Independent contractors and falling living standards

This blogger disagrees with economist Robert Reich when he says the rise of “independent contractors” in the American labor force is a legal trend.  It is an economic trend in which incomes are trending down because of problems in the energy and resource base.

Our economy has recently been through some golden  years of prosperity which have come to an end, probably because we have used up the most easily accessible of the energy and mineral resources.  There are lots left but the difficulty of extracting them is reducing the potential for continued economic growth and maybe even going to force upon us some negative growth. 

One of the consequences is that living standards are falling – at least for some people.  As  wages are sticky and people protest when asked to take a cut in wages employers try to find other ways to accomplish the same thing.  One way is to contract out work and another is to assign the work to independent contractors.  The jobs get done at a lower cost to the employers and some workers have jobs even if at less income.   In some cases the work may be done by different employees. 

This is hardly a trend to make people happy.  If it were up to me everyone would have the same incomes, working conditions and benefits as most government employees.  But economic realities will not allow that.

If there has to be a reduction in living standards then it would be fairer to share it among most people.  One way to do this would be with a universal income scheme.

A guaranteed income – another impossible dream

I believe the arguments in favor of a universal income scheme are overwhelming.  The problem is this belief is not shared by everyone.  I would go even further than an income scheme and say there is an urgent need to reform the way in which we create money and the two reforms should be combined.

Our survival and our enjoyment of life depends upon our being able to provide ourselves with food, shelter, clothing and smart phones.  The way in which we do this involves a lot of complex relationships with people we do not know.   As, for the most part,  we do not understand how these relationships work,  any attempt to change them will be a threat and arouse a lot of fierce emotions.  On top of that a lot of people have a vested interest in the current way of exchanging goods and services and will resist change.

It may be impossible to overcome these problems, but is that a good reason to not discuss them and to not try?  With current economic trends it could be that changes will be forced upon us and maybe we should try to influence them rather than just let them happen.

The essay “LETS go to market; Dealing with the economic crisis”  on this weblog deals with a proposal for a guarantee income scheme and how it could be combined with a different way of creating money.  Do have a look at it.

A major question around an income scheme is how much work needs to be done.  Modern technology has reduced the amount of labor needed for survival.  I think we are at the point where a lot of work is just for the sake of working to satisfy the work ethic.  The work ethic allows a lot of people to build empires to fulfill their own ambitions.  The work ethic is unnecessary and makes a lot of people into slaves.

A guaranteed income scheme would be a major transfer of decision-making power to individuals because having money allows people to make decisions.    No longer would people be dependent upon an employer for their total income.  No longer would we be slaves to employers.  We would be able to decide what we want to do with our time.

An income scheme would deal with problems of poverty, inequality and economic inefficiencies.  With an income scheme there would no longer be a case for subsidies to producers and this would remove a lot of price distortions from the economy.  The result would be a more efficient economy.

Value is determined by supply and demand.  As all of us have a limited lifespan time should be the most valuable thing we have.  Therefore we should by trying to use modern technology to give us more time in which to do the things we most enjoy.  Instead it seems modern technology is mostly being used to sell us more smart phones which are used to sell us more junk.  That’s stupid.

A grumpy old man in favour of a basic income scheme

The “free money” giveaway or basic income or universal income scheme being proposed by a few people is a great idea but one that is probably impossible to implement.  However it is nice to dream and fun to think out how to solve economic problems; so here goes.

The basic questions are where does the money come from and how to give the money to people?

The simple answer to the first question is that with a universal income scheme there will no longer be a need for subsidies to producers.  A more difficult answer is that the introduction of an income scheme would be the ideal time to reinvent money.

Generally subsidies (sometimes as tax exemptions)  are given to firms to encourage them to establish plants and provide employment or to save the business and save jobs.  This is great for those who get the jobs or whose employment is saved but it leaves a lot people with nothing.  Subsidies also distort prices so that when we make purchasing decisions based on price we are not necessarily getting the item that was cheapest or most efficient to produce.

