quote:

Originally posted by wolverine16 I say we raise tariffs on a lot of products and give small businesses incentives to help pay for an increase in the minimum wage.

Raise tariffs... on a lot of products... Holy shit bro. Lets just knock our economy back a few decades. When you suggest such moves all you do is artifically distort markets.. Taking economic surpluses away from consumers and put them into the hands of small business. In doing this you displace untold amounts of workers and provide incentive for these workers to be employeed in industry where the country has a clear-cut comparative DISadvantage in producing those goods or services. All you do in such cases is shift money/wealth into different sectors of the economy in an inefficient manner.

The beleifs that artificial economic intervention actually works, outside the boundries of when market failures have occured, are formed merely on oldskool social/political beliefs that have NO basis in todays modern economy. Such views are based on short-term evaluations of the situation and blatantly ignore the fact that we are holding or OWN futures back in the long-run. Lets not make the same mistakes that our predecessors made when it came to economic reform and leave our future generations with the exact same problems that we face today.

Economics science is exactly that.. It's a science. One of logic and mathematical precision... Have faith in it.

quote:

Originally posted by wolverine16 outside competition at the bottom end sets an unrealistic wage for unskilled workers, who have the only alternatives of being unemployed or gaining skills to compete for higher level positions. The latter essentially drives down the wages offered for more skilled positions, as more people compete over the same jobs.

I'm not sure if you wanted it to come across like this, but you're making it sound like attaining an education is a bad thing, because it drives the competitive wage down. If anything we should be pushing for more people to get an education.

I'll give you a link to read up on the macroeconomic theory of economic growth (developed my Nobel Prize winner Robert Solow) on the impacts of education (Solow, and follow up researchers like Romer, models will treat 'education' as 'human capital') on the economy. Solow actually won the Nobel prize for this work, and it has been the cornerstone for economic growth research ever since (I quoted much of his work when writing my Thesis)

This link is a simple introduction to the model (just to get you started) without incorporating education into it:

The Solow model

adding the effects of education/human capital into the model we get:

Romers Endogenous Growth Model (an extension of Solow)

These links dont include any mathematics (for the sake of simplicity) and are simple as I could find. Most of this stuff is fairly advanced economics and is seen in 2-3rd year university.

Essentially, what I'm trying to say is that education is the ONLY way forward.

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Originally posted by Dupz Raise tariffs... on a lot of products... Holy shit bro. Lets just knock our economy back a few decades. When you suggest such moves all you do is artifically distort markets.. Taking economic surpluses away from consumers and put them into the hands of small business.

Sorry if I sound like an ass, but the quick glance I took at your post makes it sound like you don't understand what a tariff is, a tax on something coming IN to our country (versus excise taxes on things going OUT). Maybe I didn't read it right, but I thought I should clarify just in case.

Anyway, I think he was trying to say that tariffs should be raised on things such as cars, to make it more attractive to by US automobiles rather than Japanese ones. That way the money spent would stay in the US and benefit US industry and workers. It'd be a good way to make the US more competitive versus countries that have really cheap labor.

Don't hold your breath on that ever happening though. Many southeast Asian countries are the ones financing out deficits, and they'd dump their reserves of our dollars in a heartbeat if we tried doing it, and them doing so would send our economy into another great depression that would make the Great Depression of the 30's look small in comparison.

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quote:

Originally posted by DJMaytag Sorry if I sound like an ass, but the quick glance I took at your post makes it sound like you don't understand what a tariff is, a tax on something coming IN to our country (versus excise taxes on things going OUT). Maybe I didn't read it right, but I thought I should clarify just in case.

