cause and effect
Posted on | December 4, 2003 |
I used to think that legislative representatives and other high-level government officials had to have a basic level of economics knowledge to be able to hold the job. Now I’m not so sure.
I just saw Chrissy Gephardt (daughter of Rep. and presidential candidate Richard Gephardt) on CSPAN. She was going on about how her father was a great advocate for American workers — that if he was elected he would work to get more jobs. (This was after she lambasted NAFTA, but that’s another entire rant.) She noted that her father has worked to get higher wages and more jobs for the American people. However, unfortunately on the basics of supply and demand alone we can see that this doesn’t work. Currently in our nation we have more supply (i.e. workers) than we have demand (i.e. employers looking for employees). Thus, a surplus which tends to drive wages down. If wage are somehow increased, through law or otherwise, demand will shift downward. And we have an acute compacting of our present problems. In an economic downturn, this definitely holds. And in fact a downturn can shift the entire supply curve back lowering wages even more. Only in times of great economic prosperity will the supply curve shift out allowing for expansion of the number of jobs as well as an increase in wages.
Why, oh, why are people so uninformed? Can’t an economics crash course be a requirement to serve the public?
Comments
4 Responses to “cause and effect”
December 5th, 2003 @ 7:45 am
I think you should consider more variables(?) regarding this matter.
For instance:
If there is more money taken from the rich to be given to the poor (maybe by offering them alternative jobs or by simply rising their earnings), consumption probably will rise and, therefore, wages will probably rise too, cause more people will be needed in order to make production face the increased demand.
And probably there will be less people accepting lower wages and, as a consequence, this will result in another pressure on wages to rise.
Well, maybe we can get a rise in inflation. But there are many and many ways to deal with such a risk and, at the same time, give businesses enough freedom to innovate and seek profits.
Economy is a very complex matter. Take care with simplifications that are often imposed by the ones that have interests that cannot be exposed directly…
Regards (The bad guys have just arrived…).
December 5th, 2003 @ 8:24 am
Um, I think it is you that is over simplifying. Taking from the rich and giving to the poor is a great idea in theory. But rather short-sighted. That messes with incentives, and basically makes the entire pie smaller, so to speak. What incentive does a company have to be innovative (i.e. put money into research and development of life-saving drugs) if they must pay overinflated wages. Nothing, and I mean NOTHING, messes with incentives more than to start taking from the rich and giving to the poor.
December 5th, 2003 @ 8:50 am
Sorry,
I didnīt mean necessarily take money from the rich and give to the poor “for free”.
This could be used to incentivate citizens to study for example. Or to work inside labs to develop life saving drugs..
December 5th, 2003 @ 7:45 pm
Huh? The system already allows for that. The incentive to study is to get a better job that pays more money. It’s already in the ’system’ of supply and demand.
Since life saving drugs are important to almost everybody, consumer demand will drive that market demand, and salaries already reflect the importance of those people to the consumer.
Incentives are inherently in any ‘invisible hand’ economy. When anyone (i.e. the government) intervenes, it either makes the system less efficient or can completely disable supply and demand dynamics.