Money is something most of us use daily and is probably the least well understood of all the things that are a part of our economy.  When central banks were doing quantitative easing there was some disbelief that they could create money out of nothing.  This is because we have for so long associated money with gold that we think of it as a commodity with value in itself.  It might be better to think of it as a tool with which to facilitate the exchange of goods and services.  It represents purchasing power.

Most of what we use as money is created by bankers making loans.  How this works is explained at numerous locations throughout the world-wide web.  My own version along with some of the problems with fractional reserve money is included in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

One way to reinvent money and implement a universal income scheme would be to take the concept of “local exchange trading system”  and expand it to the national level.  A good part of the essay talks about how this could work and again  I refer you to the essay.  There are many details to be worked out and many problems to be overcome.  The mechanics of the money supply would be easy.  Getting people to accept new ways of thinking about money would be extremely difficult.   Getting people to accept that others should be allowed to do as they wish, whether that be creating art works or drinking beer, would also be difficult.  Getting people to change their vested interests would probably be impossible.

One of my concerns is that our economic order is going to return to something similar to what existed before the industrial revolution in which there was a small group living in relative luxury and the balance of the population lived at a subsistence level. (The ultimate inequality)  I am concerned because I think our economy is possibly going into an extended period of decline.  While there are lots of energy and mineral resources left on this planet the energy required to extract them is becoming more and more excessive to the point it will be less viable.  Without resources it will difficult to maintain everyone at what has been the North American standard of living.

An income scheme would make it a lot easier to cope with an economy on a downward slope.

More and more I am getting to be a grumpy old man.  My generation has been very lucky in the time and place we have lived out our lives.  More and more I am recognizing the next generations, including my grand children, are going to have to deal with a lot of economic pain.  I hope I am wrong and if not I hope I won’t have to see it.

 

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The opportunities and challenges of unemployment

 

For most people their job is their life, their identity and their future.  Therefor the future of employment is a major issue especially for those young people who, through no fault of their own, are finding the job  scene difficult.  It is both an opportunity and a challenge,

It is an opportunity because most if not all of us can be freed from the drudgery of daily life to soar in the enjoyment of our humanity.  It is a challenge because to achieve this we will have to reorganize our economy and cope with limited resources.

The opportunity comes from the huge agricultural surplus which has allowed us to build an incredible civilization.  Only a few people are required to do the work to provide all of us with food and shelter.  This leaves open what the rest of us do, how is the surplus distributed and who makes the decisions.

Up to this time the rest of us have been making goods and providing services for each other, the surplus has been distributed via employment and it is not clear who has been making the decisions.  Bankers are probably deeply involved as they create money when they make loans and this control over the money supply gives them a lot of power.  We like to think we make our own decisions but there are limits.  We can make decisions so long as they are politically and/or economically correct.

This system is now breaking down and it is not clear there will be a recovery in the near future.  Our civilization is very precarious with numerous threats ranging from a breakdown of the food factories through disease pandemics to an electro magnetic pulse from the sun (or a nuclear bomb) which could knock out most of the electric power grids and all computer chips.  A major source of current economic problems could be that we have used up the most easily accessible energy and mineral resources.  There are lots left but they will require excessive amounts of energy to extract them.

This crisis is being felt most strongly by the “lost generation” of young people who are finding employment difficult.

This breakdown in employment provides opportunities to use the agricultural surplus in new and hopefully satisfying ways but we will also have to make changes in how the surplus is distributed.  One way would be some sort of universal income scheme – the “free money” giveaway which a few people have been talking about.  This would also spread the  decision-making power to more people.   As subsidies distort prices  they should be given to consumers rather than producers.  An income scheme would set a minimum wage and those who like fast food would have to pay enough to attract workers.

The opportunities are great but the challenges are even greater.  A lot of people have vested interests which would be crushed and even more people have religious-like beliefs and faiths in the current economic system.  Some people believe with  committment  that everyone should work and support themselves.   A lot of us who are comfortable now will not worry about those who are less comfortable and will not want to make sacrifices.  But if we don’t make changes in how our economy is organized, a lot of people will probably live poor and miserable lives.

