Why did Henry Ford pay better wages?

[response to Minimum-wage Misconceptions over at Salon.com, wherein I put on my Pretend Economist Hat.]

Nice article, but I do want to say something about Henry Ford. I've often heard this motivation dismissed as mythical: Ford did not raise wages in order to create demand for automobiles within his company.

I suspect that's true, because when you look at the economics of such a move, it doesn't make any sense. First, there's nothing stopping your workers from spending the wage increase on the many things that aren't automobiles. Second, there's nothing stopping them from buying their autos from your competitors. Finally, even if you ignore those (huge) problems and assume that every dollar you send out in increased wages is applied to the purchase of one of your cars, you're still losing money hand over fist. If your profit margin on an auto is 20%, then for every dollar you put into raising wages, you can't get more than twenty cents back.

If Ford's goal was to use that money to increase demand for automobiles, it would have been much more sensible to use it to lower the selling price of his cars.

Ford's real motivation in raising wages, as I understand it, was to reduce employee turnover, and also to act as a bonus in exchange for some demands that he put on his employees that his competitors didn't (no alcohol, no gambling, learn English).

So if you're a single company, who mostly sells its products to people outside the company, raising is a losing strategy for boosting demand.

But raising wages does make a lot more sense when discussing a national economy, where most of the goods and services being sold are sold to your fellow citizens. In that case, most of the money a company loses in the form of higher wages will come back to it in the form of increased demand for their products.

Mitt Romney is telling the truth about gas prices.

I just heard that Mitt is denying his big oil ties, his support for oil subsidies, his opposition to increased fuel economy standards. Instead, he says, Obama's "attack ad" is simply Obama refusing to take responsibility for the fact that gas prices have doubled under Obama's watch.

At first, I was incensed. Then I realized, he was actually paying Obama a backhanded compliment. Check out this here chart:

Hey, he's right! Gas prices have doubled between December 2008 and the now times. But does that mammoth dip just before Obama took office look a little suspicious?

Obama took office just as the economy bottomed out, and just as gas prices hit their lowest point in several years. These two things are not a coincidence: when the economy struggles, demand for gasoline goes down, so gas prices drop. As the economy has recovered, demand has risen.

So to the extent that Obama can take credit for the economic recovery, he also shares the blame for rising gas prices. I guess Mitt's saying that Obama should have done right by American drivers by keeping the economy hobbled.

Mitt has to know this. He and his economic advisers can't be quite that ignorant, but I'm sure he can imagine that the voting public can be that ignorant.

What is a "luxury?"

Cross-posted from the comments board of the WSJ:

StlJoe wrote, "I didn't have a cell phone until I was over 30 and yet somehow I had been working for 8 years."

::golf clap::

It's one thing to "not have a cell phone." A cell phone is a luxury. But when you're job hunting, having some way for an employer to contact you to schedule a job interview is an absolute necessity. And I'll bet $10,000 (that's the standard Republican betting rate, right?) that at no point in your job hunt did you have to apologize to an employer for not having a phone number. I'll bet you didn't ever have to put a homeless shelter down as your primary mailing address either.

If you consider a cell phone to be a "luxury" that you could easily forego, it's because you've always had a land line for conducting the necessary business of life. Can you even imagine trying to run your life via the payphone half a block away? Or begging phone time from your neighbor three doors down every day?

Have you even bothered to try imagining it?

In other words, have you ever questioned your privileged viewpoint?

Here's a handy mnemonic: "No cell phone, no problem. No phone service, no job."

I'll bet you'd be horrified by the idea of government paying for internet access as well, even though the Internet is now the primary means for hunting for jobs, educating citizens, contacting government officials, and a whole host of other activities critical to being a part of modern society. I could talk about this until I'm blue in the face, and you'll just respond with, "I ain't paying poor people to surf Facebook all day."

It always angers me when Republicans disparage simple, cost-effective ways to improve the lives of poor people -- even if these services increase their ability to find and keep employment -- as "paying for luxuries." Short-sighted, blinkered... grumble grumble.

390 parts per million. Do you know how small that is?

I see, over and over again, the claim that CO2 is less than 400ppm (0.04%) of the composition of the Earth's atmosphere. That's entirely correct. The conclusion we are meant to draw is that such a tiny fraction of a sliver of a gas can't possibly have a noticeable effect on the climate.

QED, right? Can a very small amount of a substance dramatically alter the behavior of a complex system?

200-300mg of cyanide constitutes a lethal dose. A large human weighs perhaps 100kg. So the lethal dose of cyanide is about 3ppm.

0.1 mL of dimethyl mercury can be fatal. An adult has perhaps 30 L of volume, which figures out to about 33ppm.

