U.S. Real Wages Still Declining

unlawflcombatnt · 11-03-2006 6:08am #1

Though nominal wages in the U.S. have increased 3.5% over the last year, when adjusted for inflation they have DECLINED 0.6%. January's real (inflation-adjusted) hourly wage was $8.18/hour (in 1982 dollars). This is a -0.6% change since January 2005's $8.23/hour. Worse still, this is a DECLINE of 1.1% since January 2004's $8.27/hour. This information can be found at the United States Bureau of Labor Statistics at http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0500000049.

Despite Bush Administration spin, American workers are losing ground. They're ability to purchase production through wages is steadily declining. Since consumer spending is 2/3 of all economic activity, this erosion in purchasing power spells trouble for our economy.

Over the last 2 years, American consumer spending increases have been sustained through increased borrowing alone. Home equity extraction for 2005 was $243 billion, according to Bloomberg News http://www.bloomberg.com/apps/news?pid=email_us&refer=home&sid=aE50ss.wrOM0

Home equity extraction would account for 63.3% of our economic growth in 2005. As such, home equity extraction could account for nearly all of the 66.7% (2/3) fraction attributable to consumer spending. Thus it is increased home equity extraction, not wages, that have maintained consumer spending, consumer demand, and GDP growth.

Consumer spending increases are necessary for continued economic growth. According to Bloomberg News, U.S. home equity extraction is expected to DECLINE $126 billion from $243 billion down to $117 billion in 2006. This would be a 52% decline, and a 52% decline in consumer spending power. This source of spending is nearly equal to all of our spending growth. With a 52% reduction in consumer spending power, spending would also decline 52%. If 2006 consumer spending remains 2/3 of of economic activity (and GDP), it would reduce our GDP growth by the same 52%. A 52% reduction in this year's 3.2% GDP growth would leave a 2006 GDP growth of only 1.54%.

Considering 2 straight years of declining real wages, there is no reason to think real wages will rise in 2006. As such, wages won't make up for the spending loss from decreased home equity extraction. Less consumer spending will result in less consumer production demand, less demand for workers to provide that production, and declining wages and employment as a result.

It definitely looks looks like the U.S. is in for a year of slower economic "growth." How much slower remains to be seen. With a December Durable Goods Order decline of 10%, the biggest decline in 5 years, the U.S. economy is not looking good.

unlawflcombatnt

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_________________
The economy needs balance between the "means of production" & "means of consumption."

ISAW · 11-03-2006 11:36am

unlawflcombatnt wrote:

snip

It definitely looks looks like the U.S. is in for a year of slower economic "growth." How much slower remains to be seen. With a December Durable Goods Order decline of 10%, the biggest decline in 5 years, the U.S. economy is not looking good.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

_________________
The economy needs balance between the "means of production" & "means of consumption."

Your quote says everything. So I ask what are the US producing?
I think Bush has fairly much destroyed a lot of the good work clinton did e.g. on national debt,balance of payments, perception of America abroad.

Nevertheless the US leads the world not only in military hardware but in all sorts of technology. Judging a country by its level of consumerism is false economy in my estimation. So what if you have a lot of consumers? What do they actually produce? also what is economic growth if it is based on consumers that produce nothing? Ireland has had about (I guess) 6 per cent average growth over a year since 1991. This was almost wholly because of exports which were technology based and also because of Foreign Direct Investment. Now the FDI is supported by US Dollars which are basically the money taken from US and other consumers and the layoffs of US workers and moving the operation offshore. Ireland is looking for the high tech high skill high pay jobs. Ireland itself is dumping a lot of the low paid jobs but the US even more so. I know a person who post(ed) to this forum who go on at length about how great Bush is. at the same time his family business is moving to Mexico and dropping US workers.

Ireland also has s problem of paying public sector workers and not benchmarking them. Many Unions think benchmarking is a handout but it is meant to involve increases in productivity. when did you last see a college lecturer showing you the increase in productivity from his colleagues? Or a Principal Officer in a governmnet department? Or a Vet in Argiculture? Or a pharmacisist? All these get State money.

The bigger problem in Ireland is that the young people can learn new skills and are prepared to do so. Many people of the 45-65 age group though did not get the education or grow up in that culture. They think the unions guarantee a "job for life". Many of them are functionally illiterate. They haven't a hope. and they are good workers and maybe have already contributer 35 -40 years of good work to Ireland. They may well end up like Paddy who dug ditches in London and New York so those at home in Ireland got fed.

But things are much worse in the US. and with a culture where everyone can get a gun I am not positive for the future there.

So what I am saying is.

1. consumerism isnt everytyhing.
2. Knowledge based exports are a more bankablee (but still finite) resourse and will also cause much misery to the have nots.
3. Both have problems but the ensueing cultural problems may be even worse.

samb · 11-03-2006 4:34pm

I read an article recently that said that the US will be a third world country in 20 years. A bit crazy yes, but only an exaggeration perhaps.
It is true that US companies still have great technology and patents etc, but what good will these companies be to Americans if they do not research and manufacture in America. The key in a fully Globalised economy will be providing an educated work-force, something that America is rapidly falling behind Europe and indeed India. Sure, you have a very well educated elite, in the best Universities in the World, but what about the average American. I think they will have serous problems when they must curtail thier consumer spending.

ronbyrne2005 · 11-03-2006 4:50pm

noam chomsky has been saying this for years, wages for the middle classes havent really risen since 1980's !! the top 10 percent have taken nearly all the increases in wealth in the economy.in the long run the us economy seems doomed and citizens may end up turning into a less capitalist society if things get worse.

ronbyrne2005 · 11-03-2006 5:03pm

unlawflcombatnt wrote:

Though nominal wages in the U.S. have increased 3.5% over the last year, when adjusted for inflation they have DECLINED 0.6%. January's real (inflation-adjusted) hourly wage was $8.18/hour (in 1982 dollars). This is a -0.6% change since January 2005's $8.23/hour. Worse still, this is a DECLINE of 1.1% since January 2004's $8.27/hour. This information can be found at the United States Bureau of Labor Statistics at http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0500000049.

