"I Work Hard... I Work 10-12 Hours a Day"

by the Sandwichman

"Well, the reason why I ask you about the American Dream I mean, I work hard. I'm a plumber, I work 10-12 hours a day..."

"Two things have always marked out the financial masters of the universe from the rest of us. First, their souped-up salaries, and then their souped-up working hours. We mortals understood that these were connected. The rewards were so high because the hours were so long."

Nothing seems to dramatize "The American Dream" quite as insistently as the hard-work-and-long-hours parable. There's just one problem with the parable: long hours of work result in reduced output -- not just reduced productivity per hour but reduced total output. Those who brag about working "10, 12 hours a day" spend the last two to four hours sacrificing their leisure time (and yours) to a false idol. The fact that they get paid -- and sometimes handsomely -- for this conspicuous waste of time is due solely to cultural norms known as "the wage" and "the overtime premium" neither of which is calibrated to actual measures of output or productivity.

It is "un-American" to point out the baselessness of this myth. That's because the "regular Joe" who works overtime to support his family, buy a house, go into business and put his kid through college is a genuine "American Hero." No, he is not. He's a SCAB. At one time, even conservative American unionists understood, as Samuel Gompers declared: "The answer to all opponents to the reduction of the hours of labor could well be given in these words: 'That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'"

Can Destabilizing Speculation Both Be Profitable and Help Obama Win the Election?

Paul Krugman treats us to a recent rightwing claim that a bunch of rich socialists have generated the recent financial crisis in order to assure that Obama wins the election. Paul reminds us that this same crowd back in 2004 claimed George Soros would do the same in order to help John Kerry.

OK but aren’t there a lot of rich people who want McCain to win? If the rich lefties are engaged in what amounts to be destabilizing activity – couldn’t the rich righties make money by engaging in stabilizing speculation? Interestingly, Marxist.com brings us the thoughts of Milton Friedman on this issue:

Milton Friedman asserted that destabilising speculation was impossible. This was supposed to be the case because speculators who ‘got it wrong’ would be buying dear and selling cheap. They would lose money and soon disappear.

So are these rightwingers saying that Friedman got this issue wrong?

Economic and Social Importance of the Eight-Hour Movement

The wants of mankind are everywhere simple or complex according to the quality of the habits and Customs of the society in which he moves. Habit not only governs our social wants, but it exercises an important influence over our physical wants also.

As wages are governed by the standard of living, and the standard of living is governed by the social wants of the laborer, how then are the social wants determined? A little observation will show that the wants of mankind are everywhere simple or complex according to the quality of the habits and Customs of the society in which he moves. Habit not only governs our social wants, but it exercises an important influence over our physical wants also. While it does not determine whether or not we shall eat, it does decide how and what we shall eat, the clothes we shall wear, the kind of house we shall live in; nay, more, the very language we speak, the morals we adopt, and the religion we profess, are all determined by the habits and customs of those among whom we live. Whether we are Christians, Mohammedans or Buddhists; whether we eat with chop-sticks, or use knives and forks; whether we live upon rice, wear wooden shoes and a cotton frock, or eat black bread and dress in sheep-skins, or enjoy the comforts and luxuries of modern civilization, mainly depends upon the prevailing social habits and customs of the country we happen to live in. In fact, habit is the strongest force in human affairs. It is more powerful than governments, armies or absolute despotism. It is at once the motor force and ratchet wheel of human progress. Wants push the car of civilization forward, the habits and customs prevent it from slipping backward. In short, the habits and customs of a people constitute its real social character.

Components of GDP Growth Since 2000

If a picture is worth a thousand words, let’s present three of them – each of them drawing from the real GDP index numbers presented in NIPA table 1.1.3 from this source. Real GDP is about 19.5% higher than it was in 2000, which translates into an annual growth rate just over 2.3%. Not exactly what I would call a Bush Boom. Our first graph shows a couple of things. Private consumption (Con) grew more rapidly than GDP, while government purchases at first grew more rapidly but ended up being only 19.6% higher than we observed in 2000. One could say we got fiscal restraint towards the latter part of the Bush administration just as we had to worry about a possible recession.