The LD50* of ricin is 22 parts per *billion*, or 0.02ppm.

So such an argument, standing by itself, carries zero weight.

* the dose that kills 50% of the subjects it's given to.

Are Japanese people just saner than us?

[context: someone claimed that the US's high incarceration rate might be a product of more effective law enforcement]

That's an interesting theory. It kinda sounds sensible, and you can make a theoretical argument for it. After all, as one of the richest countries on the planet, wouldn't we be able to afford more security than other countries, in the form of better law enforcement and lower crime rates?

Let's test it, insofar as we can, by comparing it with other countries. If our superior incarceration rate is a sign of excellent law enforcement, then we should also see America as having a surprisingly low rate of violent crime.

Let's pick Japan.* According to Wikipedia, the US has 743 prisoners per 100,000 of population. Japan holds only 58 per 100,000.

If you think about it, the theory is already starting to come apart. US law enforcement might be better at catching criminals than Japanese law enforcement. But nearly thirteen times better? Sounds fishy. Law enforcement's ability to find people to incarcerate can't be the sole difference.

Now let's turn to crime statistics. The United States has a homicide rate of 4.8/100,000 (2010, according to Wikipedia ). That's really safe compared to some third world and developing countries (Honduras is #1 with 78/100,000), but you don't see any European Union countries beating us (Sweden 3.5, Ireland 1.25, Germany 0.84).

So we're middle of the pack worldwide, and practically the bottom of the pack of relatively well-off nations.

Where is Japan? 0.83/100,000. And they are unique in that their statistics count murder attempts and "planned murders" along with actual murders. Their real homicide rate is significantly lower.

The US has an only slightly larger police force**, not nearly enough to explain anything.
So it's not that our law enforcement is better, and it's not that we chose to buy more safety. Japan seems to simply have way fewer murderers, whether inside or outside the prison system.

So here are the possibilities I can think of:

• Japanese people are just better, more moral people.
• The Japanese invoke the death penalty far more often than we do. (Okay, I checked, and they don't. Since 1993, they've only been executing 1-7 people per year. Before that, they were executing people at a pretty good clip, though.)
• Something about American society breeds violence.

I vote for option 3. For more details, here's a blog post I wrote about a book called "The Spirit Level."


* not at random, mind you... I'm making a point here, though other countries like Finland and Iceland could be used to make the same point.

** 233 officers/100,000 vs. 197 officers/100,000 in Japan. Source: http://en.wikipedia.org/wiki/L... It's not really significant when trying to explain the US's 13 times higher incarceration rate and nearly six times higher homicide rate.

*** Seems to be the case. Japan

Occupy Mayor Becker's inbox

Update: The Mayor (or a designated representative) responds below.


Occupy Salt Lake is being kicked out of Pioneer Park in the wake of the death of a (probably) homeless man in their camp. I disagree with the decision, so I wrote the Mayor's office.

Mister Mayor,

A man died. I understand that, and I take this tragedy seriously, just as you do. But Chief Burbank appears to be casting the blame on the Occupy Salt Lake encampment, before the results of the autopsy have even been released to the public. The decision to disperse the camp is wrong.

I haven't camped overnight, but I've spent a lot of time in the encampment during the evenings and gone on several marches. I've donated food and helped people set up tents and other facilities. My impression has always been that the homeless people there are happy that the encampment allows them one place in the city where they can safely and legally set up a tent and spend the night.

Source:



Chief Burbank says we're "affecting" the city's ability to provide services, even though he admits that the homeless services of Salt Lake are inadequate to meet the needs of the population they're trying to serve. He claims that nobody has died in Pioneer Park in his memory, and that were it not for the encampment, nobody would have died there this year. He ignores the fact that fifty-plus people have died from homelessness in each of the last two years. So why would he expect that this death would have been prevented, rather than simply moved to some quiet, out of the way freeway bypass or Jordan River encampment? By the same logic, thousands of people die at the University Hospital each year...

He also seemed to claim in the video that the new, stricter anti-panhandling ordinances have somehow benefited the homeless population. I fail to see how; it may reduce the number of complaints against homeless people, but it does so only by driving them back into the shadows. We have criminalized homelessness in this city, which angers me and breaks my heart.

The services we provide to our homeless citizens are inadequate, especially for those who -- for various reasons that we probably shouldn't pass judgment on -- choose not to use the shelters. This death -- in fact, the death of any homeless person -- ought to be used as an opportunity to point out this inadequacy and lobby for more comprehensive services. Instead, I feel like the city has closed ranks and scapegoated the encampment, thereby throwing the problematic corpse in the unshowered hippies' backyard. In doing so, you're forcing a needless confrontation with a group of people who are merely exercising their constitutional right to peaceably assemble.