Despite Bush Administration spin, American workers are losing ground. They're ability to purchase production through wages is steadily declining. Since consumer spending is 2/3 of all economic activity, this erosion in purchasing power spells trouble for our economy.

Over the last 2 years, American consumer spending increases have been sustained through increased borrowing alone. Home equity extraction for 2005 was $243 billion, according to Bloomberg News http://www.bloomberg.com/apps/news?pid=email_us&refer=home&sid=aE50ss.wrOM0

Home equity extraction would account for 63.3% of our economic growth in 2005. As such, home equity extraction could account for nearly all of the 66.7% (2/3) fraction attributable to consumer spending. Thus it is increased home equity extraction, not wages, that have maintained consumer spending, consumer demand, and GDP growth.

Consumer spending increases are necessary for continued economic growth. According to Bloomberg News, U.S. home equity extraction is expected to DECLINE $126 billion from $243 billion down to $117 billion in 2006. This would be a 52% decline, and a 52% decline in consumer spending power. This source of spending is nearly equal to all of our spending growth. With a 52% reduction in consumer spending power, spending would also decline 52%. If 2006 consumer spending remains 2/3 of of economic activity (and GDP), it would reduce our GDP growth by the same 52%. A 52% reduction in this year's 3.2% GDP growth would leave a 2006 GDP growth of only 1.54%.

Considering 2 straight years of declining real wages, there is no reason to think real wages will rise in 2006. As such, wages won't make up for the spending loss from decreased home equity extraction. Less consumer spending will result in less consumer production demand, less demand for workers to provide that production, and declining wages and employment as a result.

It definitely looks looks like the U.S. is in for a year of slower economic "growth." How much slower remains to be seen. With a December Durable Goods Order decline of 10%, the biggest decline in 5 years, the U.S. economy is not looking good.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

_________________
The economy needs balance between the "means of production" & "means of consumption."

economists expect businesses to increse spending this year on capital investment which should take the pressure off the consumer to drive gdp growth

ronbyrne2005 · 11-03-2006 5:16pm

ISAW wrote:

Your quote says everything. So I ask what are the US producing?
I think Bush has fairly much destroyed a lot of the good work clinton did e.g. on national debt,balance of payments, perception of America abroad.

Nevertheless the US leads the world not only in military hardware but in all sorts of technology. Judging a country by its level of consumerism is false economy in my estimation. So what if you have a lot of consumers? What do they actually produce? also what is economic growth if it is based on consumers that produce nothing? Ireland has had about (I guess) 6 per cent average growth over a year since 1991. This was almost wholly because of exports which were technology based and also because of Foreign Direct Investment. Now the FDI is supported by US Dollars which are basically the money taken from US and other consumers and the layoffs of US workers and moving the operation offshore. Ireland is looking for the high tech high skill high pay jobs. Ireland itself is dumping a lot of the low paid jobs but the US even more so. I know a person who post(ed) to this forum who go on at length about how great Bush is. at the same time his family business is moving to Mexico and dropping US workers.

Ireland also has s problem of paying public sector workers and not benchmarking them. Many Unions think benchmarking is a handout but it is meant to involve increases in productivity. when did you last see a college lecturer showing you the increase in productivity from his colleagues? Or a Principal Officer in a governmnet department? Or a Vet in Argiculture? Or a pharmacisist? All these get State money.

The bigger problem in Ireland is that the young people can learn new skills and are prepared to do so. Many people of the 45-65 age group though did not get the education or grow up in that culture. They think the unions guarantee a "job for life". Many of them are functionally illiterate. They haven't a hope. and they are good workers and maybe have already contributer 35 -40 years of good work to Ireland. They may well end up like Paddy who dug ditches in London and New York so those at home in Ireland got fed.

But things are much worse in the US. and with a culture where everyone can get a gun I am not positive for the future there.

So what I am saying is.

1. consumerism isnt everytyhing.
2. Knowledge based exports are a more bankablee (but still finite) resourse and will also cause much misery to the have nots.
3. Both have problems but the ensueing cultural problems may be even worse.

in large modern economies consumers will always be more than 60% of economy,your saying what do consumers produce ?but your not looking at the other side because everything the consumer consumes has to be produced or served to him,if a lot of these goods and services are imported then theres a problem as other countries profit from the domestic consumer.

Captain Trips · 11-03-2006 6:24pm

As long as they keep churning out more boots than the last months quotas, things will be fine.

U.S. employers add 243,000 jobs in Feb:http://www.businessweek.com/ap/financialnews/D8G8TJ880.htm?campaign_id=apn_home_down&chan=db

Citizens ar being encouraged to get work by looking for help wanted signs! Would you like to know more?

The gain in wages lifted the average hourly wage 56 cents, or 3.5 percent, over the last 12 months, the biggest percentage gains since the month of the Sept. 11 terrorist attacks.