No offence taken mate, it's all good . Rest assured though, I wrote my reply exactly how I intended. Tariffs are bad for even the domestic economy (as well as the economy that's exporting stuff to your country, obviously). There is a redistribution of economic surplus AWAY from the consumer, and given TO the producer. However, the loss of consumer surplus is ALWAYS greater than the gain by producers because of the existence of a what is called "dead weight losses". The economic impact of tariffs is show in a simple example, below:



To explain, we see that domestic production of the good increases from Q1 to Q2. yay for domestic producers. The quantity of the foreign good decreases from Q4 to Q3. boo for foreign producers. We have an increase in government revenue equal to the red-shaded area. BUT we have created a dead weight loss equal to the two triangles either side of the red-shaded rectangle (the triangles ACE and BDF). It is the existence of this that proves that the loss to consumers is ALWAYS greater than the gain to consumers, leaving society worse off.

The following link will give you an explanation of this (in plain english, without the economic jargon):
The Economics Effects of Tariffs

quote:

Anyway, I think he was trying to say that tariffs should be raised on things such as cars, to make it more attractive to by US automobiles rather than Japanese ones. That way the money spent would stay in the US and benefit US industry and workers. It'd be a good way to make the US more competitive versus countries that have really cheap labor.

The auto industry (in any given country) behaves in a very similar manner. But rather than making the domestic market more competitive against cheaper foreign substitutes it will provide for a business environment that promotes the exact opposite. With the tariffs in place the domestic market is kept on-par (artificially) with the foreign producer and removes any incentive to 'catch up' with their foreign competitors. I dont mean 'catching up' in terms of dropping wages to those similar of the foreign producers, but it also removes incentive to produce higher quality produces.

Edit:
Just quickly, the link I added just before notes an interesting point. The World Bank estimates that if all barriers to trade such as tariffs were eliminated, the global economy would expand by 830 billion dollars by 2015. There's something to think about..

Whoa, hold on here! Here's what I'm discussing: Many here are arguing that the market sets wages at a fair price and a minimum wage should not be set. I find it difficult to see that someone working full time at $5.15 an hour, or even less if you eliminate minimum wage, with no annual increase to meet inflation is a decent amount for the work they put in and certainly not enough to support a family. I would argue that the same way it is being claimed that the minimum wage sets an artificially high wage, global trade with no labor standards and trade agreements life NAFTA set an artifically low wage for many production jobs that Americans cannot compete with.

Now since it is apparent that many disagree with providing citizens with national programs that ensure a minimum quality of life for these unemployed and underemployed Americans in the marketplace I am saying that we need more American jobs at reasonable wages to provide these people with the opportunity to earn these things themselves. The reality is we have a minute number of production and industrial jobs left in this country and I believe that in certain, but not all, instances tariffs along with business incentives should be used to help increase American jobs and diversify our economy. Does this set artificial domestic prices? Certainly, but in industries where there is a large trade gap and we have little domestic production. You're right it would make no sense to simply instantaneously install them, as was tried with steel several years ago, but we pull back somewhat as we renegotiate trade agreements and provide for more American employment.

The World Bank numbers mentioned before, who exactly those dollars are going to? Many of the countries, particularly in Africa, that World Bank has implemented its strategies in are actually in worse condition in terms of citizens' wages than when they began, even though technically trade was increased. NAFTA has made lots of money for many companies, but average Americans lose out, because production work leaves and the foreign workers who gain jobs don't make enough that it helps bring up their own country's economy. So while, yes, technically money is made through free trade as it is, American workers don't gain much of it and more Americans compete for service jobs. There is currently fast track legislation to spread NAFTA to Central America, so if tariffs are argued to be bad, CAFTA will be even worse for average Americans, because they will be competing with even more lower wage workers with labor standards lower than would ever be allowed here. With trade agreements like this, along with others, such as our MFN agreements with China, which also features large trade deficits, how is the market setting a fair wage for American workers at the lower end that provides for these workers' families to live above the poverty line self sufficiently?