At the end of the day, however, national savings as a share of GDP has declined since 2000 but the components are fascinating. Export demand started weak but rebounded rising by over 40% during the period. Offsetting that, however, was the over 30% increase in imports. Business or nonresidential investment (Nonresid) began with a decline but eventually rose to 16.2% of its 2000 level. So business investment actually declined relative to GDP despite all those tax breaks designed to give us some sort of supply-side miracle. And the big news is that residential investment, which was almost 35% higher in 2005 than it was in 2000, has plummeted to less than 83% of its 2000 level.

Our last graph shows the components of government purchases. Defense spending is 42.6% higher than it was in 2000, while even Federal nondefense spending is almost 23% higher. So why is overall government purchases not dramatically higher as a share of GDP now versus 2000? Well, it seems that state & local government purchases have gone up by 11.5%.

And yet, the White House can send Dana Perino out to say this:

Ms Perino said Democratic leaders in Congress had floated ideas – such as infrastructure spending and help for state and local governments – that “we did not think would actually stimulate the economy, so we would want to take a look at anything very carefully”.

The election is only two weeks away and then this incompetent crew will be lame ducks!

Saudis Succeed in Keeping Us Hooked on Oil

So, the price of oil has now plunged to nearly $70/per barrel, and in most of the US the pump price is below $3 per gallon and falling. In an article in yesterday's Washington Post, one of the designers of the Toyota Prius, Bill Reinert, warned that at $2.50 per gallon, few people are interested in buying hybrid cars, much less the more expensive plug-in electrics that reportedly will cost $8,000 more to purchase than standard cars. Also, it takes five years to "ramp up production" of a totally new automobile. While several automakers are working on plug-in electrics, which looked good at $140 per barrel of oil, it is some years before they will come on line, and one producer, Tesla Motors, has already canceled a project for a mid-cost sedan due to financing problems.

So, clearly there was a speculative bubble in oil this past summer, but the turnaround has also had fundamental components. Part of it is the oncoming global recession reducing demand, but part of it was due to production increases that were little noted at the time earlier this year. Those came in Iraq, where production has now gotten back up to where it was prior to the fall of Saddam, and in Saudi Arabia. The total between them amounted to about 1 million barrels per day. Needless to say, the Saudis have nothing to offer the world other than their oil, and will do what is needed to make sure that we remain dependent on them. That means killing any serious alternatives to the internal combustion engine before too many of them get on the road by getting production up enough to keep the price of gasoline down enough to do so, even if some other OPEC members are unhappy about it, wanting their oil revenues now.

Economic and Social Importance of the Eight-Hour Movement

The standard of living in any community is always high or low, according as the social life of the masses is simple or complex; that is to say, as the number of the habitual daily wants of the people is large or small.

Wages being governed by the standard of the laborer's living, whatever directly or indirectly effects that must affect wages. The standard of living in any community is always high or low, according as the social life of the masses is simple or complex; that is to say, as the number of the habitual daily wants of the people is large or small. It is lower in Asia than in Europe, lower in Europe than America, lower on Mott Street than on Fifth Avenue, for the reason that the wants of the people in the former places are fewer, and their social life simpler than those in the latter. In proportion as man's wants are limited to his physical necessities, does he remain brutal and barbarous. And only as his desires for things which enter into his social life, and the use of which exercises an elevating and refining influence upon his character, are intensified into wants, does he rise in the scale of social, intellectual and moral development. This is why we always find the quantity of wealth produced is the smallest, the methods employed the crudest, and the scale of civilization the lowest, in those countries where the social wants of the people are the fewest.

Economic and Social Importance of the Eight-Hour Movement

The general rate of wages, in any given class, group or industry, is determined by the standard of living of the most expensive families furnishing the necessary part of the supply of labor in that country, class, group or industry.