What do we want the future to look like.  There  is a lot of potential for the future and lots of visions.  But overcoming the differences of opinion will be a major challenge.

 

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Low wages and supply and demand for people

One has to have a great deal of sympathy and understanding for those fast food workers demanding a living wage and one also has to fear that the supply and demand for bodies will keep them down.

There are lots of other people, out of sight and/or not counted,  struggling to survive on low incomes.  They too deserve compassion and understanding.

It has been said that the profits of the fast food industry are sufficient to double the wages of all its workers.  This is not the issue.  The issue is that wages are determined by supply and demand.  The reality is that there are more people than there are jobs.  Some firms have demonstrated they can make good profits by paying their employees well but human nature is such that most employers will continue to pay as little as they can.

Technology has reduced the need for workers and reduced transportation costs have increased the supply of workers from other countries.

With the world economy in crash mode the plight of low-income people is likely to continue and even get worse. At the same time a few will continue to get richer.  The one thing which could level the field would be hyperinflation which would hurt everyone.

Another indication of the oversupply of workers is the declining power of private sector unions.  Public sector unions are still doing well because they have monopoly and political power.  I would have more respect for teachers’ unions if they were to go on strike demanding an increase in well fare rates.

I believe subsidies should be given to consumers rather than producers.  Therefore I would like to see some sort of universal income scheme such as a guaranteed annual income or the negative income tax proposed by Milton Friedman.  This probably would not halt the economic decline but would be fairer than the way we now treat people.  It may be that the American dream is just a  dream.

The U.S. election – meanness or dominance

As a Canadian I have been trying to ignore the U.S. election.   However when I saw where some libertarian market economics people were excited about the appointment of Paul Ryan as the vice-presidential candidate I decided to have a little look.

What I found is that while Ryan supports a market economy and smaller government he has proposed a 16 per cent reduction in U.S. spending on social programs.  This goes against my belief that we should have a collective responsibility to ensure everyone has the opportunity for the same standard of living as everyone else.

Another concern is that this reinforces the view that market economics is heartless and mean-spirited.   An income support scheme of some sort has to be an essential part of market economics.

On the other side of the political divide there are a lot of people who appear to believe they have a right to tell others how to live their lives.  One would expect these people to support a political party that promised to interfere in the economy and people’s lives.

So there you have it – a choice between dominance and meanness.  If I were American I would probably deliberately spoil my ballot.

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The evil Wal-Mart and offshore competition

Some people love to bash Wal-Mart.  This article is from 2003 but I suspect a lot of current critics would like it very much.

If you want to make money by far the best way is to go into a field where government legislation restricts competition – become a doctor or a teacher or something with  patent and copyright legislation.

There probably isn’t much legislation to restrict competition in retail sales so firms in that business have to sharpen their pencils or use marketing tactics.  Reading this article it is clear that Wal-mart is or has been very good with the pencil.  I am more opposed to legislation that restricts competition and marketing tactics than I am to firms that use sharp pencils.

On the theory that firms relying on legislation to restrict competition would be heavy into lobbying, I googled “Wal-Mart lobbying.”  It appears Wal-mart has not put much effort into lobbying although it is now starting to campaign for online retailers to be required to collect sales tax.

The issue appears to be that offshore competition, showing up in Wal-mart, is forcing some American manufacturers to go out of business putting their employees out of work.  Firms going out of business is a normal, and sometimes necessary thing.  The way to deal with that is a universal income scheme such as the negative income tax proposed by Milton Friedman or my own proposal for universal subsistence payments.

We should not feel guilty about buying things made in other countries.  Trade is a social activity and we want other countries to buy things from us.

I’m not a fan of Wal-Mart but I do occasionally go there.  I pride myself that most of the time I leave the store with only those items I had planned on buying.  I also know from experience they don’t always have the lowest prices and I can’t recall ever seeing Wal-Mart advertise quality.

In the retail segment of our economy there are lots of firms and lots of competition.  They all use marketing tactics to give them an edge. Therefore we should remember the old saying: “Buyer beware.”

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

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