Dozens of homeless people are going to die this winter, if past is indeed prologue. Leave the camp open. Perhaps the services being provided by Occupy Salt Lake down at Pioneer Park will help prevent a few of those deaths. Perhaps it will bring the realities of homelessness out of the shadows. Like all of us, the homeless need more than food and shelter: they need a feeling of community, a place to belong. Giving them a place where they can come together to legally live, and keep their meager belongings without fear of having the police confiscate their campsite, could mean the world.

I'm sure you're getting a lot of flack from the angry Right. Just know that, if you choose to support us, a lot of Salt Lake residents have your back. That goes double for anything you can do from the Mayor's office to create more comprehensive and compassionate services for our homeless residents.

Bryce Anderson

http://neonderbycars.blogspot.com
http://twitter.com/darth_schmoo


May you live in exponential times.

Update: Mayor Becker's response.

Dear Bryce:

I appreciate your inquiry regarding Occupy Salt Lake City, and I hope this information is helpful, please let me know if you have any additional questions once you’ve had a chance to review. I am also including an earlier statement from Friday/November 11th which you may have already seen.

The fact is I am absolutely supportive of the right to protest and for the Occupy movement to be in Salt Lake City. This is not a “shut down” of the Occupy Salt Lake City it is simply a rescinding of the exception for camping in parks.

We continue to work with organizers to figure out how they can have a continuous physical presence to occupy both Pioneer Park and the Gallivan entrance Main Street while not actually camping overnight and we are very optimistic that we can work this out.

Sincerely,

Ralph Becker

Mayor





November 11th Statement:

Mayor Ralph Becker and Salt Lake City Police Chief Chris Burbank reiterate their commitment to ensuring and protecting the essential rights of all residents of the City to peacefully assemble, protest and exercise free speech.

The decision to discontinue allowing overnight camping on public property was precipitated by much more than the tragic death late Thursday night at the Occupy SLC encampment at Pioneer Park.

Since the onset of camping at Pioneer Park, local law enforcement has responded to a dramatically increased amount of criminal activity in the park, and has made over 90 arrests in the area since early October. In addition, a melee involving over 30 people the night before the fatality led to four arrests and marked, along with the elevated criminal activity, an indication that public safety in and around the encampment has become increasingly questionable. Additionally, the amount of human and animal waste, as well as drug paraphernalia, is an escalating public health concern.

Local social service providers and advocates for Salt Lake City’s homeless population have decried the contention made by Occupy SLC that the group is somehow providing services not already available in the area. On Friday, Pamela Atkinson, an advocate for Utah’s homeless population, addressed the group on this issue.

“Many of our homeless friends have great need, but meeting those needs takes a certain amount of training, education and expertise,” Atkinson said. “We need to take care of our homeless friends in the proper way, with the most expert care that we have and this kind of tent city is not the kind of environment that helps people. You may provide food here and a caring kind of attitude, but that is not sufficient.”

A Salt Lake Tribune story (see it here), published later on Friday, included statements from shelter operators that confirmed Atkinson’s assurance that shelters and social service providers in the area of the Pioneer Park encampment were under capacity and available to provide accommodations and meals.

Salt Lake City works closely with individuals and agencies that provide services to the homeless community. Mayor Becker formed the Committee on Homelessness last year to address the concerns of those who are homeless in Salt Lake City. The committee is comprised of local, county and state representatives, as well as community advocates, and meets regularly with the Mayor.

The City, through allocation of federal dollars, appropriates funding for Emergency Shelter Grants, the HOME Investment Partnerships Program, and the Homelessness Prevention and Rapid Re-Housing Program. These programs aid those who are homeless those who are at risk of being homeless, and low-income families.

Net Neutrality

@jasoninthehouse (Jason Chaffetz, R-UT3) has finally blocked me. Enjoy your impermeable echo chamber, sir.

Chaffetz doesn't understand the Internet. But because he's a knee-jerk conservative, he knows exactly how to regulate it: not at all.

In other words, given the choice of putting a corporation between citizens and the communication they want to access, and putting the government between corporations and the pile of protection money they'll earn from their privileged position, Chaffetz sided with the corporations.

The thing is, the Internet doesn't work. So far, the U.S. has adopted a "business-friendly" low-regulation approach, as opposed to the market-unfriendly, "Internet as a public utility" approach of other industrialized nations. According to Chaffetz' free-marketeering*, our foresight should give us the best Internet on the planet. Not one on par with Estonia's. We pay more money for less speed than just about anyone in the industrialized world.

