Keynes and the Current Crisis

by Dollars and Sense

We have just posted the latest installment of D&S collective member Alejandro Reuss's web-only series, "The General Theory and the Current Crisis: A Primer on Keynes' Economics."

The new installment (Part III) is entitled Keynes, Wage and Price "Stickiness," and Deflation.

The main page for the series is here.

Enjoy!

Labels: Alejandro Reuss, deflation, Keynes, Keynesianism, wages

 

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9/04/2009 03:53:00 PM 0 comments

 

Calculating the Benefit of Our Present Healthcare

by Dollars and Sense

Many people aready know much of this, but these are points that deserve to be hammered into our heads these days. Here's the essential point:

Let's start with value. Most Americans are blissfully unaware that their healthcare system provides appallingly little value for their money. This is because when it comes to costs, they see only the tip of the iceberg. While companies typically pay about three-quarters of an employee's family premium--on average $12,680 a year--individuals ultimately bear the burden. In a free market, companies do not hand over to their workers more than they absolutely have to. Money spent on healthcare is carved out of take-home pay or other benefits.

"We pay for healthcare in considerably lower salaries," Uwe Reinhardt, a Princeton University economics professor, said in a telephone interview. "The system seduces people into thinking care is pretty cheap. We are kidding ourselves if we think that the shareholder pays."

Oh, and lest we forget, "The foundation estimates that without reform, the cost of premiums could double again by 2020--gobbling up still more take home pay."
From Reuters:

13:49 August 26th, 2009
The mirage of U.S. healthcare
Posted by: Christopher Swann

On healthcare, the White House is struggling with a political riptide that threatens to drag it into deep water.

Americans, as they contemplate change, have suffered a weakness of nerve. The main reason is that nearly two thirds of Americans are apparently happy with their healthcare coverage, for all its deficiencies. Repeated reassurances from President Obama that those who like the existing set-up will not be forced to change, have had little effect.

A change of tactics may be in order. The administration must do a better job of underlining the glaring defects of the existing system. The genius of the U.S. healthcare is in providing the illusion of value and security. For their own sake, Americans must be encouraged to set aside jingoistic claims about having the best care system in the world and look more honestly at its short-comings.

Read the rest of the article

Labels: health care, health care reform, insurance industry, wages

 

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8/29/2009 11:52:00 AM 0 comments

 

Wage Theft in America

by Dollars and Sense

We just posted two excerpts from Kim Bobo's excellent new book Wage Theft in America: Why Millions of Working Americans Are Not Getting Paid—And What We Can Do About It. The shorter excerpt (previously published online by In These Times) gives background information about the concept of wage theft. The longer excerpt (advertised on our home page) is from the final chapter of the book, which gives detailed recommendations about how the U.S. Department of Labor could address wage theft.

Kim will be speaking Thursday night, Jan. 29th in Jamaica Plain (a hip neighborhood in the southwest part of Boston). Here is the event announcement from the Jamaica Plain Forum:

The Jamaica Plain Forum (click here for directions)
Kim Bobo: Wage Theft in America
Thursday, 29 January 2009—7:00pm to 9:00pm.

Why Millions of Working Americans Are Not Getting Paid-And What We Can Do About It

Kim Bobo, the co-founder of Interfaith Worker Justice discusses her new book, Wage Theft in America, about how billions of dollars worth of wages are stolen from millions of workers.

Each year, billions of dollars' worth of wages are stolen from millions of workers, a grand theft that exceeds every other larceny category on record annually. In today's dwindling economy this crime affects more Americans than ever before. In her new book, author and community organizer Kim Bobo offers an incisive information for activists, workers, and concerned citizens on how to prevent flagrant exploitation of America's working people, including a sweeping analysis of the crisis, hard-hitting statistics, and heart-breaking first-person accounts.

We hope to see some Boston-area D&S subscribers and blog readers there. There will be a D&S table where you can meet John Miller, D&S columnist ("Up Against the Wall Street Journal") and James McBride, stalwart collective member (and both are JP residents). You'll also be able to purchase D&S books and copies of the brand-spanking-new January/February 2009 issue of the magazine, complete with a snazzy redesign.

Labels: Jamaica Plain Forum, Kim Bobo, wage theft, wages

 

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1/28/2009 03:17:00 PM 0 comments

 

Stock Market's Loss Means Higher Wages?

by Dollars and Sense

Dean Baker has put forth a provocative claim on his blog:

The lead article in the New Year's Day edition of the Washington Post bemoaned the loss of $6.9 trillion in value in U.S. stock market last year. While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us.

