t after decades of claiming it can, been able to get health insurance to all our citizens. Something that is so basic that it is a given in the rest of the industrialized world, because their governments step in!
More times that pure capitalism failed in America:
(source is http://history1800s.about.com/od/thegildedage/a/financialpanics.htm)
Financial Panics of the 19th Century
The Great Depression of the 1930s was called “great” for a reason. It followed a long series of depressions which afflicted the American economy throughout the 19th century.
Crop failures, drops in cotton prices, reckless railroad speculation, and sudden plunges in the stock market all came together at various times to send the growing American economy into chaos. The effects were often brutal, with millions of Americans losing jobs, farmers being forced off their land, and railroads, banks, and other businesses going under for good.
Here are the basic facts on the major financial panics of the 19th century.
Panic of 1819
* The first major American depression, the Panic of 1819 was rooted to some extent in economic problems reaching back to the war of 1812.
* It was triggered by a collapse in cotton prices. A contraction in credit coincided with the problems in the cotton market, and the young American economy was severely affected.
* Banks were forced to call in loans, and foreclosures of farms and bank failures resulted.
* The Panic of 1819 lasted until 1821.
* The effects were felt most in the west and south. Bitterness about the economic hardships resonated for years and led to the resentment that helped Andrew Jackson solidify his political base throughout the 1820s.
* Besides exacerbating sectional animosity, the Panic of 1819 also made many Americans realize the importance of politics and government policy in their lives.
Panic of 1837
* The Panic of 1837 was triggered by a combination of factors including the failure of a wheat crop, a collapse in cotton prices, economic problems in Britain, rapid speculation in land, and problems resulting from the variety of currency in circulation.
* It was the second-longest American depression, with effects lasting roughly six years, until 1843.
* The panic had a devastating impact. A number of brokerage firms in New York failed, and at least one New York City bank president committed suicide. As the effect rippled across the nation, a number of state-chartered banks also failed. The nascent labor union movement was effectively stopped, as the price of labor plummeted.
* The depression caused the collapse of real estate prices. The price of food also collapsed, which was ruinous to farmers and planters who couldn’t get a decent price for their crops. People who lived through the depression following 1837 told stories that would be echoed a century later during The Great Depression.
* The aftermath of the panic of 1837 led to Martin Van Buren’s failure to secure a second term in the election of 1840. Many blamed the economic hardships on the policies of Andrew Jackson, and Van Buren, who had been Jackson’s vice president, paid the political price.
Panic of 1857
* The Panic of 1857 was triggered by the failure of the Ohio Life Insurance and Trust Company, which actually did much of its business as a bank headquartered in New York City. Reckless speculation in railroads led the company into trouble, and the company’s collapse led to a literal panic in the financial district, as crowds of frantic investors clogged the streets around Wall Street.
* Stock prices plummeted, and more than 900 mercantile firms in New York had to cease operation. By the end of the year the American economy was a shambles.
* One victim of the Panic of 1857 was a future Civil War hero and US president, Ulysses S. Grant, who was bankrupted and had to pawn his gold watch to buy Christmas presents.
* Recovery from the depression began in early 1859.
Panic of 1873
* The investment firm of Jay Cooke and Company went bankrupt in September 1873 as a result of rampant speculation in railroads. The stock market dropped sharply and caused numerous businesses to fail.
* The depression caused approximately three million Americans to lose their jobs.
* The collapse in food prices impacted America’s farm economy, causing great poverty in rural America.
* The depression lasted for five years, until 1878.
* The Panic of 1873 led to a populist movement that saw the creation of the Greenback Party.
Panic of 1893
* The depression set off by the Panic of 1893 was the greatest depression America had known, and was only surpassed by the Great Depression of the 1930s.
* In early May 1893 the New York stock market dropped sharply, and in late June panic selling caused the stock market to crash.
* A severe credit crisis resulted, and more than 16,000 businesses had failed by the end of 1893. Included in the failed businesses were 156 railroads and nearly 500 banks.
* Unemployment spread until one in six American men lost their jobs.
* The depression inspired “Coxey’s Army,” a march on Washington of unemployed men. The protesters demanded that the government provide public works jobs. Their leader, Jacob Coxey, was imprisoned for 20 days.
* The depression caused by the Panic of 1893 lasted for about four years, ending in 1897.
Excellent job in delineation Jeff. I also regard the laissez-faire, hands off approach to economy as a proven failure. Never has worked, never will.
Many GOP’ers become upset at any mention of economic regulation, and
start throwing around terms like “socialism”, which is not equivalent to regulation and not where Progressives are on the question. The need for regulation, is proven by the many failures of the economy without them. From there you have a need to craft effective regulation – which for me means stop the problem, don’t unduly burden by it. Means of production
is still privately held, which is the definition of capitalist economy verses socialist economy.
The rest of the governments of the First World, long ago established balance between public and private sector. They generally have properly regulated, privately-held enterprises, and they protect their citizens from economic ravages far more than we do in America.
One of my maxims which Balkingpoints readers will see me use often, is “Capitalism is like a nuclear reactor – control the burn and it throws off enormous yield. Fail to control the burn and it melts down”
And we just saw it come very close to exactly that, in the financial crisis of last year. Which happened out of years of run amok, unsound lending and unregulated rebundling & trafficking of that debt.
