Saturday, January 11, 2014

Unadulterated Stupidity

In the wake of yesterday's news that Canada lost 46,000 jobs in December, it's instructive to consider what Henry Ford did one hundred years ago. He raised his worker's wage to five dollars a day -- double the going rate. Tony Sanger writes:

Ford was virulently anti-Semitic, anti-union and paternalistic, but he realized higher wages would reduce the turnover of workers, boost productivity and also ultimately increase demand for autos. And it was remarkably successful. Turnover plummeted, his company's profits doubled in two years, and with surging productivity and production, the price of a Model T Ford was cut in half in a decade -- from about $500 in 1914 down to $240 in 1925. At $5 per day, an autoworker had to work 100 days to earn enough to buy a Model T Ford in 1914 and less than 50 days to afford one in 1925.

Sharing capital with labour increased productivity. Compare that to what we've been told for the last thirty-five years:

For decades we've been told we need to increase productivity and competitiveness, we must work harder and smarter, be more flexible, cut taxes, reduce regulations, cut government spending, expand investor protection and "free trade" agreements and provide more incentives for business and entrepreneurialism.

It's called supply side economics. It has been Margaret Thatcher's, Ronald Reagan's and Stephen Harper's claim to fame. And we know where it leads. Overstimulating supply depresses demand. When Henry Ford raised his workers' wages, he stimulated demand for his product and increased productivity.

What we need, writes Sanger, are policies which stimulate demand:

Real wages must be increased, and no longer suppressed through wage freezes, expansion of a precarious and temporary labour force and attacks on unions. Collective bargaining rights need to be strengthened, minimum wages increased and measures put in place to control excessive compensation at the top.

Public spending should be increased, not just on infrastructure, but also in areas that increase the "social wage" and expand public services and push back against increasing corporate control. These include improved public pensions, social security, education, health care, affordable housing and public transit. A national early learning and childcare program modeled on Quebec's program could not only pay for itself, but also generate tens of thousands of jobs and allow more parents to engage productivity in the labour force. Meeting the challenge of climate change will require billions in investments, but will pay off in both jobs and economic activity in the short term and in a more efficient and sustainable economy over the longer-term.

Mr. Harper has been doing just the opposite. Like Pickett's charge, Harper's economic charge is an exercise in unadulterated stupidity.


Anonymous said...

Owen, you're a political pundit, I think.

At the start of 2014, can you see any changes in the national mood? I know that's a big question, but is there enough discontent that people will start switching votes or at least get involved politically, to shake things up?

Big questions, but I'm sensing people will gripe a lot but do nothing, thus 'retour au normal.'

Owen Gray said...

That's a definite possibility, Anon. Harper is prime minister because of citizen apathy.

The problem is -- and has always been -- getting people to the polls.

Lorne said...

Your post makes eminent sense, Owen. I therefore think it is safe to assume that such logic will be shunned by those who embrace the neoliberal agenda.

Owen Gray said...

Unfortunately, Lorne, the neo-liberal agenda is a faith based movement which shuns logic.

More unfortunately, its faith is misplaced -- a form of idolatry -- which, as I recall, was represented in the Old Testament by the golden calf.

Anonymous said...

If I remember correctly, I think it was the CAW's Bob White while being taken on a tour of one of GM's plants was told by ean exec that "that new robot replaced three people" and "that new robot replaced another five", when White asked the exec, how many new cars do you think a robot buys over it's working life?

Anonymous said...

Never have I ever seen Canadians living in such wretched times, as we are to-day.

Harper does not care for the everyday working Canadians. He is selling Canada out to Communist China. Harper is bringing thousands over and training them for the oil patch and his Northern BC mine plan.

Harper's corporations demand cheap labor. Harper's ultimate goal is to kill the Unions and knock Canadian wages way, way down. To do that he is laying off Canadians and giving foreigners our resource jobs.

Owen Gray said...

That anecdote encapsulates precisely what is wrong with the present economic model, Anon.

If no one can buy the goods or services produced, the economy collapses.

Owen Gray said...

Harper's constituency is small, Anon. He has no intention of broadening his base. His challenge is to get just enough votes to stay in office.

ffd said...

Stephen Poloz, Bank of Canada's new governor, is worried Canada is heading for deflation. Inflation was well under 1% last year and he thinks 2% is "sacrosanct". A deflationary economy can stay that way for decades like Japan,he says.

Anonymous said...

@Owen Gray - Australia has voted in some 'interesting' characters with their mandatory voting laws.

The Raleigh Experiment
Paul Krugman, NY Times

The idea behind cutting benefits is that we are “paying people to be unemployed”, and that tough love will force them to go out and create jobs. It’s never explained exactly how greater desperation on the part of the unemployed will, in fact, lead to higher overall employment. Still, you could imagine that an individual state might gain some competitive advantage against other states by cutting wages. What you actually see in North Carolina, however, is nothing — employment growth tracked the national average both before and after the benefit cuts.

What the supply siders willfully ignore is that it is the velocity of money that creates demand.

Lower velocity (higher income inequality) = lower demand.
Higher velocity (greater equality) = higher demand.

Owen Gray said...

Exactly, Anon. Supply side economics has created what Mark Carney called "dead money."

When money doesn't circulate, there is no demand.

Owen Gray said...

What's remarkable, ffd, is that we have recent evidence of what Harper's economic prescription accomplishes.

Japan and Italy show us where we are headed. But Mr. Harper is immune to evidence of any kind.