Other things being the same, the cost of his living will be determined by the number of his habitual wants. Thus, the cost of producing labor is ultimately determined by the socially-accepted standard of living; that is to say, the state of material comfort and social refinement which is customary in, and therefore demanded by, the social status of the class to which one belongs, and below which he cannot permanently go without being put to social disadvantage. Again, the standard of living as here stated does not mean that of the individual merely, but of his family. Nor does this mean that the wages of the workers in each family are determined by the cost of living of that particular family, but it means that the general rate of wages, in any given class, group or industry, is determined by the standard of living of the most expensive families furnishing the necessary part of the supply of labor in that country, class, group or industry. The reason for this is very clear. The laborer will not work for less than what will furnish him a living. He will, as experience shows, often work for less than will supply him with exceptional comforts and luxuries, but he will not continuously work for less than will furnish him that which, by constant repetition and force of habit, have become necessities. Rather than forego these he will refuse to work, will inaugurate strikes, tots, and other means to endanger the peace and prosperity of the community. If $2 per day is the minimum amount upon which a certain portion of a given class of laborers can or will consent peaceably to live, then that amount must be paid them in order to obtain their labor; what the. most expensive portion must receive the remainder therefore may and will receive. In other words, the minimum amount that the most expensive laborers will consent to accept, determines the maximum amount any portion of the class can obtain, and therefore fixes the general rate of wages in their class. The reason for this is equally clear. In modern industry; with the concentration of capital and the use of factory methods and the division and aggregation of labor, it becomes economically impossible to pay different rates of wages to different individuals for the same kind and quantity of work, especially where piece-work prevails, which is increasing as the factory methods extend. Consequently, we find that the general rate of wages in the same industry and locality is nearly uniform. We know, for instance, that weavers, spinners, shoemakers, carpenters, bricklayers, painters, etc., in the same shop or factory, or on the same job, get the same rate of pay for work at their respective trades, whether they are single or married, have large or small families, or live more or less expensively than their fellow-laborers. We also know that the most expensive among them must obtain for his service sufficient to supply his family with what to them (as a class) are necessities. What will be sufficient to supply the urgent necessities of the most expensive portion of any class of laborers, and barely induce them to continue to work, will furnish all those whose cost of living is less with a margin proportionate to the difference, which may be spent in what to them are luxuries, dress, amusement, travel, literature, etc.

This explains why we always find those whose families are the largest, or those who have more cultivated tastes and wants, and therefore a higher cost of living than the bulk of their class, are constantly chafing under the pressure of their unsatisfied demands. This pressure increases in severity in proportion as the standard of living rises above that of the lowest. Consequently, we find in every class of laborers a portion who are in almost perpetual rebellion against the smallness of their wages, while the single men, and those whose families are smaller, or who maintain a lower standard of living, can either save money or use it in dissipation. Indeed, it is a law throughout society which all history demonstrates that every step in progress, social, political, moral, or religious, has always been obtained through the energies of a small portion, seldom 20 per cent, of the class or country who received the advantages. This affords the explanation of what has hitherto been an economic enigma, namely, why the members of the trades unions, and the leaders in strikes, and other forms of agitation for the advance of wages and industrial reforms, are always the most intelligent and best-paid laborers. Why the six-cent-a-day laborers in Asia do not strike half as frequently as do the two or three-dollar-a-day laborers in America, and why in all strikes there is a large proportion of the laborers who are reluctant to leave their work and always anxious to return. The reason is that this portion of the class do not feel the pressure or necessity for an increase because their wages are determined by the twenty per cent. of their class whose standard of living is more expensive than their own. This law also explains the reason why European and Asiatic laborers can come to this country and accumulate wealth (or dissipate) upon wages which will barely supply the laborer's family in America with the necessaries of life. Tue fact that the foreigner can save money while the American laborer can hardly make two ends meet, is frequently cited as the evidence of the superior character of the foreign laborer. But if this be true why did they not give evidence of this superiority by saving money iii their own country? We may be told that it is because the general rate of wages there was so low that no margin was left above what would give them a bare living; but this only raises the next question: Why is there no margin in their own country?

Why is there no margin for the best class of Chinamen in China, of Germans in Germany, Englishmen in England, and Americans in America, while there is a margin in almost every country in Continental Europe for the Asiatic, a margin in England for both the Asiatic and Continental laborer, and a margin in the United States for the laborers of every other country, but no margin for the American laborer in any country in the world. The answer is very clear. There is no margin upon which the best class of laborers can save in their own country, simply because there the general rate of wages is determined by their own standard of living. They can get wages which will leave them a margin over the cost of living, only by going where the price of labor is determined by the social character and standard of living higher than their own, or, if in their own country, by adopting a standard of living lower than that of the highest of the class to which they belong. Why the foreign laborer who can hardly procure a living at home, can accumulate here, while the American laborer can only obtain sufficient to satisfy his normal social needs, is for the first time explained by the operation of this economic law. And should the standard of the American laborer ever be reduced to the level of that of the European or Asiatic, then it would be as impossible for the foreign laborer to save money here as in his native country, and for the same reason.