Quick note for anyone new to Net Neutrality: It's the idea that Internet providers shouldn't be able to create toll lanes for the Internet or prioritize the traffic of some services over others. For example, Microsoft shouldn't be able to sign a deal with Comcast to make their search page load faster than Google, nor should they be allowed to throttle traffic from Hulu in order to make it a worse customer experience and drive people to their own video on demand services.

Or, to be more apocalyptic: here's the worst case scenario if we don't have Net Neutrality.

Or, to put it in terms that even Jason Chaffetz can understand: Imagine if George Soros bought out Comcast, and issued a directive to block customer access to a boatload of right wing sites like Heritage, Cato, FoxNews, RedState, WND, etc., while providing a fast lane straight to Rachael Maddow and Keith Olbermann. Nothing so dramatic has happened in the real world, but there have been plenty of cases of Internet carriers blocking access to information they didn't like, including pro-union sites and information critical of their business practices. Also, at the moment, Comcast is trying to extract money out of Netflix by threatening to charge them punitive

I'm not surprised that yet another Republican has sided with the right of corporations to make fistfuls of cash, and against an open and democratic society. But I'm disappointed.



* Which is similar to mouseketeering in both enthusiasm and lack of substance.

Is Obama or Palin more authoritarian? Facebook has the answer.

Both released their obligatory "Hanukkah is awesome" greeting to Facebook this morning (Obama, Palin). The comment sections beneath the two highlights one very important difference between them.

In real life, both politicians have an active, engaged, inflamed group of citizens who hate everything about them. But if Facebook were your guide, you would think that Sarah Palin had an approval rating hovering near 100%. The only hint of an opposition comes from the fact that any time a negative comment gets through, five or six of her devoted followers post a quick STFU HATER before it gets taken down.

I know from firsthand experience that posting any hint of disagreement to Palin's notes on Facebook lead to immediate banning. I was polite, respectful, and cited my sources. Didn't matter. I only got two posts off before being banned. I still get to be counted among her "fans" and can still access to her deep thoughts on economic and foreign policy, but I must suffer them in silence.

Obama has to be censoring the most inflammatory commentors. But you can still see lots of comments that question his patriotism, criticize him for specific acts, and generally remind us that there are people out there who really, really hate him.

Being the President, it's hard to imagine that Obama just doesn't have the staff to police his Facebook activities effectively. The continued existence of the negative comments must stem from an outlook that values freedom of expression and the views of political opponents far more than Palin does.

One more data point in support of my belief that Obama wants to be President of the Whole United States, while Palin is running for President of "Real" (read: Rural) America.

I read it on WikiLeaks

This is just collection of summaries of the WikiLeaks cables I've randomly stumbled into.  For a full explanation of what "WikiLeaks cables" are, go here:

2008/09/08ANKARA1643 : A Turkish trade minister meets with London investors, tells them to ditch their stock in a Turkish media company that has been criticizing elected officials.  Minister claims that the company will be gone soon.  Too soon to tell, but smells like insider trading.

2008/10/08STATE116392 : Condie's "What we'd like to know about Palestine" Christmas list.  Includes requests for Internet handles, credit card numbers, and frequent flyer account numbers for prominent and influential Palestinians.  Also looking for military readiness, opinions on the peace process, etc.  If you have any such information, please forward it to cia.gov.

2009/11/09MANAMA642 : This is just silly.  Bahrain lobbies Gen. Petraeus to encourage Americans to participate in the Bahrain air show.  A more relevant tidbit: Bahrain's King Hasam supports stopping Iran's nuclear program "by any means necessary."


2009/03/09TELAVIV654 : Qatar, UAE concerned about Iran, pushing for progress on Israel-Palestine peace process.  Point out that it would make things easier on Israel diplomatically.

1972/02/72TEHRAN1164  : This tastes a bit stale.  The Shah of Iran would like a squadron of F4-E's ASAP.  I guess this one got lost in a filing cabinet somewhere. :)

1979/08/79TEHRAN8980 : PERHAPS THE SINGLE DOMINANT ASPECT OF THE PERSIAN PSYCHE IS AN OVERRIDING EGOISM. [...] THE PRACTICAL EFFECT OF IT IS AN ALMOST TOTAL PERSIAN PREOCCUPATION WITH SELF AND LEAVES LITTLE ROOM FOR UNDERSTANDING POINTS OF VIEW OTHER THAN ONE'S OWN. [...] COUPLED WITH THESE PSYCHOLOGICAL LIMITATIONS IS A
GENERAL INCOMPREHENSION OF CASUALITY.