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quote:

Originally posted by Dupz No offence taken mate, it's all good . Rest assured though, I wrote my reply exactly how I intended. Tariffs are bad for even the domestic economy (as well as the economy that's exporting stuff to your country, obviously). There is a redistribution of economic surplus AWAY from the consumer, and given TO the producer. However, the loss of consumer surplus is ALWAYS greater than the gain by producers because of the existence of a what is called "dead weight losses". The economic impact of tariffs is show in a simple example, below: To explain, we see that domestic production of the good increases from Q1 to Q2. yay for domestic producers. The quantity of the foreign good decreases from Q4 to Q3. boo for foreign producers. We have an increase in government revenue equal to the red-shaded area. BUT we have created a dead weight loss equal to the two triangles either side of the red-shaded rectangle (the triangles ACE and BDF). It is the existence of this that proves that the loss to consumers is ALWAYS greater than the gain to consumers, leaving society worse off. The following link will give you an explanation of this (in plain english, without the economic jargon): The Economics Effects of Tariffs The auto industry (in any given country) behaves in a very similar manner. But rather than making the domestic market more competitive against cheaper foreign substitutes it will provide for a business environment that promotes the exact opposite. With the tariffs in place the domestic market is kept on-par (artificially) with the foreign producer and removes any incentive to 'catch up' with their foreign competitors. I dont mean 'catching up' in terms of dropping wages to those similar of the foreign producers, but it also removes incentive to produce higher quality produces. Edit: Just quickly, the link I added just before notes an interesting point. The World Bank estimates that if all barriers to trade such as tariffs were eliminated, the global economy would expand by 830 billion dollars by 2015. There's something to think about..

Spot on. The primary role for government is to correct for market externalities. Tariffs and subsidies largely create inefficient markets. Next is fiscal and monetary policy to smooth the business cycle, but that's where the heavy debate ensues .

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Originally posted by wolverine16 Now since it is apparent that many disagree with providing citizens with national programs that ensure a minimum quality of life for these unemployed and underemployed Americans in the marketplace I am saying that we need more American jobs at reasonable wages to provide these people with the opportunity to earn these things themselves. The reality is we have a minute number of production and industrial jobs left in this country and I believe that in certain, but not all, instances tariffs along with business incentives should be used to help increase American jobs and diversify our economy.

Tariffs and subsidies are only economically efficient/warranted provided extraneous circumstances dictate that a temporary market intervention is required. One example is an underdeveloped industry that requires protections to give it some time to develop into a truly independant, competitive industry. Artificially sustaining inefficient American industries are ultimately counterprodoctive to the country and the global economy as a whole. Sometimes the labor force NEEDS to adjust in order to become more competitive to the global marketplace for goods. At least Greg Mankiw had the balls to speak his mind when he said outsourcing was ultiamtely good for the country. Too bad he had them cut off by the Bush administration for being "politically insensitive".

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But how is an American industry inefficient if it is not competing not because of quality, but because of substandard working conditions and wages that are offered elsewhere? Also how is it good for us to have an entirely service-based economy and how do people at the lower end stay above the poverty line at minimum wage jobs in jeopardy of also being cut with the expansion of such trade agreements, along with a lack of available resources to become competitive in other industries?

Edit: Also, I should add that my economic ideology is driven greatly in by a belief that the economy is driven better by the demand of consumers, not by supply. The more Americans with employment and money to spend at the lower end, the more spending that occurs within the domestic marketplace, which is good for both workers and companies alike. Trade where the supply side is provided by people outside the consumer base, such as that with China and Mexico helps companies keep down costs, allowing them to provide their products at lower prices and make profits, but also collectively this takes away from the number of available consumers able to afford their products.