The loss of stock wealth means that stockholders have less claim to value of the country's output. The U.S. economy can produce just as much in 2009 as it did in 2008 (in fact somewhat more, because of labor force and productivity growth). If stockholders can demand less because of the reduced value of their stock, then this leaves more for the rest of us.

The most visible evidence of how the loss of stockholder wealth can benefit the rest of us was the sharp decline in consumer prices over the last three months. As a result, real wages rose at almost a 15 percent annual rate in the three months from September through November.

Of course, insofar as the demand generated by stockholders (and homeowners, who have also seen their wealth plummet) is not replaced by other sources, then workers are losing jobs. Eventually weakness in the labor market will put more downward pressure on real wages. However, if the loss of demand from stockholders is effectively replaced by demand from the government or foreign sector, then the vast majority of the country will be made better off by this plunge in stock prices.

The Post should have reporters who understand this fact.

--Dean Baker

Addendum: Since the question has been asked repeatedly, I will try to quickly explain how the fall in stock prices can make non-stockholders wealthier. There are two components to the wealth that people have in stock.

One component is the flow of income in dividends, which is turned based loosely on the growth of corporate profits. If, for the moment we make the unrealistic assumption that the growth in profits is unaffected by the crash (there will be feedback effects as we are seeing -- the plunge in demand that resulted from the stock and housing crash is also leading to declines in profits), then this future flow of dividend income will not be affected.

The second component of wealth is that value of the stock itself. How much can I get for selling my 100 shares of Verizon today. This second component is obviously directly affected by the fall in stock prices. Stockholders will consume based in part on the value of their stock wealth. The logic is that they try to more or less balance their consumption over their lifetime. If they have more wealth, then they can consume more over their lifetime.

To take a simple example, imagine a person is 75 and can expect to live another 10 years, and had $200,000 in stock. Then we might expect this person to spend roughly 10 percent of her wealth or $20,000 a year. Now suppose the market has crashed and her stock is only worth $100,000. Then we would expect her spend just $10,000 a year.

This is what is happening as a result of the stock crash. Stockholders have less wealth and therefore are spending less money on cars, vacations and everything else. The reduction in demand places downward pressure on the price of these goods, making them cheaper for everyone. Those folks who did not have a lot of stock gain in this story, assuming that they hold onto their jobs.

Labels: Dean Baker, deflation, Inflation, stock market, wages, Washington Post

 

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1/03/2009 02:38:00 PM 0 comments

 

Beware Fudged Facts About US Auto Wages

by Dollars and Sense

From EPI:

With some senators turning down a rescue package for the auto industry based on their demands for immediate wage cuts for the people who build the autos, it's important that journalists are clear about what the wages levels actually are. Widespread claims that autoworkers currently receive over $70 per hour are false.

In a recent New York Times story, reporter David Leonhardt explains in detail. A graphic that accompanies his story shows that at Ford, whose figures are comparable to the other two companies, the average worker’s current compensation (wages plus benefits) adds up to $55 per hour. Of that amount, about $12 is the cost of benefits like health care, while wage-related costs such as paid holidays, vacation, sick days and overtime add about $14. The average wages that show up in current workers' paychecks average $29 per hour before taxes – a solid, middle-class income, to be sure, but far from the $70 that many are claiming.

So where does the claim of $70-plus per-hour come from? The only way to get to that number is to add in the "legacy costs" – the health and pension benefits paid to the huge number of Big Three former employees who are now retired. At Ford these costs add another $16 per hour to the company’s cost calculations.

The Times graphic shows that, compared to the Big Three, Japanese carmakers' US plants pay an average base wage that is about $3 less per hour, and average compensation is about $10 less per hour, mostly because of less generous benefits.

Labels: auto industry, EPI, New York Times, wages

 

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12/12/2008 03:16:00 PM 0 comments

 

Dollars & Sense not surprised by falling markets

by Dollars & Sense

This morning, the New York Times is aflutter about sharp dips in global stock markets and a new report on the decline of U.S. manufacturing. Dollars & Sense has been following the economic developments that led to this situation for years. Excerpts from the NYT and links to Dollars & Sense coverage below.

In the lead NYT story, Global Markets Fall Again on Fears About U.S. Economy, Keith Bradsher and Martin Fackler report:

Stock markets fell sharply across most of Asia again today and continued declining in Europe as investors worried about weakness in the American economy.

The stocks of Asian companies that export to the United States, such as the Sony Corporation, suffered particularly heavy losses today following a report on Tuesday from the Commerce Department that orders for cars, washing machines and other durable goods dropped 8 percent in January.

"There is a worry that U.S. consumption could slow substantially..." the chief Asia economist in the Hong Kong offices of Credit Suisse, Tao Dong, said.