This will be great news for the average worker! Whatever it is, it's important to mention September 11th as many times as possible.

On a more sombre note, there is a comparison of purchasing power on the net as well, showing the average purchasing power of a family in the 1970s in the US vs. now and also on mortgages. It's quite interesting to see the demographics change: Decimation of the Baby Boomer Generation

samb · 11-03-2006 7:25pm

ronbyrne2005 wrote:

noam chomsky has been saying this for years, wages for the middle classes havent really risen since 1980's !! the top 10 percent have taken nearly all the increases in wealth in the economy.in the long run the us economy seems doomed and citizens may end up turning into a less capitalist society if things get worse.

But I foresee trouble because if hard times await them, I think the majority who still have jobs will not tolerate tax rises. It is a mind shift that I think will be almost impossible.
Consumerism is only good for distributing wealth around an economy and more jobs. i.e if we have loads of money woman will get thier hair washed by an 'expert' creating jobs for more hair-dressers. No actuall money enters the economy however. A healthier scenario (epiecally form an environmental perspective) would be high productivity in manufacturing etc but low consumerism. Individuals can then save money. I fear that many jobs in Ireland are fuelled be consumerism that are vunerable, if hard times await.

What are the tax rates in the US now?

ronbyrne2005 · 11-03-2006 7:52pm

samb wrote:

A healthier scenario (epiecally form an environmental perspective) would be high productivity in manufacturing etc but low consumerism.

if theres low consumerism then theres less requirement for manufactured goods and services!! unless you mean low consumerism in domestic economy and make all the money from exporting your manufacturing and services.

samb · 12-03-2006 1:15am

ronbyrne2005 wrote:

if theres low consumerism then theres less requirement for manufactured goods and services!! unless you mean low consumerism in domestic economy and make all the money from exporting your manufacturing and services.

Yes, thats exactly what I meant.

unlawflcombatnt · 12-03-2006 1:30am

samb wrote:

. I think they will have serous problems when they must curtail thier consumer spending.

That's my major point. U.S. consumers aren't making enough in wages to purchase their own production. The funding of the increase in consumer spending over the last 5 years has come almost exclusively from borrowing, not wages. When consumers reach the limit of their borrowing ability, with declining wages, there will certainly be a serious problem. A catastrophic one.

ISAW · 12-03-2006 3:22am

ronbyrne2005 wrote:

in large modern economies consumers will always be more than 60% of economy,your saying what do consumers produce ?but your not looking at the other side because everything the consumer consumes has to be produced or served to him,if a lot of these goods and services are imported then theres a problem as other countries profit from the domestic consumer.

But, I ask what is the use of many of these products and services? Many of them are almost worthless. Only fad and popularity inflate the price. Also, where is the money coming from to buy them? You can not claim that US workers are getting money and this money is what drives the demand to produce products and services and that demand makes the economy grow and the growth pays workers their money. It is a circular argument! The money represents something. It is based on some real value of a real resource or a really valued skill or service. I know you may get into argument about weighting the skill of an artist versus the skill of a Gucci handbag maker bbut I think the above point about "almost worthless" is a side issue.

the main point is that wealth comes from somewhere. If you are saying the economy depends on consumer spending, then where is the money the consumers have coming from? Please dont say from wages they get supplied by the economy. You might as well allow everyone to print their own money.

Time Magazine · 12-03-2006 3:52am

Devil's advocate:

GDP includes government spending, including the war in Iraq. This will lower GDP per person (if it's all going on building in Iraq etc) but isn't a necessarily bad sign - their wages could have actually increased, just at a slower rate than investment in Iraq.

They have fallen since 2004. But inflation will do that. Oil prices have surged since then.

Irish employees' share of GDP has fallen substantially since 1987, but that does anyone want to go back to then?

And I don't take Noam Chomsky's economic assessments as fair conclusions ever. He's just as biased and self-interested as Bush himself.

ronbyrne2005 · 12-03-2006 1:59pm

ISAW wrote:

But, I ask what is the use of many of these products and services? Many of them are almost worthless. Only fad and popularity inflate the price. Also, where is the money coming from to buy them? You can not claim that US workers are getting money and this money is what drives the demand to produce products and services and that demand makes the economy grow and the growth pays workers their money. It is a circular argument! The money represents something. It is based on some real value of a real resource or a really valued skill or service. I know you may get into argument about weighting the skill of an artist versus the skill of a Gucci handbag maker bbut I think the above point about "almost worthless" is a side issue.

the main point is that wealth comes from somewhere. If you are saying the economy depends on consumer spending, then where is the money the consumers have coming from? Please dont say from wages they get supplied by the economy. You might as well allow everyone to print their own money.

throughout the entire history of human trade people have traded "fads" and fashionable goods and services,what something is worth is what someone is willing to pay for it,a hell of a lot of economic activity is in the area of "value added" in the form of branding styling etc,why do people pay 100euro for a pair of shoes when you could buy a highly similar and perfectly adequte pair for 20euro?
theres very little activity in modern economies of which you would seem to term "real value or real resources or real skills".in the past when economies where largely agricultural and industrial most economic activity consisted of extracting natural resources and farming food/animals and manufacturing simple essentials of life but as economies progress companies create products and consumers buy into the idea of them as the consumer beleives they are buying into a way of life and that they need these products or simply want them.all modern economies are based on selling simple commodities with "value added" and on services(many of which arent essential ) bought by consumers.