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Last edited by wolverine16 on Mar-22-2005 at 07:53

quote:

Originally posted by wolverine16 Whoa, hold on here! Here's what I'm discussing: Many here are arguing that the market sets wages at a fair price and a minimum wage should not be set. I find it difficult to see that someone working full time at $5.15 an hour, or even less if you eliminate minimum wage, with no annual increase to meet inflation is a decent amount for the work they put in and certainly not enough to support a family. I would argue that the same way it is being claimed that the minimum wage sets an artificially high wage, global trade with no labor standards and trade agreements life NAFTA set an artifically low wage for many production jobs that Americans cannot compete with. Now since it is apparent that many disagree with providing citizens with national programs that ensure a minimum quality of life for these unemployed and underemployed Americans in the marketplace I am saying that we need more American jobs at reasonable wages to provide these people with the opportunity to earn these things themselves. The reality is we have a minute number of production and industrial jobs left in this country and I believe that in certain, but not all, instances tariffs along with business incentives should be used to help increase American jobs and diversify our economy. Does this set artificial domestic prices? Certainly, but in industries where there is a large trade gap and we have little domestic production. You're right it would make no sense to simply instantaneously install them, as was tried with steel several years ago, but we pull back somewhat as we renegotiate trade agreements and provide for more American employment. The World Bank numbers mentioned before, who exactly those dollars are going to? Many of the countries, particularly in Africa, that World Bank has implemented its strategies in are actually in worse condition in terms of citizens' wages than when they began, even though technically trade was increased. NAFTA has made lots of money for many companies, but average Americans lose out, because production work leaves and the foreign workers who gain jobs don't make enough that it helps bring up their own country's economy. So while, yes, technically money is made through free trade as it is, American workers don't gain much of it and more Americans compete for service jobs. There is currently fast track legislation to spread NAFTA to Central America, so if tariffs are argued to be bad, CAFTA will be even worse for average Americans, because they will be competing with even more lower wage workers with labor standards lower than would ever be allowed here. With trade agreements like this, along with others, such as our MFN agreements with China, which also features large trade deficits, how is the market setting a fair wage for American workers at the lower end that provides for these workers' families to live above the poverty line self sufficiently?

Just a question before I reply. Have you ever studied economics?

Okay then, NAFTA or any other free trade agreement is not 'artificial' in the sense that it creates lower wages for unskilled workers. Regardless of what the wage is, that is the market rate and is not artificial at all.

I'm also assuming that you didnt read the Solow and Romer links that I posted earlier, gathering from your suggestions that Americans competing for services jobs being bad, so I'm not going to rebut any further.

I actually do agree with you on one thing though and that has to do with labour standards. Yes, I completely agree that workers are entitled to work under safe conditions etc etc, but I dont agree that these workers should receive a free ride on the backs of minimum wages. You point out the fact that average workers have much to gain from minimum wages. The following graph refutes that to some extent, suggesting that minimum wages actually create unemployment.



Source:
http://www.swlearning.com/economics...se_minimum.html

If we increase the wage from the free market level of W* to Wmin then we put Ls-Ld workers out of a job. Again, the vast majority of labour markets behave in such a manner (although there are some exceptions, which are discussed in the link above, and actually provide basis where a minimum wage would be economically efficient).

Very similarly to how tariffs impact on the economy we see that minimum wages merely have a redistribution effect within the economy, and the distortions they create have an impact on the entire economy that makes everyone aggregately worse off.

Just remember this, my friend, the benefits of market intervention are very clear for everyone to see. Thats is why governements in even the most democratic of societies can get away with distorting markets, but the costs of such actions are indeed hidden, and FAR outweigh any benefits that are seen on the surface.

quote:

Originally posted by wolverine16 But how is an American industry inefficient if it is not competing not because of quality, but because of substandard working conditions and wages that are offered elsewhere? Also how is it good for us to have an entirely service-based economy and how do people at the lower end stay above the poverty line at minimum wage jobs in jeopardy of also being cut with the expansion of such trade agreements, along with a lack of available resources to become competitive in other industries?

