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» Hatrack River Forum » Active Forums » Books, Films, Food and Culture » The 1% problem--Capital Monopoly

   
Author Topic: The 1% problem--Capital Monopoly
Darth_Mauve
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I listened to a man on the radio explain why the minimum wage was unnecessary.

"An employer will pay a person for the value they bring into a company. If that person contributes $10 per hour to the company profits, then they will earn that $10. However if that particular job only contributes $2 per hour to a company, why should they pay more. If that company only offers $2 per hour, and the person wants more money, they are free to find another job that will pay them more, or start their own company and risk their own capital."

What the anti-minimum wage speaker left out was that a companies profits depend on the difference between costs and sales. That while a person may bring in $50,000 worth of yearly value to a company, the company makes much more profit if they can only pay that person $10,000.

He also left out the proof that if even high-end employees don't want to work for the low salaries the companies want to pay, those companies will get HB-1 visa's to bring in foreign workers who will work for those low salaries.

The supply of labor, even qualified labor, is bigger than the demand.

So what should the worker do? If they quit to look for a job, they have 0 income. This is fine if they have capital to live off of while looking. If not--??

If they look for a new job while working at even the most minimum wage job, they risk being fired. Again, this is a risk worth taking if the person has money to fall back on. If they don't have capital..?

Finally, the other solution is to start his own business.

That takes capital.

But capital is being possessed more and more by fewer and fewer. Middle class jobs will allow capital to be saved so that the employees can find other revenue sources if their main source is removed, but lower class jobs, lower $ jobs do not.

Supply of capital is diminishing while the demand for it goes up.

If you treat capital like a commodity what you have is a cornering of that capital market--a capital monopoly of the 1% if you will.

Monopolies break the markets.

I have to run to earn my capital.

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Orincoro
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He's an idiot. It's an argument disproven for decades, again and again. And anyway, it *completely* ignores the systemic feedback created by enlarging an unskilled working class and driving its wages down to rock bottom subsistence levels, or lower. Eventually, the we'll-stream of customers, and profits, and really all forms of economic growth, dry up. You can't have a society that spends money on your diverse products if you don't have a society where lots of people have money. The middle class provides the market for these people, and eyre busy trying to destroy it.
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rivka
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quote:
Originally posted by Darth_Mauve:
An employer will pay a person for the value they bring into a company.

This isn't true to start with.

An employer will pay the least they can get away with. Which means that in the current market, many people are being paid considerably less than they are worth.

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SteveRogers
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quote:
"An employer will pay a person for the value they bring into a company. If that person contributes $10 per hour to the company profits, then they will earn that $10. However if that particular job only contributes $2 per hour to a company, why should they pay more. If that company only offers $2 per hour, and the person wants more money, they are free to find another job that will pay them more, or start their own company and risk their own capital."
Because it's just SO EASY to get a job these days. And it's just SO EASY to find another job or start your own business if you're dissatisfied with your wages. And it's just SO EASY to support yourself or your family with $2 an hour in wages in modern America.

It seems to me that people having less money to spend on goods would be a bad thing for the economy if we were to so suddenly decrease a huge chunk of people's incomes. But maybe I'm oversimplifying things.

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Szymon
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What is this minimal wage? In bucks?
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Rakeesh
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I believe right now, in the US, it's around $9.25/hr as the federal level, but some states have higher or lower limits.
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rivka
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Huh? Federal minimum wage is currently $7.25.

Here's a nice map.

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Aros
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A legal minimum wage creates a black market of lower wages anyway. You don't think this is happening? And there are other loopholes, like a lower wage for people who receive tips.

Abandoning the idea of a minimum wage would have some advantages, if simultaneously we allowed foreigners to work legally. It might crush a lot of people, but it would decrease prices overall. And the middle class (people with real trade skills) would reap a lot of the benefit. Wage would be a matter of supply and demand (just like it is anyway, for anyone making above the minimum wage).

It's really basic micro.

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Speed
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Of course, the dumbness goes both ways. I just heard a pro-minimum wage senator on the radio explain how raising the minimum wage would automatically decrease unemployment, increase GDP, and improve quality of life for everyone with no possibility of any adverse effects.

Which of course raises the question of why he was only pushing for a minimum wage of around $10/hr. If increasing minimum wage is so foolproof, we ought to set it at $500,000/hr. Then everyone in the country can work for a week and retire, leaving our nation as a fiscally solvent paradise for generations to come.

[ July 11, 2012, 02:23 PM: Message edited by: Speed ]

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Orincoro
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I'ts a really basic oversimplification. The protections put in place for the working class ensure upward mobility. If you keep education cheap, and base wages as high as they can be without killing off competitiveness, you promote ascendence to middle class and increase the consumer base. This is demonstrably what happened following WW2 in America- your test case is what happened before that: a small middle class, poor upward mobility, and gross abuse of the rights of workers, and unfathomable degradations to human dignity in the persuit of wealth. It's no accident that 5 of the 20 richest people who ever lived were born in the 1850's- they enjoyed such a marketplace for labor, and the rest of society payed for that.