ISAW wrote:

Please dont say from wages they get supplied by the economy. You might as well allow everyone to print their own money.

consumers get wages for performing economic activity for entrpreneurs who takes risks and pays them before the enterprise makes profit.consumers also borrow.the economy and demand from consumers exists and therefore consumers are employed and consumers spend.the "real wealth" you refer to is created by selling goods and services to people who have as a result of the history of commerce and trade have sufficient resources to purchase the consumer products,obviously if all consumers decide to stop spending money tomorrow on everything that wasnt essential to life(basic food ,basic clothing etc) then there wouldnt be enough economic activity to provide jobs for the vast majority of consumers but our economic system and consumer demands are at a point where these things are self sustaining.

ronbyrne2005 · 12-03-2006 2:06pm

Angry Banana wrote:

Devil's advocate:

GDP includes government spending, including the war in Iraq. This will lower GDP per person (if it's all going on building in Iraq etc) but isn't a necessarily bad sign - their wages could have actually increased, just at a slower rate than investment in Iraq.

They have fallen since 2004. But inflation will do that. Oil prices have surged since then.

Irish employees' share of GDP has fallen substantially since 1987, but that does anyone want to go back to then?

And I don't take Noam Chomsky's economic assessments as fair conclusions ever. He's just as biased and self-interested as Bush himself.

money spent on iraq adds to gdp in america(money paid to american military contractors army halliburton) .anyway ignoring gdp measured average wages etc have'nt moved much in real terms since 1980's and chomskys comments on this are facts accepted by economists and i didnt quote him to add any weight to the argument.

Time Magazine · 12-03-2006 8:30pm

A percentage of Iraq money ends up in consumers' hands but my point remains the same. If you increase third-world aid (which you can kind of call Iraq spending) it will lower consumers' share without affecting them.

Additionally, inflation statistics are fundamentally misleading; they are not weighted to account for substitution effects. Say there are two products in the economy: Marmite and Bovril and both prices are the same. Bovril goes up 10% in price, inflation is 5%. Some consumers then shift to Marmite so actual inflation for them is nil. Assume 80% shift to Marmite, that means inflation is actually only really 1% [20% of consumers are paying 5% more] in terms of opportunity cost. If GDP increased at 3% that year it's a real rise of 2%. But the original inflation figure of 5% is the one quoted, and it appears the public is 2% lesser off (5% inflation - 3% growth). This analogy is applicable to the economy on the whole. That said, I haven't checked up their CPI but I presume the inflation is primarily energy-driven (oil), which isn't very easily substituted.

Either way you have to take inflation and GDP statistics with a hint of salt; but if the price of salt has recently increased, vinegar will do the trick.

ISAW · 13-03-2006 12:03am

ronbyrne2005 wrote:

throughout the entire history of human trade people have traded "fads" and fashionable goods and services,what something is worth is what someone is willing to pay for it,

so what? throughout the whole of human history there has been slavery. Throughout the whole of human history there has been exploitation. Only recently did society begin to redress these. So an argument based on what was done before isnt a strong argument is it?

a hell of a lot of economic activity is in the area of "value added" in the form of branding styling etc,

what "value" has been added. Don't you mean "price inflated"? the produce hasn't got more value has it? Just because people will pay more for it means it may be briced higher but it does not necessarily mean its "value" has increased not unless you define "value2 as only price and nothing else. People would tend to think that "price" and "value" are two different things.

why do people pay 100euro for a pair of shoes when you could buy a highly similar and perfectly adequte pair for 20euro?

Because they think that having something that costs more is better based on price alone? If so they are fools.

theres very little activity in modern economies of which you would seem to term "real value or real resources or real skills".in the past when economies where largely agricultural and industrial most economic activity consisted of extracting natural resources and farming food/animals and manufacturing simple essentials of life but as economies progress companies create products and consumers buy into the idea of them as the consumer beleives they are buying into a way of life and that they need these products or simply want them.

Yes but if such products have no intrinsic value then they do not really add to the economy in the long run. Let us say you sell canned Air for $1000 a can. You sell a million cans. The economy turns over $1 billion. But the intrinsic value is about 1c worth of metal a can i.e. $10,000. You would claim the nation is $1 billion dollars of value added. I would claim there is $10,000 added and the rest was already there in peoples pockets.

all modern economies are based on selling simple commodities with "value added" and on services(many of which arent essential ) bought by consumers.

I refer to the non essential and highly over inflated items with little or no intrinsic value.

consumers get wages for performing economic activity for entrpreneurs who takes risks and pays them before the enterprise makes profit.

Where does the money the entrepreneur gets i.e. the money with which he pays the workers come from?

consumers also borrow.the economy and demand from consumers exists and therefore consumers are employed and consumers spend.

Borrowing makes things even worse. Now we have "fake money" owed back to the lender. He lends say $100 and asks for $105 in return. Where does the $5 come from? Somebody has to actually produce something worth $5. If not it is only $5 made of nothing out of thin air.
This is back to the circular argument that consumers are paid from money consumers spend. This can't happen for ever since every time money is spent some tax is added so the overall supply drops. someone needs to keep topping up the money supply from something. And they cant just print their own money or borrow money since that isnt anything of real value and only serves to devalue the money even more. Something substantial must come into the mix or the dragon will eventually swallow its own tail.

the "real wealth" you refer to is created by selling goods and services to people who have as a result of the history of commerce and trade have sufficient resources to purchase the consumer products,

Ah! But what is a resource? Having sufficiebnt stockpiles of canned air isnt really a great resource is it? Maybe you think robber Barons and slave traders and land grabbers and carpet baggers are people of historically sufficient resource?

