28 February 2005

What would happen if we doubled the minimum wage?

If a $500 tax rebate stimulates the economy, imagine what an extra $700 per month plus health benefits plus paid vacation for millions of employees would do for the economy, and for the spirit of our nation.
So in our hypothetical company, we have 100 executives making $400 million per year. We have 20,000 employees making about $200 million per year. If we simply cut the average executive pay from $4 million per year to $2 million per year, we can double the pay of rank and file employees in this company.

Could the executives manage to survive on $2 million rather than $4 million? Yes, they could. They could also survive on $1 million a year, or $500,000. Their pay is completely arbitrary. It has risen by a factor on 10 in the last 20 years -- In 1980, these same executives would have been making $400,000 instead of $4 million.

A common complaint about doubling the minimum wage is that it is "inflationary." The point of this example is to show that employee wages can be doubled without raising prices at all. Executives are now redistributing wealth from employees to themselves at such a remarkable rate that employee wages have fallen considerably. Simply by reversing this concentration of wealth, employee wages can rise to reasonable levels without changing consumer prices.

Of course, there are those who argue that the poorest of the working poor should continue to wallow in poverty despite the fact that the current minimum wage is at its lowest level since 1949 and empirical evidence illustrates that raising it would not cause job loss.

24 February 2005

How about a new idea to offer financial security for each American when he or she reaches retirement age?

Here's a social security reform plan I could rally behind, and it's proposed by former Bush administration Treasury secretary Paul H. O'Neill.
If we decided as a society that we were going to put $2,000 a year into a savings account from the day each child was born until he or she reaches age 18 — and if we assume a 6% annual interest rate — each child would have $65,520 at age 18. (The worst return for a 25-year investor in the stock market from 1929 before the crash to 2004 was an average of 6% a year.) With no further contributions, again with a 6% interest rate, those savings would grow to $1,013,326 at age 65.

If we began to do this now, the first-year cost would be $8 billion; that is $2,000 times the roughly 4 million children born each year. The second year would cost $16 billion and so on until we were contributing $2,000 per year to a savings account for every child from birth until age 18. When fully implemented, the cost would be $144 billion per year. To put this $144 billion per year into context, this year's combined spending for Social Security and Medicare will exceed $750 billion.

What this plan would do is "pre-fund" for the needs of old age. It solves the long-term financing problem for both Social Security and Medicare, allowing for the gradual replacement of programs like Supplemental Security Income and Medicaid and food stamps and housing aid for those over age 65. To make this work, the savings account money would need to be invested — my suggestion would be through so-called index funds. The administrative costs would be practically nothing because there's no need for a huge separate tax collection bureaucracy; the money would come from the general revenues of the U.S. government.

This proposal is far superior to the boondoggle scheme being flaunted by the Bush administration. It's simple, straightforward, less costly, and unencumbered by the additional bureaucratic entanglements that the Bush scheme is fraught with. Basically, Bush's privatization program adds layers of new bureaucracy and funnels money from working Americans into fat cat brokers and investment firms.

21 February 2005

American enrollments in science and engineering programs have risen and fallen in almost exact correlation with the job market in those fields

Contrary to what the high-tech industry claims, in their push to import more foreign workers.

17 February 2005

Since late 1995, housing prices have risen nationwide by almost 35% after adjusting for inflation

A steep run-up that is abnormal. In some regions, housing costs have risen by more than 50%. Could there be bubble trouble on the horizon?
The housing bubble most likely has its origins in another bubble—the stock bubble of the late 1990s, when investors used their Wall Street returns to buy pricier homes. The increased demand began to drive up prices; soon, homebuyers came to expect continued price increases and based their purchase decisions on that expectation. Homebuyers who may otherwise have viewed a $200,000 home as too costly became willing to pay that much in the expectation that the home would sell for far more down the road. Expectations of ever-rising prices drive speculative bubbles.

Sound familiar? Indeed, the current housing bubble is not unlike the run-up in stock prices to which it owes its origins. If and when this bubble bursts, as the stock bubble did, the economy will likely find itself in another recession, and millions of families will see their net worth disappear as their homes, particularly those in over-inflated housing markets, plummet in value. With nearly 40% of new homebuyers choosing adjustable-rate mortgages, and interest rates on the rise, some homebuyers could face increased mortgage payments even as the values of their homes fall. Those with high debt-to-equity balances could face negative equity, or the prospect of owing more than they own.

A weak job market and an otherwise stagnant economy has been kept buoyant by the housing bubble, which has not shown signs of receding, like has happened with the stock market, jobs and wage levels. In fact, home purchases have been a lucrative portfolio choice for many investors. But there are imminent warning signs like the record high mortgage debt to home equity ratio and continued rise in bankruptcies and foreclosures.

2 February 2005

The numbers the privatizers use just don't add up

Tonight, President Bush hawks his social security privatization scheme, and continues to make dubious claims about the system's future. Paul Krugman has penned an excellent column on how the Bush adminstration trots out one set of numbers to trumpet prospects for economic growth but extols the extremely pessimistic quotes to justify overhauling Social Security and implementing a mass transfer of finances from working folks to brokers and bankers.
Which brings us to the privatizers' Catch-22.

They can rescue their happy vision for stock returns by claiming that the Social Security actuaries are vastly underestimating future economic growth. But in that case, we don't need to worry about Social Security's future: if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.

Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.

It really is that stark: any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.

Read that last paragraph again. And ask yourself how stocks can grow by 7% per year, after inflation, while at the same time, the economy only grows at 1.9%, as the projections that the trust fund will be exhausted by 2042 say.

And did I mention that the Bush administration's Social Security plan would entail several trillion dollars in borrowing

It's phenomenal, it's a brand new form of capitalism

Bill Gates heralds the Chinese brand of capitalism, a "corporate kinder" flavor of capitalism minus all the messy machinations of democracy with a plentiful dosage of bribery and authoritarian style corruption. Celebratory remarks by Gates on China were peppered with his public pronouncement that he's betting against the U.S. dollar.

Other technology CEOs have been quite brazen in their embrace of China, including CISCO CEO John Chambers:

China will become the IT center of the world, and we can have a healthy discussion about whether that’s in 2020 or 2040. What we’re trying to do is outline an entire strategy of becoming a Chinese company.

I've stated it repeatedly -- what's good for corporate America is not necessarily good for America -- but most Americans are still hoodwinked. Look to the economies of Latin America for where this transformation and subsequent destruction of the middle class is going to take us.