Falling prices and falling wages is not the road to a healthy middle class, it is the road to a shrinking middle class- a trend that divides those who can accumulate wealth, and those at the lower rung of middle class society, who find that their jobs are made reduntant by technological advances, and are never replaced. The fact that the minimum wage has not kept pace with inflation, and that the relative buying power of the middle class has diminished since it was instituted, is proof of the trend.

There's nothing basic about this. It's tortuously complex stuff. It is woven together with tax rates, education spending, housing markets, industry regulation, and trade policy. Over the last 30 years we've seen wages for the lower 80% decrease. We've seen the lower middle class fall away completely. We've seen the upper brackets of wage earners increase their wages at a rate often hundreds of times faster than the average. These are all signs that the paradigm is not working. The solution you present is upping the dosage of the poison that is killing slowly- chasing a 5 year economic gain at the cost of social stability. It's this kind of thinking that will ruin our country- not save it.

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kmbboots
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Speed, that is a rather silly piece of reasoning.

If a person drinks 1 glass of water a day and a doctor says that he should be drinking 6 glasses a day do we contradict him by saying that a million glasses of water a day would drown him?

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Orincoro
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quote:
Originally posted by Speed:
Of course, the dumbness goes both ways. I just heard a pro-minimum wage senator on the radio explain how raising the minimum wage would automatically decrease unemployment, increase GDP, and improve quality of life for everyone with no possibility of any adverse effects.

Which of course raises the question of why he was only pushing for a minimum wage of around $10/hr. If increasing minimum wage is so great, we ought to set it at $500,000/hr. Then everyone in the country can work for a week and retire, leaving our country as a fiscally solvent paradise for generations to come. Who can argue with that?

I don't see where an appeal to incredulity is warranted. Now, if he really said *no* consequences, that's one thing. It's just a lie. But if he said no *adverse* consequences? It's arguable. The truth is, there is plenty of good evidence that most of that is true. There are always consequences, but on a societal level, an upward shift at the bottom, especially one of such a degree, would not really be a bad thing. It would have to be an increment, and not an abrupt shift- let me explain.

Let's imagine that today the minimum wage is 9 dollars. An act of congress raises that wage to 10. There will be a few consequences. In service jobs, such as grocery stores, coffee shops, restaurants, etc, prices cannot suddenly jump 10% across the board to cancel the difference in earning potential per employee. And in the typical workplace, layoffs will not be justified by a 10% increase in labor costs for any business employing a less than a large number of people. The savings would not offset the cost of loss in productivity if you fired 1 out of 10 workers- you'd be operating at 90% of your previous capacity for the same costs. Instead, what happens is that labor is shifted *a little*, and maybe a few people get laid off, and consumer prices are shifted *a little*, but not enough to kill off business. You can't suddenly raise the price of a latte by 10% and expect to retain your whole customer base. But you can increase the price by 3%, and decrease your staffing by 5%.

Now a few interesting things have happened. You have a larger percentage of the working class employed at a wage which captures a larger amount of the marketshare of the service sector. That is, you have more people working at Starbucks, as an example, who are in a *better* position to buy a latte for themselves. They have enjoyed a 10% bump, and the prices only rose 3%. Now Starbucks might have *more* customers, in a rational economic system, than they had previously. With the increase in customer base, Starbucks may hire *back* a few more of those workers that they laid off. And with a little more money in the hands of the working class, other business find customers where they wouldn't have found them before, and they may also hire new people to fill needed positions.

Now, at the same time, Starbucks has taken a hit in corporate profits in the short term. Their shareholders and their CEO haven't seen much of a bump. In a rational system, they aren't supposed to see one. In a rational system, where the company cannot influence labor protection law through lobbying and other practices, the company is forced to increase the quality of its products or stream-line and expand production to increase volume and revenue. It is the irrational system that closes 10% of its locations and gives a multi-million dollar bonus to the CEO (which does happen)- because the long term revenues of that business are going to decrease, even if the short term profit potential has been boosted.


I see one central misapprehension here, perpetrated by Aros, but echoed also with Speed. It's the idea that *falling* prices are *good,* for consumers. These lower prices, one surmises, are primarily to be gained by employing a less skilled workforce at a lower wage. That's not accurate. Falling consumer prices is *bad* for a few reasons. The most basic reason is deflation. If prices fall across the board (that is, if consumer dollars buy more products regardless of quality), what quickly happens is that there is less and less revenue in the system, and employment goes down. As less and less money moves in the system, prices drop even faster to capture the lower value consumption that can be captured- the end result is economic collapse, if nothing intervenes in this cycle. People ultimately stop participating in the market at all- since prices are dropping faster and faster. (As an example, this is the precise reason that Apple releases products on a schedule that stretches for as long as possible- for the prices they ask, it would be foolish of them to offer upgrades that devalue their own existing products and discourage consumption upon release of new products, in anticipation of future releases).