In any case it really isnt any good to suggest that people stockpiled money and that is where the top up is coming from. It is clearly artificial money coming out of nowhere i.e. borrowing and money not based on a real resource. that type of spending led to the crash!
Most of the economy is propped up not by piles of historically stockpiled wealth but from iover extended consumers.

obviously if all consumers decide to stop spending money tomorrow on everything that wasnt essential to life(basic food ,basic clothing etc) then there wouldnt be enough economic activity to provide jobs for the vast majority of consumers but our economic system and consumer demands are at a point where these things are self sustaining.

But my point is that if that adctually happened then the nation would get wealthier since they would produce only things of actual real value and they would really stockpile their money. all the wortless artificial low value products would be gone but the actual money in the bank would be growing. True the system would implode but that is not the point. the point is whether the wealth of the nation would increase. I fI stockpile my money why do you think it is so much better for me to hand $1 million to A fand tell him to hand it on to B and B to C etc. so that Z can hand it back to me? How is all that activity actually creating anything. In fact after Z hands the $1 million back to me I would then have to hand the State $300,000 in tax. so after nobody doing anything but handing money round in a circle the circle is worse off! How come you think such "economic activity" is essential?

fly_agaric · 13-03-2006 11:54am

samb wrote:

Sure, you have a very well educated elite, in the best Universities in the World, but what about the average American. I think they will have serous problems when they must curtail thier consumer spending.

I wonder...
Why would elites care what happens to the "average" American so long as those elites can keep increasing their wealth? The "average" people cease to matter as the elites account for a larger and larger amount of economic activity.
Maybe these average Americans can provide cheap labour - but foriegners or illegal immigrants cost even less.
What is the ratio of a ceo's or cfo's pay to the average wage in the US now - something astronomical isn't it?
Another question that occurs is how much of all the consumer spending is being driven by people earning the average wage or below it?
So long as the people on top keep getting richer the country is doing well - just like back in the 19th century!

fly_agaric · 13-03-2006 12:06pm

double post...:o

ronbyrne2005 · 13-03-2006 3:21pm

ISAW wrote:

so what? throughout the whole of human history there has been slavery. Throughout the whole of human history there has been exploitation. Only recently did society begin to redress these. So an argument based on what was done before isnt a strong argument is it?

are you equating capitalism to slavery?sounds like something a communist would say. people in capitalist societies such as ireland choose to engage in and beleive in economic activity/consumerism,im not a raging capitalist myself but the vast majority of people want it.

ISAW wrote:

what "value" has been added. Don't you mean "price inflated"? the produce hasn't got more value has it? Just because people will pay more for it means it may be briced higher but it does not necessarily mean its "value" has increased not unless you define "value2 as only price and nothing else. People would tend to think that "price" and "value" are two different things.

i used apostrophes to indicate i doubt there is much value added but thats beside the point,without getting into semantics value is what people are prepared to pay for something,its their choice.

ISAW wrote:

Because they think that having something that costs more is better based on price alone? If so they are fools.

people buy branded products that are identical to unbranded ones and pay a premium,i agree its nonsense but the vast majority of people do this so if they are happy to do this wh are you to call them fools?

ISAW wrote:

Yes but if such products have no intrinsic value then they do not really add to the economy in the long run. Let us say you sell canned Air for $1000 a can. You sell a million cans. The economy turns over $1 billion. But the intrinsic value is about 1c worth of metal a can i.e. $10,000. You would claim the nation is $1 billion dollars of value added. I would claim there is $10,000 added and the rest was already there in peoples pockets.

without debating what is intrinsic value,whatever the product/service there is a positive benfit to the economy ,even canned air needs to be manufactured marketed distributed retailed all provide jobs and wages which is then recycled into the economy providing demand for other goods and services.just becasue you dont see intrinsic value in many consumer products and services doesnt mean it wrong for other people to find a value in them and pay market rates for them,if there was no demand for canned air there would be no production of canned air .you seem to be saying people are either highly gullible (or fools as you called them earlier) or are being exploited by evil marketers.

ISAW wrote:

I refer to the non essential and highly over inflated items with little or no intrinsic value.

competition means that no goods will be too inflated unless theres a lack of competition or the product is a giffen good or luxury good.theres very little that is "essential" in modern life but people chose to exchange their labour and financial resources for "non essential "goods and services for a variety of reasons,again it their choice and if it makes them happy who are you to say they are wrong.whats the intrinsic value of a doctor? a hairdresser? a bar of gold?

ISAW wrote:

Where does the money the entrepreneur gets i.e. the money with which he pays the workers come from?

the entrepreneur borrows existing capital and hopes to profit from making a product more efficiently than his competitors or more atttractively than his competitors.

ISAW wrote:

Borrowing makes things even worse. Now we have "fake money" owed back to the lender. He lends say $100 and asks for $105 in return. Where does the $5 come from? Somebody has to actually produce something worth $5. If not it is only $5 made of nothing out of thin air.
This is back to the circular argument that consumers are paid from money consumers spend. This can't happen for ever since every time money is spent some tax is added so the overall supply drops. someone needs to keep topping up the money supply from something. And they cant just print their own money or borrow money since that isnt anything of real value and only serves to devalue the money even more. Something substantial must come into the mix or the dragon will eventually swallow its own tail.

the $5 comes from the economic activity that the entrepreneur engages in.consumers are paid from money consumers spend and also government and other businesses spend, money supply is controled by central banks and money supply can be increased as required but not massively or inflation will run wild.

