AdHocSolver
AdHocSolver's JournalThere is a simple solution to the lack of jobs: create demand for American-made goods.
The big problem is that most people's understanding of economics is based on "trickle-down economics".
This misunderstanding is due to the fact that most people are incapable of challenging the "experts".
The "experts" present statistics, charts, graphs, and tables to overwhelm the public in order to stifle any challenge to the nonsense that they spout.
How economies work is relatively easy to understand and very logical. It has nothing to do with capitalism.
Capitalism is NOT an economic system. It is a political system that determines what sector of a population has control of the economy and thus controls who benefits from the economy.
All economies operate the same way. All economies are driven by demand and supply.
Demand is where people have a desire to obtain particular goods and services and have the means to acquire those goods and services either through trade or by having the money to spend.
Supply is where people have the ability to supply those goods and services and are willing to make a trade for different goods and services or for money.
Demand and supply drive all economics. Profit does not drive the economy. Profit is only a measure of who gets the benefit of the economic activity.
There is no such economic category as "free trade". If there were really "free trade" as the corporate 1 percent continue to claim, then there would be plenty of good paying jobs in the U.S. Moreover, there would be plenty of good paying jobs in China.
There is only "corporate controlled" trade in which the largest corporations determine who produces what is manufactured, what prices and wages are paid, and who gets the "profit".
The trade is controlled politically through such so-called trade agreements as NAFTA and the proposed TPP.
So, what should be done to make new jobs in the U.S.?
Bring back manufacturing jobs to the U.S. by supporting policies that make American-made goods competitive. In other words, eliminate the trade deficit for the everyday goods that Americans buy.
Increase the minimum wage so that Americans can afford to buy what is manufactured in America.
No more corporate written trade agreements.
You cannot support an economy when the 99 percent have no money to spend beyond bare necessities.
All economies are demand driven.
Economic demand depends on a large number of people having money to spend and are willing to spend it.
If a large part of the population has to pay a large part of their income to pay down credit card debt and education loans, such that they have little discretionary disposable income to spend on goods and services, the economy will contract and companies will lay off workers.
Unemployed people have less money to spend further reducing demand for goods and services, leading to more lost jobs, ad nauseum.
The process starts with exporting jobs followed by large scale layoffs which then leads to a trade deficit in which money spent on goods and services leaves the country, which leads to a large trade deficit paid for by borrowing money, etc., etc.
The stock market has become little more than a giant Ponzi scheme designed to separate the 99 percent from their money.
The "global economy" is headed, not for a recession, but a "global depression" guaranteed to occur if governments are hamstrung by the passage of the TPP and its European cousin.
PS: If the "global economy" collapses, the 1 percent winds up with all of the global assets and control of the worlds economic activity. It is the conclusion to the game called Monopoly.
Wisconsin governor Walker displays his foreign polcy credentials.
Walker not only cheated Talgo out of the money owed for the trains they built for the state of Wisconsin, he cheated the citizens of Wisconsin out of approximately $820,000,000 from the federal government for the beginning of a high speed rail system that would have created jobs and increased state revenue without raising taxes on current residents.
This increased tax revenue from new jobs and businesses would have substantially reduced, if not eliminated, the state deficits without costing the citizens of Wisconsin one extra dime.
Moreover, a portion of the $820,000,000 refused by Walker would have come from the Federal taxes paid by Wisconsinites being returned to Wisconsin to create jobs in Wisconsin.
So, in spite of these and other examples of fiscal, financial, and legal malfeasance, the voters in Wisconsin elected him twice.
Since being reelected, Walker has begun implementing his plan to gut education. Evidently, Walker believes that this will provide incentives for businesses to relocate to Wisconsin.
While recent American political history has shown that incompetence and stupidity are not necessarily a hindrance, why should one believe that foreign businesses would be eager to do business with the likes of Walker?
There are two sets of interest rates involved here.
There is the interest paid to savers, that is, interest paid to depositors who put money into interest bearing accounts.
The bank pays depositors for the use of the depositors' money, which is then used to lend to borrowers.
On the other hand, there is the interest charged by the bank to borrowers. The banks don't lend "their own money" to borrowers, but in fact are lending depositors' money to borrowers. The diffence between what the bank pays to depositors for the use of the depositors' money, and what the bank charges borrowers that they lend it to is essentially a fee to borrowers and provides the bank with its profits.