No, what you want is for prices to increase *slowly*. The most positive economic trend is a minimum wage that, over time, captures a purchasing power closer and closer to the middle. The closer to the middle a person's purchasing power is, the more upwardly mobile that person becomes. Given plentiful enough resources or sufficient advances in technology, and there remains virtually no working class at all. You get a system like Norway, where nobody lives on the poverty line anymore, because even the lowest level of purchasing power buys a comfortable lifestyle.

[ July 11, 2012, 02:52 PM: Message edited by: Orincoro ]

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Geraine
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Debt also plays a huge part of money ending up in the pockets of others.

Some interesting statistics I found on creditcards.com:


-In 2004, of those with credit cards, 84 percent of African-American households carried credit card debt compared with 54 percent of white households.

-Over 90 percent of African-American families earning between $10,000 and $24,999 had credit card debt.

-The average credit cardholder has 3.5 credit cards. Including both cardholders and non-cardholders, the average consumer has 2.7 cards each.

-In 2006, the United States Census Bureau determined that there were nearly 1.5 billion credit cards in use in the U.S. A stack of all those credit cards would reach more than 70 miles into space -- and be almost as tall as 13 Mount Everests.

I honestly don't think there is anything more destructive to the lower and middle class than credit.

We all want a huge TV and an awesome cell phone, car, bike, etc, but we don't have patience anymore. We live in a fast paced society, and because of that we want a fast reward. We may not have enough money to buy that 55" HD TV, but someone is willing to give it to us without paying anything out of pocket, as long as we promise to pay them back over the next few years.

So people in lower and middle class households run up their credit card debt so they have a higher standard of living. They may not have a problem paying the minimum payment, but if something happens to them and they lose their job, they are often forced into bankruptcy or stuck paying insane interest rates or have their wages garnished.

I believe I have mentioned before I work for a large payroll company as an HR consultant. Back in 2007 most of the garnishments I saw come in were child support related. Over the past five years I have seen a HUGE increase in garnishments from short term lenders. Someone needs a little extra money, so they take out a $500 loan from the check cashing store and then when they get paid from their job they can't afford to pay back the lender. That $500 loan turns into $3,000 after interest, fees, attorney, and court fees. Most of these people are making under $15 an hour.

The easy access of credit is (in my opinion) the biggest enemy right now to the poor and middle class. Rather than teaching people how to save, we are only teaching how to spend. Someone can walk into almost any department store and sign up for their special credit card. The reason they give people so many good deals (Kohl's for example gives you 15% off all purchases!) is because they are going to make a lot more off of that person in interest.

If we could change the mentality of people that saving for something is better in the long run than instant gratification, the problem with money trickling up wouldn't be as much of a problem.

(Sorry for the long post)

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Orincoro
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Sure, the problem is not systemic. It's that black... I mean poor people are irresponsible with their money. Sorry to sound dismissive. Well... not exactly sorry. I find it unfortunate that this is your primary focus. It is misplaced.
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King of Men
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There is no monopoly on capital. Anyone can get some.
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Rakeesh
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It's my understanding that credit is one of the key ingredients to a vibrant economy with mobility throughout-so the problem isn't the access to credit, it's the abundance of access to bad credit-or rather credit that benefits the lender quite a big more than the borrower.

That's a problem. It puts a real ding in the ability of us as a whole to have mobility. And let's face it, the appearance of cheap, easy, fast money is going to be a pretty easy sell among precisely those people who are likely to be harmed the most by it, and for the same reason: the appeal of $500 within a couple of weeks or even less is a powerful pull when you make 20k/year.

Teaching people to save is great. It would also be helpful, if you're aiming for reducing this problem, to compel lenders to be clear in plain language on the first page of the paperwork, rather than the tenth in densely packed legal speak.

But then, it's well known who stands in the way of programs designed to stop the latter and the former, largely (I think) because 'we need to teach saving' is an effective, common sense sound bite...and besides, it's mostly not our problem anyway.

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Rakeesh
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I mean, for example, take a look at payday loans and pawn shops-both of whom (sometimes in the same building) offer the same kind of credit you describe, Geraine-that is, loans which are seriously profitable to the lender and seriously harmful-even if paid!-to the borrower. Lots of people still use them, but they're not nearly as common as other forms of predatory lending.

Why is that? Well, I really am curious if anyone has a knowledgeable answer, but I suspect that if they key reason for the problem you describe were financial irresponsibility alone, Geraine, they'd be much more common. But they're not, because in those sorts of loans, the penalty is not only mentioned plainly up front, but it happens fast. And most people are thoroughly familiar, not just as concepts but as reality, of both.

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Orincoro
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I find the pawn business to be entirely honest n comparison with the credit card business. They take what they want from you up front. And they make few bones about the fact that what you're getting is less than it's worth. Plus, your debt doesn't compound interest. You just lose collateral. Very strait forward stuff.
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Darth_Mauve
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Credit costs leads back to this idea of Monopoly of Capital. As more and more of this resource is held in the hands of fewer and fewer, the cost of that resource escalates. The cost of obtaining capital via Credit Cards, Pay Day Loans, and other loan agencies such as Rent-To-Own places and even Pawn Shops are more and more expensive.
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