JasonH, thank you for your insight on this subject. I’m not a student of economics and any knowledge of Marx or Smith would be limited. I do believe capitalism to be the better system without the application of the footwear, but it is also where I disagree with you. It is not the shoe being thrown by the government at business that concerns me as much as the jackboot applied by Corporate America to the throat of the government.
It is not the government that destroys laissez-faire economics but human nature of the predators themselves. So busy consuming all the trees that the forest disappears.
Thanks to all for the interest.
I’ll probably be called socialist or Marxist,or whatever the right has in vogue this week, but top earners need to be reigned in. That the same companies WE just bailed out are awarding the same CEO’S who created the mess massive bonuses borders on the criminal.
I’ll also throw my hat in with Roy that some of the older tax structure needs to be revisited. That corporations will relocate could also be addressed. Lets say tax the income brackets of individuals, not corporations,also laws could be put in place that would make it unprofitable to up and move, an exit tax if you will.
While I don’t pretend to know much of tax laws, we need to revisit the issue free of corporate input. The elected officials need to do whats best for the country, not corporate donors. That I believe is what is fundamentally derailing our current system of government. To understand just about anything, you need to know two simple things, where the money comes from, and where the money goes.
Back to my original thought, I believe corporations need to hire CEO’s based on performance alone. No golden parachute should exist, with what they already earn multi-million dollar bonuses paid irregardless of performance is simply insane.
How can the global economy be fair when there is a great disparity between nations, where some nations are very wealthy and some a very poor.
How can the people of the poor nations will be able to purchase the products that the wealthy nations produce?
But on the otherhand the wealthy nations benefit by buying the products that the poor nations produce at very very low prices.
At the sametime the wealthy nations impose tariffs to partially protect their internal market from this invasion of low priced goods. So really the loosers are the workers of the poor countries that work for peanuts for their basic survival.
But the real fact is that many wealthy multi-national corporations set up shop in poor countries using very inexpensive labor to produce their products, and then sell them to wealthy countries making great profits.
So really, it is the wealthy multi-nationals that are the ones that are destabilizing the economies of the wealthy countries and creating the mass job loss, and not the poor workers of those poor countries that are working for peanuts—Peants, peanuts anyone, yes peanuts to feed the very huge REPUBLICAN ELEPHANT AND THEIR OWNERS THAT KEEP THIS FINANCIAL ECONOMIC CIRCUS FOR THEIR BENEFIT, AND TAKING ADVANTAGE OF THIS ARTIFICIALLY IMPOSED ECONOMIC CRISES.
Sammy from Sicily
Sammy, well said.
The exaggeration of the advantages of laissez-faire economics is in the numbers.
Tax reforms are not enough to change crass behavior that this kind of wealth is acceptable.
I’m not one of them, although some people are just freaked out about globalization. Like they think it’s a lead in to some sort of unified world dictatorship or something. The g20 just met in Pittsburgh, and even there they had protestors. They seem to show up every time for those no matter the city or nation!
Sammy brought up a number of the questions and perils involved in more economic integration between nations and across continents. Yet whatever those challenges are and will be as the global economy emerges, it’s useful IMO to see it as an inevitable consequence of new technologies.
Advances in communications & transportation sciences have shrunk the world over the last 100 years – it’s real and it’s not a genie that ever can
be put back in it’s bottle. So I like to start from the standpoint that globalization in some aspects at least, won’t be avoided. This century in all likelihood, will belong to those nations whom embrace it rather than ignore it or repel it.
At least for this century, all we’re really talking about is increased cooperation and commerce, not a singular world government. And of course the original global economy goes back centuries to spice trade with the Orient, if I remember my world history. Mutual benefit from trade is hardly new, only the tools that allow an exponential increase in it.
In the Clinton presidency much effort was made to reduce tariffs and level the table for free trade – first with NAFTA and then what was then (1990’s) known as GATT. There are many issues of fairness, equitability, and proper representation of the various interests at the table of these trade deals, and at economic summits such as G20. Yet the clear need for fair trade, does not cancel out the prospects for free trade IMO. Free trade will drive commerce and the economic growth of all it’s participants, once issues like labor standards, wage disparities, creditor/debtor matters, and environmental protections are all hashed out.
Lifting up and enfranchising what Bill Clinton calls the “Bottom Billion”, is really what his organization Clinton Global Initiative, and others such as
the Bill & Melinda Gates Foundation are getting at (see their links at B/P Favored). It’s altruistic first, but also represents new commercial venues for all kinds of companies from all kinds of nations. I’m not talking about colonization of past centuries, what I mean is new people enfranchised in the global economy as both workers who add value to it, and as consumers who realize an improved standard of living from it. We’ve seen it in India and China, Malaysia and Singapore, and other places with an emerging middle class.
And if each nation finds it’s niche and makes as it’s specialization those industries it knows how to do best, it will mean a more synthesized economy that we’re all interdependent in. That’s the aspect I like best about it, because it puts us on equal footing as workers wherever we may be stationed on the planet. We all need the same protections from the ravages of capitalism, and that commonality of interests could be a great unifier of individuals as this century unfolds. We can converse across borders, become aware of those commonalities and eventually comprise
a worldwide interest group of workers / consumers / voting citizens.
Sort of like the international Green Party, only not militant nor as narrow
in focus. We don’t need riots, only a larger presence and louder voice as
a counterweight to global corporations. They facilitate the growth and prosperity – we make sure it gets shared.