ISAW wrote:

Ah! But what is a resource? Having sufficiebnt stockpiles of canned air isnt really a great resource is it? Maybe you think robber Barons and slave traders and land grabbers and carpet baggers are people of historically sufficient resource?

a resource is something that has value to many and can be exchanged for other goods and services or money. again your equating capitalism with slavery and other bad things.

ISAW wrote:

In any case it really isnt any good to suggest that people stockpiled money and that is where the top up is coming from. It is clearly artificial money coming out of nowhere i.e. borrowing and money not based on a real resource. that type of spending led to the crash!
Most of the economy is propped up not by piles of historically stockpiled wealth but from iover extended consumers.

money is just a store of value backed by every tangiable and intangiable good/service in the world like houses cars land skills talents etc.money is artifical by its nature,its simply a token to represent value which can be exchanged for other goods and services.

ISAW wrote:

But my point is that if that adctually happened then the nation would get wealthier since they would produce only things of actual real value and they would really stockpile their money. all the wortless artificial low value products would be gone but the actual money in the bank would be growing. True the system would implode but that is not the point. the point is whether the wealth of the nation would increase. I fI stockpile my money why do you think it is so much better for me to hand $1 million to A fand tell him to hand it on to B and B to C etc. so that Z can hand it back to me? How is all that activity actually creating anything. In fact after Z hands the $1 million back to me I would then have to hand the State $300,000 in tax. so after nobody doing anything but handing money round in a circle the circle is worse off! How come you think such "economic activity" is essential?

if a million euro is invested into a business there is a multiplier effect throughout the economy,the business employs people and they soend their wages which supports other businesses who pay their staff who support other businesses.money is mearly a store of value and if its just left in a bank you get a small return for loaning your value to the bank.all the economic that goes on in between the business a million is invested in and the wider economy is "real" activity! just because money goes around in circles doesnt mean its worthless, the nation as a whole through markets sets the value for any good or service,the production or provision of any good/service doesnt just create economic activity equal to the price of the good/service due to multiplier effect.
all economic activities(production-distribution-marketing-selling of goods and performance-marketing-selling of services and renting-buying of assets )all have value as people are prepared to exchange goods/services/money for them,whether you think they do or not is irrelevant as the vast majority do.
whats your alternative to the current system?? if we only produced essential goods and services then a high percentage of people wouldnt have work and wouldnt have money to spend but they would have their labour to exchange for essential goods and services but oh wait theres no economic activity for them to engage in!!
the modern lifestyle (even those which arent overly consumerist) depends on all these "non essential services " eg;IT marketing financial services HR logistics etc to support it.
if people only produced the essentials and didnt consume non-essentials life would be boring,maybe all these consumer goods/services have become essential to life as peoplesee them offering variety enjoyment and experiences

Victor · 18-03-2006 4:38am

samb wrote:

It is true that US companies still have great technology and patents etc, but what good will these companies be to Americans if they do not research and manufacture in America.

They will be able to spend the money they earn from royalties, interest payments and dividends.

samb · 19-03-2006 4:39pm

Victor wrote:

They will be able to spend the money they earn from royalties, interest payments and dividends.

A country can't be supported by the spending of a small minority of super-rich. Real spending comes from the average person having a decent amount of disposable cash, such is the case here, NOW.

Maybe if the superrich decided to spend all thier money, they might make a short-term impact-but they don't, they invest it. Will they invest is in their home country, if america is not the most profitable country to do business in? They didn't become super-rich by altruism.

ISAW · 20-03-2006 3:21pm

Angry Banana wrote:

A percentage of Iraq money ends up in consumers' hands but my point remains the same. If you increase third-world aid (which you can kind of call Iraq spending) it will lower consumers' share without affecting them.

Not if the spending is paid for by Iraqui oil dollars! Where is your evidence that the Us are spending on Iraq like the third world and that the spending either on third world or on the occupation of Iraq is conting money in the balance and that Iraq are not paying their way?

Additionally, inflation statistics are fundamentally misleading; they are not weighted to account for substitution effects. Say there are two products in the economy: Marmite and Bovril and both prices are the same. Bovril goes up 10% in price, inflation is 5%. Some consumers then shift to Marmite so actual inflation for them is nil. Assume 80% shift to Marmite, that means inflation is actually only really 1% [20% of consumers are paying 5% more] in terms of opportunity cost. If GDP increased at 3% that year it's a real rise of 2%. But the original inflation figure of 5% is the one quoted, and it appears the public is 2% lesser off (5% inflation - 3% growth). This analogy is applicable to the economy on the whole. That said, I haven't checked up their CPI but I presume the inflation is primarily energy-driven (oil), which isn't very easily substituted.

To take your example
First if bovril goes up 10% and inflation is therefore 5% then they must have had 50 per cent of the consumers each. If after shifting 80 oper cebnt are on marmite then only 30 per cent shifted to marmite. The CPI is weighted to take this into account. It takes from a basket of hundreds of products. the reason it does this is to avoid the problems of weighting inflation on a few products or one which is "artificial" e.g. mortgage payments based on land valuation.

Either way you have to take inflation and GDP statistics with a hint of salt; but if the price of salt has recently increased, vinegar will do the trick.

I prefer a "pinch" of salt

ISAW · 20-03-2006 4:14pm

ronbyrne2005 wrote:

are you equating capitalism to slavery?sounds like something a communist would say.