In Floyd Norris and Jeremy W. Peters' Wall St. Tumble Adds to Worries About Economies, Stuart Hoffman, chief economist of PNC Financial, adds that, since "global markets have been strong for years, 'We've had this 'What me worry?' mentality. And this is a little bit of a wake-up call.'"

In January 2006, Dollars & Sense on the fragility of world markets' dependence on the dollar and the health of the U.S. economy:

It's what lies behind the slide of the dollar that has even many mainstream economists spooked: an unprecedented current account deficit—the difference between the country's income and its consumption and investment spending. The current account deficit, which primarily reflects the huge gap between the amount the United States imports and the amount it exports, is the best indicator of where the country stands in its financial relationship with the rest of the world. (Dollar Anxiety: The advantages of imperial finance have propped up the U.S. economy—but they may not last. By John Miller, in Dollars & Sense Jan/Feb 2006.)

In his NYT analysis A Recession That Arrived on Cats' Paws, David Leonhardt writes:

The nation's manufacturing sector managed to slip into a recession with almost nobody seeming to notice. Well, until yesterday.

Wall Street was caught off guard when the Commerce Department reported yesterday morning that orders for durable goods ... plunged almost 8 percent last month. That's a big number, but it really shouldn't have come as too much of a surprise. In two of the last three months, the manufacturing sector has shrunk, according to surveys by the Institute for Supply Management that have been out for weeks.

But the new report seemed to focus investors' attention on the problems in manufacturing and became one more reason for people to sell stocks.

Dollars & Sense wasn't surprised, given our coverage of recent declines in the U.S. manufacturing sector. In the Mar/Apr 2004 issue of Dollars & Sense, John Miller wrote:

By 2000 ... manufacturing had already hit the skids. Industrial production fell steadily, contributing to a general excess of industrial capacity. Today, capacity utilization rates still hover at about 75%, and the manufacturing sector has shed jobs for some 42 straight months. (High and Dry: The Economic Recovery Fails to Deliver)

And in January 2003, Ellen Frank answered Dollars & Sense reader Lane Smith's questions about the effects of NAFTA on the U.S. economy:

Since the North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada went into effect, trade within North America has increased dramatically.

NAFTA's effects on employment, on the other hand, are hotly debated. Clinton administration officials estimated in the late 1990s that expanded trade in North America had created over 300,000 new U.S. jobs. Economic Policy Institute (EPI) economists Robert Scott and Jesse Rothstein contend, however, that such claims amount to "trying to balance a checkbook by counting the deposits and not the withdrawals."

Employment in virtually all U.S. manufacturing industries has declined since NAFTA went into effect. (Doctor Dollar, Dollars & Sense Jan/Feb 2003.)

In the NYT, David Leonhardt continues:

Is the entire United States economy in danger of going the way of the manufacturing sector? Is it possible that we're headed for a real recession?

The forecasters at the Economic Cycle Research Institute in New York, who have accurately predicted each of the last three recessions, argue that the current slowdown won't amount to much more than a lull. Lakshman Achuthan, the institute's managing director ... thought the odds of a recession over the next year were less than 20 percent. ... [t]he chief United States economist at High Frequency Economics, who's more bearish than most forecasters right now ... still puts the odds at only 30 percent.

But for all the attention that formal recessions get on Wall Street, they are not really the benchmark that matters to most people. A significant slowdown that falls short of a recession can do a lot of damage to stock prices, profits and wages.

Only in the last few months, for example, has the current expansion grown strong enough to give most American workers pay increases that outpace inflation. Those raises would be endangered if the economy were to slow from last year's growth rate of 3.4 percent to even 2 percent.

Dollars & Sense on how the U.S. economy has spent years stiffing wage-earners:

The current economic recovery has done less to raise wages and more to pump up profits than any of the eight other recoveries since World War II. No wonder inequality continues to worsen, and most people still doubt that the economic turnaround will ever benefit them.(Slow Wage Growth But Soaring Profits in the Current Recovery. By John Miller, in Dollars & Sense Sep/Oct 2004.)

Also in March 2004's High and Dry: The Economic Recovery Fails to Deliver, John Miller discusses the causes behind today's turmoil: "Tax cuts, home sales, mortgage refinancing fueled by low interest rates, and Iraq-driven military spending—not self-sustaining job and wage growth—fueled the ... growth spurt."

For the best (and most prescient) economic news and analysis, reports on economic justice activism, primers on economic topics, and critiques of the mainstream media's coverage of the economy, subscribe to Dollars & Sense.

Labels: dollar, durable goods, manufacturing, recession, stock market, wages

 

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2/28/2007 09:29:00 AM 0 comments