The Federal Reserve sets both types of interest rates through a jumble of arcane monetary manipulations. Currently, the interest rates on deposits is around 0.1 percent (or .001), while interest on credit card balances is around 14 percent. This constitutes a "spread" of 14 percent / 0.1 percent = .14 / .001 = 140 times. Not too many years ago, bank savings deposits were paid 2 or 3 percent interest for a spread of, for example, .14 / .02 = 7 times.
In effect, these days, if middle class credit card users aren't paying off their credit card balances quickly, they are paying the banks usurious rates to borrow their own money.
The interest rates that the Fed traditionally raised were the rates charged to borrowers. They used to allow interest rates paid on deposits to rise as an excuse for raising the rates on borrowers, but recent history has shown that there is no penalty for cheating depositors.
The real reason for the Fed raising interest rates on borrowers was to strangle the economy when it approached full, or near full, employment. Full employment means that employers have to offer higher wages and better working conditions to attract a smaller pool of unemployed people.
With governments promoting higher minimum wages, and a smaller pool of desperate job seekers, the plutocrats are looking to the Fed to perform its traditional role of strangling the economy.
To improve the economy, two interest rates should be adjusted. Interest paid to depositors (savers) should be raised so at least to approximate inflation, and interest charged on credit card balances and student loans should be lowered so that the middle class can afford to spend more on goods and services, thereby contributing to the economy, rather than just providing the banks with huge profits.
Professor Wolff is referring to the interest rates charged to borrowers. My comments referred to both sets of interest rates. However, I didn't explain with enough detail. I hope this post helps.
Prof. Wolff's advice about how the Fed should deal with interest rates is wrong.
The low interest rates on bank deposits is depleting the assets of middle class savers due to the relatively high, but purposely hidden, inflation rate.
Meanwhile, the high interest rates charged to middle class borrowers, especially the 14 percent and more charged on credit card balances, is destroying the purchasing power of the same middle class.
To help the middle class and boost the economy, what the Fed should be doing is raising the interest rates paid to depositors and substantially reducing the rates charged on credit card balances and student loans, so that the middle class can have more money to spend on goods and services and can afford more education. This is basic economics logic.
The Fed's policy is taking money away from the middle class and giving it to the banks. This does not help the middle class or the economy.
The Federal Reserve is NOT an unbiased third party working for the benefit of the country. It is owned by the banks and works entirely for the benefit of the banks. and Wall Street
There are economic principles that explain how economies function.
However, you won't understand economics from listening to 95 percent of professional economists, nor will you learn how the middle class is purposely being destroyed by the wealthy class (the 1 percent).
The economic "measures", the charts and graphs, the meaningless terms and definitions, such as "free trade", and "free markets", and "global economy," are all designed, not to instruct and inform, but to confuse the masses and obscure the issues.
The U.S. is no longer a capitalist democracy, but a plutocracy with a centrally planned economy (by an oligarchy), where "competition", a key operating factor in a viable capitalist system, is quickly becoming irrelevant and nonexistent.
The first factor to understand is that merely increasing their wealth by stealing the assets of the middle class is not the primary goal of the wealthy. It is a means to an end, the goal being to crush and eliminate the middle class as an alternative center of power to the plutocracy. This is why the right wing is attacking the unions so vociferously.
The key to creating wealth is in manufacturing. The key to controlling wealth is in the control of trade.
The U.S. economy will NOT recover until a majority of the goods that Americans buy are made in the U.S. by American labor. Period!
This will only happen when Americans demand that American made goods are offered for sale in large quantities at competitive prices, and refuse to buy imported goods at artificially inflated prices.
Moreover, the stock market only measures how well the plutocracy is succeeding. It does not measure the well-being of the economy or the middle class. (The stock market as a measure of the economy only has meaning if you accept "trickle-down economics" as valid -- which it is NOT.)
The public welfare also must account for inflation of which there has been a significant amount. Prices of necessities, such as food, have increased significantly in the past 10 years. For example, tomatoes, which used to be priced at around 49 cents a pound, now cost about $2.00 a pound, and they are imported from Mexico.
The purpose of my post was to explain how the economy is rigged in favor of Wall Street...
...and against Main Street.
I have a degree in Economics, not Banking, although I worked for a bank several years ago.
I find it upsetting that basic economic issues, which can be explained in terms that almost anyone can understand, are almost universally obscured by those who even bother to comment on economic issues.
Just like the tables, charts, and graphs that people post here on the stock market, deficits, employment and unemployment figures, GDP, and interest rates do NOT explain the economic reality of why the wealthy are getting wealthier at the expense of everyone else, the charts, graphs, and tables, besides being irrelevant, totally obscure the economic mechanisms at work and give one a headache.