Not true! You stated that something was worth what people will pay for it. Is slavery? Is human life? If a consecrated communion wafer? If you were to take all the elements and minerals form a human body it would fetch about ten Euro. A communion wafer maybe ten for a cent!

people in capitalist societies such as ireland choose to engage in and beleive in economic activity/consumerism,im not a raging capitalist myself but the vast majority of people want it.

So what? I am not anti democracy or anti capital. I only was trying to tell you that putting a price on everything is not the ultimate ends of society.

i used apostrophes to indicate i doubt there is much value added but thats beside the point,without getting into semantics value is what people are prepared to pay for something,its their choice.

It is moderated. Slavery and sanctity are two examples.

people buy branded products that are identical to unbranded ones and pay a premium,i agree its nonsense but the vast majority of people do this so if they are happy to do this wh are you to call them fools?

apparently someone like you who by claiming it is "nonsense" is just saying the same.

without debating what is intrinsic value,whatever the product/service there is a positive benfit to the economy ,even canned air needs to be manufactured marketed distributed retailed all provide jobs and wages which is then recycled into the economy providing demand for other goods and services.

A money go round does not benefit society. I lend you 100 you lend me 50. I lend you fifty. you lend me 200. I lend you 100. It hasent done anything. If we pay a bookkeeper to keep track of that all that then it still hasn't done anything and all he has done is show us how it hasent done anything.

just becasue you dont see intrinsic value in many consumer products and services doesnt mean it wrong for other people to find a value in them and pay market rates for them,if there was no demand for canned air there would be no production of canned air .you seem to be saying people are either highly gullible (or fools as you called them earlier) or are being exploited by evil marketers.

We are all subject to publicity and advertising even clever people. But it isnt just that! some concerns control not just the image but also the market. This is the bad side of capatalism. We create laws to fight it. Fuel laundering in Galway for example. But we punish petty crime and violent crime (with much less monetary damage) with higher penalties.

competition means that no goods will be too inflated unless theres a lack of competition or the product is a giffen good or luxury good.theres very little that is "essential" in modern life but people chose to exchange their labour and financial resources for "non essential "goods and services for a variety of reasons,again it their choice and if it makes them happy who are you to say they are wrong.

what does a man benefit if he gains the whole world and looses his soul?

whats the intrinsic value of a doctor? a hairdresser? a bar of gold?

thats more like it! Now you are asking my sort of questions.

a resource is something that has value to many and can be exchanged for other goods and services or money. again your equating capitalism with slavery and other bad things.

Is a slave a resource?

money is just a store of value backed by every tangiable and intangiable good/service in the world like houses cars land skills talents etc.money is artifical by its nature,its simply a token to represent value which can be exchanged for other goods and services.

But you already said the value is determined by what people will pay. You also said that the central supply of money is restricted. so how can you control price and also say it should not be controlled? A bit like the groceries order?

if a million euro is invested into a business there is a multiplier effect throughout the economy,the business employs people and they soend their wages which supports other businesses who pay their staff who support other businesses.money is mearly a store of value and if its just left in a bank you get a small return for loaning your value to the bank.all the economic that goes on in between the business a million is invested in and the wider economy is "real" activity! just because money goes around in circles doesnt mean its worthless, the nation as a whole through markets sets the value for any good or service,the production or provision of any good/service doesnt just create economic activity equal to the price of the good/service due to multiplier effect.

Unless something is being added the money go round is worthless!

all economic activities(production-distribution-marketing-selling of goods and performance-marketing-selling of services and renting-buying of assets )all have value as people are prepared to exchange goods/services/money for them,whether you think they do or not is irrelevant as the vast majority do.

But you already stated what people think about it is relevant to the price.

whats your alternative to the current system??

It isnt fopr me to state! That is a fallacy! It is not necessary for those in opposition to something to propose an alternative. furthermore I did not state i was opposed to capitalism. I stated that there were inherent problems within capitalism. Indeed any system that people think is sufficient for everything and dependent only on their whims may be similarly criticised.

if we only produced essential goods and services then a high percentage of people wouldnt have work and wouldnt have money to spend but they would have their labour to exchange for essential goods and services but oh wait theres no economic activity for them to engage in!!

that is over stating the issue. The truth is that people work in sweat shops for nothing while those that sell what they make do little and benefit from the fruits of the sweatshop labour! the reason the people who do it can do it is because they have capital wealth knowledge and ower on their side. this is exploitation! It happens in communist countries and in capitalist ones.

the modern lifestyle (even those which arent overly consumerist) depends on all these "non essential services " eg;IT marketing financial services HR logistics etc to support it.

IT is not non essential. nor is logistics. If you ever worked for a third world charity I am sure you would agree with me.

if people only produced the essentials and didnt consume non-essentials life would be boring,maybe all these consumer goods/services have become essential to life as people see them offering variety enjoyment and experiences

i am not really having a go at Joe soap other than to say he should be aware of sweatshop labour and fat cats getting all the cream. I don't support communism either but Cuba has a good literacy rate and health care and much of the US is poor sick and illiterate. It isnt so simple as East v West, Communism v Capitalism or Democracy v Islamofacists! They are media creations.

ISAW · 20-03-2006 4:17pm

Victor wrote:

They will be able to spend the money they earn from royalties, interest payments and dividends.

The shareholders and higher executives and higher skilled workers will get the benefit of the transfer pricing as they bring all the profit back to the US.

the low paid low skill workers will be laid off and their jobs trqansferred to Mexico or China. It is called capitalism! Oddly, communist China will benefit from this!

