Monetary Realism

Understanding The Modern Monetary System…

Repeat After MR: Businesses Hire when they are Swamped with Demand

Josh Brown – a very smart and funny person – lays it out so even Forbes magazine can understand what is happening to the U.S.:

Well, you enormous fucking idiots, you fired all your customers. You’ve spent the last decade or so suppressing wage growth in the name of “creating shareholder value” and now even your shareholder base is disappearing.

You allowed wages to stagnate for a decade and made every decision you could in the service of nudging the quarterly profit higher, thinking less of the yearly profit and virtually nothing of the long-term viability of your business.

One hundred years ago, Henry Ford gave his employees an unasked for wage increase and, when asked why, he replied “How else will they be able to buy my cars?” [Bold Mine]

Wow. Corporate profits are extremely high, but CEO’s are still worried about customers coming into their doors. It’s because we do not have enough demand to fully use all of the resources we have at our disposal. We have a huge Aggregate Demand problem, and that’s what’s causing the miserable economic times.

(Update: added link to the Josh brown post.)

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  • http://tylerhealey.blogspot.com Tyler Healey

    Is lack of education also a problem? The unemployment rate is only four percent for Americans with at least a bachelor’s degree.

  • JGF

    Could you put a link to the story in the post? (Link below)

    http://www.thereformedbroker.com/2012/12/02/forget-fairness-lets-talk-about-stupidity/

  • Alex

    China’s middle class grew by 400 million in the last decade. The demand growth is there. That demand is creating a record number of billionnaires. When are you going to make products they can afford?

  • Alex

    The auto industry is a perfect example of how being worker driven instead of consumer driven destroys national industries. In the 80s, the USA introduced prohibitive tariffs on auto imports, so that American automobiles would been similarly priced to foreign autoparts. This was about a $1,500 more per vehicle advantage. Instead of passing those savings along to the consumer, domestic manufacturers chose to increase worker wages, thus pricing American automobiles out of all other markets. If you went to Thailand, or Senegal, you would see that virtually no autos on the road were American, and considering where the growth lay, the writing for the American automobile was on the wall. So Chrysler was sold to Daimler, then private equity. GM was nationalized. And parts and assembly were increasingly outsourced.

    Demand has not died, it is greater than it has ever been. China now purchases more cars annually than the USA and Japan combined, yet only 5% of households own automobiles. Demand is king. The _Consumer_ is king. And prioritizing workers over consumers is almost always fatal in a competitive environment against others equally skilled without such priorities.

    Economics fundamentally is not that difficult. There is a curve. Then there is another curve. Sometimes, if allowed, they intersect. If you offer your services for $10 if someone else is offering them for $5, you’re not going to do very much intersecting.

  • beowulf

    Tyler, a college degree is a signaling tool. It just tells employers a job candidate has the brains and (perhaps more importantly) the conscientiousness to complete a degree program. Smart, dependable employees (or at least those perceived as such) will always have a below-average unemployment rate.

    The trouble is without sufficient AD, more education in aggregate only gets you a better educated unemployment line. it wouldn’t matter if every adult had a bachelors degree, employers would just find another signaling tool (masters and doctorates I guess) to ration out the limited number of jobs they have.

  • Eryximachus

    Alex, you’re misunderstanding how international trade works. You’re also using a totally reductionist theory of human nature.

    Trading with China or any similarly foreign or barbaric country is suicide. Competing with slave labor is simply not something anyone in America or the West in general wishes to do, and why should they?

    The solution to globalism is nationalism. It always has been. Chinese like being slaves. Europeans do not. Forcing the two people to live on the same terms is simply impossible. Deal with it.

  • http://www.monetaryrealism.com Michael Sankowski

    Yes, this somehow got chopped off when I posted!

    Thanks!

  • http://www.monetaryrealism.com Michael Sankowski

    Take a look at this for more on how degrees are increasingly required for mundane jobs:

    https://twitter.com/MarkThoma/status/276146787432148993

  • Pierce Inverarity

    Totally simplistic. You realize China doesn’t allow its currency to float freely, right? We can’t compete in their domestic markets due to their currency manipulation and product quotas. If they allowed their currency to appreciate on the open market like they should, American goods would be far more affordable.

  • http://www.monetaryrealism.com Michael Sankowski

    China is about to lose even with the controlled currency.

    The U.S. crossed a huge level in Q3 2011. We are no longer more expensive than Chinese aluminum parts.

    See here: http://monetaryrealism.com/u-s-beating-china-on-price/

    I’ve seen it on the ground in the aluminum industry. They can’t make parts fast enough. It’s a boom time – a huge, huge boom.

  • beowulf

    Good for utilities, isn’t aluminum like the most energy intensive industry on the planet?

  • http://www.monetaryrealism.com Michael Sankowski

    It uses a truly massive amount of electricity in the refining process. Most aluminum refiners are located right next to hydro-electrical plants due to the massive energy requirements of the process.

    http://en.wikipedia.org/wiki/Hall%E2%80%93H%C3%A9roult_process