Lessons from nick hanaeur and dee hock ~ mike norman economics gastroenteritis

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My point is that, under capitalism, if you can’t pay your costs from your income you go bust – which releases your market space for somebody who is either more productive, or more realistic in their pricing. Cheap labour and a systemic lack of jobs encourages undercutting – the parasite businesses Nick Hanaeur speaks of.

“It is appealing to believe that the parasite economy will eventually correct itself. Or that a few high-road employers will set an example that will eliminate it. But trust me when I tell you: This is wishful thinking. I know because I am one of those employers. People, like me, when faced with brutal competitive dynamics, will not pay workers a living wage unless all of our competitors do the same. And the only way that will happen is if citizens like you require employers like us to do it. Until then, corporate America will continue to build its record profits on the backs of cheap labor.

The essence of capitalism is captured in the name. Capitalism is about prioritizing capital as ownership over labor as people and land as the environment because it is assumed that capital formation leads to growth, which makes all better off from trickle down — "A rising tide lifts all boats."

Unbridled capitalism is irrational economically since it leads to inefficiency, being based on rent-seeking. It is also socially in damaging both people and the environment, when an economy is the material life-support system for a society and the global economy is the life-support system for the world. That makes capitalism dangerous to boot.

An excellent post, Tom. I remember when I first started work it was for a nationalised company and it was relaxed. I enjoyed work, which was also a social event, we had a real laugh and I looked forward to it everyday. People were very friendly. The company was overmanned but this was government policy at the time because automation had already done away with a lot of jobs. What we should have had is a shorter hourly week which I think was on the cards but Thatcher came along and ended all this.

I worked in electrical engineering and it was physically hard work, but we had plenty of breaks too. Work was leisure. There was no overtime because our union believed in employing more people, so we started early and finished early and I had very long evenings for leisure and every Saturday I was out with my mates having fun. Life was great.

All the electricians were cut and so this only left me, but the workload shot up exponentially because of all the new technology, most of it computer driven. Many of the faults became maddening and the software was useless in helping you to sort it out faults that were not straight forward, so the work became stressful with many faults intermittent.

There was enormous pressure on me to get things sorted quickly and my bosses started complaining about all the overtime I was doing. This went on for years before they employed another electrician. He was young and a workhorse and he ended up doing up to 30 hours overtime a week while I was still doing 15 hours (down from 30). So much for me doing too much overtime.

I ended up getting gastritis and retired early from work with ill health. When I left the new electrician would email me for advice and tell me it was horrible there – so lonely and all hard work. After four months of sick leave my company finally let me go and when I went back to work one day to pick my stuff up I saw on the new electrician’s bench a load of prescription antacid medication.

Pail Craig Roberts recently wrote an article called, Capitalism is for Capitalists, where he said that he hated capitalism. Outside his house was non stop noise from the utility companies constantly dig up the roads where he lives, now manned by immigrants who work 7 days a week, night and day. Capitalism offers no rest.

The world is one giant work machine going 24/7, 365 days a week destroying the environment and ruining people’s lives, while a handful of people a own all the world’s wealth. But they are not happy, they want more, even if it risks destroying the planet, or blowing it up.

Tom Hickey cites from an article of Nick Hanauer: “It is appealing to believe that the parasite economy will eventually correct itself. Or that a few high-road employers will set an example that will eliminate it. But trust me when I tell you: This is wishful thinking. I know because I am one of those employers. People, like me, when faced with brutal competitive dynamics, will not pay workers a living wage unless all of our competitors do the same. And the only way that will happen is if citizens like you require employers like us to do it. Until then, corporate America will continue to build its record profits on the backs of cheap labor.”#1

The argument is built on the age-old cliche that depicts wages and profits as fierce antagonists. This meme is not only nourished by widespread personal experience, the testimonial of entrepreneurs/trade unionists, the rhetoric of politicians, but has the authority of the founding fathers Smith,#2 Mill, Ricardo,#3, #4 Marx,#5 et al. behind it.

This cliche is nonetheless false and it is scientifically incompetent economists who are to blame that it is still alive and substantially affects economic policy. Right policy depends on true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

The problem with the antagonism meme is that it has common sense on its side, just like Geo-centrism had the the-sun-goes-up common sense on its side. Science goes beyond common sense. What one has to, first of all, understand in economics is profit and cross-over exploitation.#6

In order to see this, the business sector is split into two identical firms and firm 1 is supposed to cut the wage rate W arbitrarily by half. From this follows that the market clearing price P declines if all other variables are unchanged. Firm 2 is affected because total wage income falls and with it consumption expenditures and the market clearing price P.

Seen from the perspective of a single firm, the antagonism of wages and profits is absolutely real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged and the same is true for the household sector as a whole. If there is exploitation it happens WITHIN the sectors. A partial wage rate change leads only to a REDISTRIBUTION of profits between the firms and of output between the workers.

For the economy as a whole, the antagonism of wages and profits is an optical illusion. This has obvious consequences for employment theory and the discussion about the minimum wage.#7 To this day, neither right-wing nor left-wing economic policy guidance has sound scientific foundations.