No worries. It was okay to be racist back in 1979, right? I wonder what they would have to say about the "psychological limitations" of the Americans who (a few short years earlier) thought they had a right to decide who ran their country.

Five down, over 200 to go, and that's just the first batch. There will be a quarter million documents in this puppy when all is said and done. Most of the documents are fairly uninteresting, and it's going to take a lot of eyeballs to find the most relevant stuff. Go to cablegate.wikileaks.org, and hope they can build some better tools for interacting with the data.

Will Sarah Palin be the next chair of the Federal Reserve?

The best part of this whole financial meltdown has to be watching Sarah Palin try to pretend that she has valuable insights on monetary policy.  It's kind of cute, really, like watching a four year old sitting in front of a chess board, moving the pieces around at random.

Not that I'm a grandmaster, by any means.  I know just enough to recognize when someone is playing well and when someone is bouncing the knight all over the board and making whinnying noises.  Krugman is putting grandmaster level stuff on his blog.  Palin doesn't know how the pieces move.

Palin fears runaway inflation -- in fact claims it's already occurring -- even though the last two years have had such tame inflation that we didn't need to increase Social Security payments to keep pace.  Which, if you've been watching FOX News' ongoing quest to terrify the elderly, is All Obama's Fault. 

When the non-inflation was pointed out to her, she lashed out at the messengers, because someone at their very own newspaper -- don't you guys read your own newspaper? -- ran a story explaining that food prices were, well, very low but starting to creep up again.  1.4% inflation is ridiculously low by historical standards, and by any objective measure, Palin was just plain wrong.

In a second Facebook broadside, she blames our slow economy entirely on burdensome government regulation, high taxes, and businesses living in fear of Obama's next major initiative.

Which is pure idiocy.  If it were Obamaphobia keeping businesses from expanding and hiring, their terror would have been assuage the moment CNN declared that the Republicans had retaken the House.  Obama won't be passing any major government-expanding initiatives or oppressive, burdensome government regulations anytime soon, so by Palin-logic (as opposed to the real sort) those mountains of cash that corporations are sitting on should be on their way.

Maybe she should start listening to the actual economists, who are pointing out the blindingly obvious: companies aren't hiring because they don't see much demand for their products.

Taxes are already absurdly low.  They're low as a percentage of GDP, when compared to the rest of the industrialized world.  They're low by historical standards; we've paid much more in the past.  We paid much more during the Clinton years, which were years of spectacular growth for people of all incomes.  Bush cut taxes, and gave us a decade of anemic growth, the largesse of which went almost entirely to the wealthiest 5%.  Oh, and need I mention that all that anemic growth was followed by the collapse of the whole economy?

Lastly, it shouldn't even have to be argued that more "burdensome government regulation" would have prevented much of the recent economic collapse.  The fact that supposedly serious people can claim otherwise is a testament to the power of the right-wing noise machine.

Palin is a card-carrying member of that noise machine.  Gears in that machine don't get held accountable for anything.  Their proposals don't have to make sense, so long as the person doing the proposing sounds confident.  That's why Palin can talk about how we need to be serious about paying off our national debt in one paragraph, and then demand huge tax cuts for the wealthy in the next.  Actual economists know that tax cuts have never come close to "paying for themselves," and that in a situation like ours where there are mountains of cash lying idle, adding more to the pile is an ineffective way to stimulate the economy.*

Her last mistake is to imply that inflation is bad for most Americans.  Actually, moderate inflation is good for just about anyone who has a mortgage.  Their debts become worth less as the years go by.  If you owe as much on your house as you have set aside in your 401K, inflation is robbing Peter, paying Paul, and then telling Paul to write Peter a check.  As Paul Krugman pointed out (for which the Nobel-prizewinning economist received a tongue lashing from our girl Sarah) inflation did a lot to make our post-WWII debt more manageable.

Who does inflation hurt the most?  People who have grotesque sums of cash lying around.  Which I believe is why, even though the economy would be generally better off if the Fed targeted lower unemployment and higher inflation, they continue to choke off inflation.  The Fed is run by rich people and people who hang out with rich people.  The only thing that makes QE2 palatable to them is the fact that the new money will go straight to banks.  If the plan were to print new money and sending it to people who would actually spend it (you and me and people poorer than you and me), they'd be screaming bloody murder.

The point is, Sarah Palin really sucks at this, and I pity the people who mistake her semi-coherent, ghostwritten Facebook posts for genuine economic thought.

* That actually *is* a problem with QE.  But it's just about the only weapon the Fed has left.  Normally it would be lowering interest rates to juice the economy, but they can't lower it below zero, because it rips a hole in the fabric of spacetime.  We don't want that.