I can tell you why it is good for the economy to be 'service-based'. It's called specialisation in production. You specialise in the production of goods or services that you have a comparative advantage in over your foreign competitors. That includes industries that are labour intensive (ie. manufacturing and goods production). That is why we specialise in service industries, here in the western world, becuase that's what we're best at doing. Again, another link to look at discussing comparative advantage:

http://www.netmba.com/econ/micro/comparative-advantage/

The government needs to make sure that people at the lower end of the scale are taken care of in the short run (due to their displacement from NAFTA or eliminating minimum wages etc etc), and the government MUST also invest in these people to make sure that they're capable of entering the workforce in perhaps a service industry. In other words - EDUCATION. Education is all too underestimated nowadays, and it is the solution to all our problems in this thread (even if it is a longrun solution).

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Originally posted by occrider Spot on. The primary role for government is to correct for market externalities. Tariffs and subsidies largely create inefficient markets. Next is fiscal and monetary policy to smooth the business cycle, but that's where the heavy debate ensues .

I kinda gathered I wouldnt have to sway you to agree with me on these kind of issues

quote:

Originally posted by wolverine16 But how is an American industry inefficient if it is not competing not because of quality, but because of substandard working conditions and wages that are offered elsewhere? Also how is it good for us to have an entirely service-based economy and how do people at the lower end stay above the poverty line at minimum wage jobs in jeopardy of also being cut with the expansion of such trade agreements, along with a lack of available resources to become competitive in other industries?

Minor labor shocks are common in American business history. You didn't see a collapse of American industry as thousands lost their job to automation in the early 20th century. The steel and textile industry have long gone the way of the dodo before the whole outsourcing "scare" ... largely for the better. In such instances the labor market retools and acquires the job skills necessary to provide competitive products to the global economy that less developed nations have the ability to compete with. We saw this with the finance and consulting industry in the 80's/90's. If an industry is uncompetitive for whatever reason, it serves no purpose to artificially sustain it and perpetuate a market inefficiency. It simply depreciates the global economy. Look at the EU and US agriculture subsidies.

At any rate, you're creating artificial imbalances to support the few at the expense of the many. Look at steel tariffs for example, by raising tariffs on foreign imports you impact every US consumer of steel products in the country. What happens when these steel consumers are forced to buy more expensive steel? They then have to raise their prices. Then they have to compete with every other foreign competitor that has access to cheaper steel. And the vicious cycle goes on until you get to the final end product that the consumer shuns in favor of cheaper, foreign goods. The shocks perpetuate among a multitude of industries All this to help save a one relatively small inefficient industry, in the grander scheme of the economy as a whole, that will continue to be inefficient and perpetuate the imbalance.

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quote:

Originally posted by Dupz The government needs to make sure that people at the lower end of the scale are taken care of in the short run (due to their displacement from NAFTA or eliminating minimum wages etc etc), and the government MUST also invest in these people to make sure that they're capable of entering the workforce in perhaps a service industry. In other words - EDUCATION. Education is all too underestimated nowadays, and it is the solution to all our problems in this thread (even if it is a longrun solution).

See, here's where the confusion has been. I have been trying to make the point that you have many unskilled workers who don't have the education to compete with those who do. When this is the case, you need unskilled positions or else these people are in trouble. Under current conditions far too many people in the U.S. do not have the education to compete for service jobs and I'm under the impression that many people here do not think that greater access to higher education should be made available, therefore I was suggesting an alternative route to provide these people with employment. If you think that there should be an increase in educational resources in addition to expansion of the service economy, then we're not so far off on this and it greatly changes the debate.

I stil maintain though that it is ridiculous to expect someone to live off $5.15 an hour, or even less if there were no minimum wage. Maybe the market sets such a price and jobs are lost by setting such a wage, but it is nowhere near the poverty line and it is what many unskilled workers currently face as potentially their only option given current conditions. This is basically why I tend to favor more of the European economic models though and what I was trying to explain originally, as I believe the free market fails to provide a reasonable wage for many workers (e.g. the working poor) which is a growing segment of the U.S. population.

Also on a side note my comments that trade agreements such as NAFTA create artificial wage levels was regarding the unrealistic numbers they provide compared to what competition would be within the domestic marketplace between competing American workers.

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