ISAW · 20-03-2006 4:27pm

samb wrote:

A country can't be supported by the spending of a small minority of super-rich. Real spending comes from the average person having a decent amount of disposable cash, such is the case here, NOW.

And a country collapses economically when the amount of spending cant be backed up by anything of actual value. By the way the rich as you say dont spend money. Thats how come the billionares inherited the nation from the millionares about 80 years ago. Democracy is safe in the hands of plutocrats

as I think The Onion headline reads.

Maybe if the superrich decided to spend all thier money, they might make a short-term impact-but they don't, they invest it. Will they invest is in their home country, if america is not the most profitable country to do business in? They didn't become super-rich by altruism.

A lesson from history. I arrive in your country and do a land grab. The Normans did it. The British on the Irish, The Europeans did it in the Americas. The WASPs did it on Us natives. The carpetbaggers on the disenfranchised Confederates, the cattlemen did it on US settlers and the Oil men on the cattle men. Three generations later who is to say you dont own the land and have a right to live there? And if they do have a claim on you you can divest your wealth to your children. Many many rich families did just this. Some of The old money also detests the uncultured new people who do it the modern way by corportte takeover or dodgy share dealing for example.

Having said that I do respect some old aristos and farmers who say they dont actually own their land and they are only looking after it for the next generation (and not just their children but all the local people).

ISAW · 20-03-2006 9:45pm

Angry Banana wrote:

Devil's advocate:

GDP includes government spending, including the war in Iraq. This will lower GDP per person (if it's all going on building in Iraq etc) but isn't a necessarily bad sign - their wages could have actually increased, just at a slower rate than investment in Iraq.

They have fallen since 2004. But inflation will do that. Oil prices have surged since then.

Irish employees' share of GDP has fallen substantially since 1987, but that does anyone want to go back to then?

And I don't take Noam Chomsky's economic assessments as fair conclusions ever. He's just as biased and self-interested as Bush himself.

Interesting dispatches programme on Channel 4. Maybe I will start another thread? It seems I was right. 1.2 billion dollars given to Haliburton in Iraqi oil money. Babies dying for lack of canula (cheap medical equipment). US firms overpricing through fake companies not being prosecuted because the US authorities dont want to publicise war profiteering.

It seems wealthy US concerns have taken Iraqui money and given nothing in return. sure they have big exercises to replace money without Saddams head on it but they dont supply basic medical equipment and beat up doctors, raid their houses and wrect their homes and cars and give them $1500 compensation and tell them to be carefull because it could happen again.

This is capitalism. this is the "war on terror". It is greedy people cashing on Iraqui work and giving nothing in return.

unlawflcombatnt · 22-03-2006 11:36pm

ronbyrne2005 wrote:

noam chomsky has been saying this for years, wages for the middle classes havent really risen since 1980's !! the top 10 percent have taken nearly all the increases in wealth in the economy.in the long run the us economy seems doomed and citizens may end up turning into a less capitalist society if things get worse.

That's exactly right. Average real hourly wages in the United States have declined for 2 straight years. Even before that, however, the increases that occurred were due to huge increases in wages of the top earners, which offset the delines in the lower income brackets.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

_________________
The economy needs balance between the "means of production" & "means of consumption."

unlawflcombatnt · 23-03-2006 12:54pm

ronbyrne2005 wrote:

economists expect businesses to increse spending this year on capital investment which should take the pressure off the consumer to drive gdp growth

Though some economists might say this, their statements are based solely on wishful thinking. Most American economists do not expect capital investment to increase. Though investment capital is abundant in the U.S., there's simply nothing to invest in.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

_________________
The economy needs balance between the "means of production" & "means of consumption."

ISAW · 23-03-2006 4:52pm

samb wrote:

A country can't be supported by the spending of a small minority of super-rich. Real spending comes from the average person having a decent amount of disposable cash, such is the case here, NOW.

Maybe if the superrich decided to spend all thier money, they might make a short-term impact-but they don't, they invest it. Will they invest is in their home country, if america is not the most profitable country to do business in? They didn't become super-rich by altruism.

Yes but the idea being originally touted was that consumer spending is the boulster of the economy. You can't kepp Americans in coke ( I mean the bottlled stuff), jeans, cars and all sorts of other imported stuff unless US people are exporting stuff and getting money to pay for it. Now if you take Windows as an example it is exported from IRELAND and the PROFIT is repatriated to the fat cats in the US and NOT to the average joe.

so in short the consumer spending is sending money out and the money coming in is not going back to the consumer.

samb · 23-03-2006 5:26pm

ISAW wrote:

Yes but the idea being originally touted was that consumer spending is the boulster of the economy. You can't kepp Americans in coke ( I mean the bottlled stuff), jeans, cars and all sorts of other imported stuff unless US people are exporting stuff and getting money to pay for it. Now if you take Windows as an example it is exported from IRELAND and the PROFIT is repatriated to the fat cats in the US and NOT to the average joe.

so in short the consumer spending is sending money out and the money coming in is not going back to the consumer.

I don't disagree, spending is only good for job creation, not for actuall wealth creation IMO.
The Windows example is not great however IMO. Ireland does well out of the deal because we get good jobs (money). Instead of only spending on windows we get money back into the economy from wages, share options etc from the company. Those profits will then only be repatriated to US if the 'fat cats' invest it in the US. My point is that the spending of the fat-cats is insignificant. We benefit from the spending of the employees in Ireland, some of which are fairly 'fat' also.

U.S. Real Wages Still Declining

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