The links you provided to the Fed, WSJ, and Bloomberg are not going to provide anyone information about how Wall Street is stealing from Main Street.
Moreover, Wall Street and the banks know damn well how they are destroying the middle class.
Notice the spread between what the banks pay depositors and what they charge for loans.
Borrowers in China are charged only 5.35 percent for the a one year loan while depositors receive 2.50 percent interest on their one year deposits.
This amounts to a "spread" between what the bank charges borrowers and what it pays depositors of .0535/.0250 = 2.14.
In the U.S., banks pay depositors about 0.10 interest on comparable deposits, while charging 14 percent or more on credit card balances. This amounts to a spread of 0.14/0.001 = 140.
Since the group of people who have savings deposits are largely the same people who borrow money to make purchases, what the Chinese are doing is essentially to increase the money supply to consumers to increase their economy, that is, increase spending.
Therefore, China is taking appropriate action to spur their economy.
U.S. policy, as practiced by the Federal Reserve (a wholly owned subsidiary of wall Street), is to pay practically nothing to depositors for the banks' use of depositors' assets, while charging usurious rates to short term borrowers who use their credit cards and aren't able to pay off their balances within the grace period.
The end result is that the banks siphon spending money away from consumers who would have more money to spend on goods and services if they weren't paying so much on bank interest.
It gets worse. Austerity measures promoted by the banks and Wall Street further siphons money away from governments which could increase economic activity by spending money on infrastructure and education.
Allowing offshore tax havens and reducing taxes on the rich removes money from the middle and working classes since governments either have to reduce spending or borrow the money from the wealthy (those who have it to lend) to pay the wealthy for the funds that they would normally get merely by taxing the rich.
To summarize, China is taking appropriate action to help their economy, by providing low cost funding to their people to increase spending.
U.S. policy, dictated by Wall Street and the large banks, and carried out by the Fed and right-wing conservatives in government, is designed to stall the U.S. economy by taking money away from those who would spend it productively.
This is the reality of the U.S. economy and of the so-called "global" economy.
This is the "big picture". The little ups and downs in the stock market and the unemployment rate, and the phony low-balled inflation rate, are irrelevant to what is being done to the world's economies. Even raising the minimum wage, while it is long overdo, and will help individuals affected by it, won't prevent a global economic collapse which is the GOAL of the oligarchy. Then they will OWN everything.
At first, I was merely amused by your fairy tale economics theories.
However, I have to respond with a dose of reality to the last paragraph in your post.
You said:
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"Well, sure, that's one of my motives. The American left has magical thinking about manufacturing employment that is counterproductive, so I argue against it. Manufacturing is no different from agriculture, extraction, or services: all of them add value, and we need to pay the people who do all of them more than we do now."
**********
The principal source of gaining wealth is through trade. The principal method for spreading the wealth for a large number of people in a given population is by manufacturing goods and trading those goods with other groups.
Japan is an example of a country with limited resources. It developed into a wealthy country by manufacturing and trading goods with other countries. The wealth is widely distributed among the population.
Saudi Arabia is a wealthy country whose economy is based predominantly on the extraction of oil. The wealth is concentrated largely in the hands of a "royal" family and their followers. The rest of the population, not so much.
China is another example of a country that is expanding its wealth through manufacturing. It has a large population, and the wealth is spreading throughout the population, as can be seen through the fact of its growing middle class.
In fact, the corporations are looking at China, with its growing middle class, as an area of expanding markets.
One of the aims of the TPP is to prevent any competitors from entering the U.S. markets and taking market share away from the corporations that currently control it.
The TPP is NOT a "free trade" agreement. On the contrary, it is a treaty to prevent competition
Most of the goods that we buy are manufactured in low wage countries such as china.
Most of the everyday goods purchased by Americans are manufactured in whole or in part in low wage countries including, but not limited to, clothing, shoes, electronics, (computers, calculators, TVs, telephones, and more) electrical goods, appliances, hardware, tools, furniture, auto parts, pens, pencils, books, and more.
Actually, the sheer quantity of goods that are imported, goods which used to be manufactured in the U.S., belies your contention that "we manufacture more today than at any point in US history."
The huge trade deficit that the U.S. has with China, and the hoarding of profits by the corporations in overseas tax havens, is going to collapse the U.S. economy.
The TPP will only hasten that collapse.
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