It will thus be seen that the rate of wages is not kept up and promoted by the influence of those whose standard of living is below the average, but by the constant pressure of the unsatisfied desires of those whose standard of living is the highest in their classes. Thus it is, that in accordance with the same principle that production is finally determined by consumption, the laborer's income, under wage-conditions, is governed by his expenditures. In other words, the standard of living is the economic law of wages.

More Post-Bailout Goodies

The Wall Street Journal assembled a panel of the worst offenders of the financial meltdown. A reasonable person might expect some contrition after all the damage that they did. Instead, they are asking for more deregulation and tax breaks. Read it and weep!

Berman, Dennis K. 2008. "Street's Demands May Stir Public Wrath." Wall Street Journal (14 October).

Goldman Sachs Group Inc.'s Lloyd Blankfein, J.P. Morgan Chase & Co.'s James Dimon, Blackstone Group LP's Stephen Schwarzman, BlackRock Inc.'s Larry Fink and Silver Lake's Glenn Hutchins assembled for a panel session at the New York Stock Exchange last week organized in part by The Wall Street Journal. "To the 75 Wall Street titans there nodding in agreement, the discussion must have seemed banal. But any outsider, from Washington or the dismissed realms of "flyover country," would have been amazed at the goings-on."

"While America buckles in for years of sacrifice, the five chiefs took a different approach. The group pulled straight from the what-government-can-do-for-you school of 2006, lobbying for Wall Street tax breaks, the repeal of Sarbanes-Oxley and against the distraction of class-action lawsuits."

"Consider Blackstone's Mr. Schwarzman, who took on a wounded look, saying that none of the people on the panel had done anything wrong. "I don't see corruption in this room. ... Every bad actor in this drama has washed away," he said. "There's no one left in place"."

"Mr. Blankfein, meanwhile, shrugged off the idea that Wall Street could do much. The political system has gotten so tainted that "people like us may not lift their heads above the parapet to give ideas for fear that their heads may be shot off," the Goldman CEO said."

Bretton Woods 2 -- Brumaire 18

by the Sandwichman

"Hegel remarked somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce."

Do all great world-historic photos also appear twice?

The same Alfred Eisenstaedt portrait of Henry Morgenthau and John Maynard Keynes, seated in wicker chairs at Bretton Woods in 1944 appeared yesterday in the Globe and Mail and today in the New York Times. In it, Morganthau appears to be inspecting his fingernails. Keynes looks bored.

In the Globe and Mail, the photo accompanied a story about the call by France's Sarkozy, Germany's Merkel and the UK's Brown for a new international financial order. The Times story briefly mentioned Sarkozy's ambition to "rebuild the foundations of the financial system" but didn't elaborate.

My question, assuming that the "tradition of all dead generations weighs like a nightmare on the brains of the living," is: who gets to play Keynes in this particular sequel? Sarkozy?

The United Nations Monetary and Financial Conference, as the Bretton Woods confab was officially known, convened in June, 1944. In April 1945 JMK wrote to the poet, T.S. Eliot outlining three "ingredients of a cure" for unemployment. The first two were investment and expanded consumption. The third and "ultimate" solution, in Keynes's view was working less. Yes, that's right. Keynes saw the reduction of working time as a more enduring policy approach than either investment or consumption, which in his view had important short term impacts.

The 1945 letter wasn't a fluke or an aberration. In May 1943, Keynes prepared a memorandum on "The Long-Term Problem of Full Employment." In it he projected three phases of post-war economic performance. The first two phases involved investment for stabilization, reconstruction and expanded consumption. During the third phase (estimated to begin some 10 to 15 years after the end of the war): "It becomes necessary to encourage wise consumption and discourage saving, -- and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."

So the June 1944 Bretton Woods Conference took place almost precisely mid-way between two declarations by Keynes -- in May 1943 and April 1945, respectively -- that reducing the hours of work should be a key policy element in a post-war, full-employment economy.

Get the picture?

Economic and Social Importance of the Eight-Hour Movement

The price of labor (wages), like that of everything else subject to the conditions of exchange, constantly tends toward the cost of its production.

First then, would a general reduction of the hours of labor tend to increase real wages? By real wages we mean the actual amount and social well-being obtainable for a day's labor. In order to answer this question it is necessary to understand how the general rate of real wages is determined. Here we come upon another of the popular fallacies which has done so much to prejudice the average employer against the labor movement. It has not only been taught and believed that high wages are injurious to the interests of the employing class, but it has also been generally accepted that wages are governed by the proportion between the demand and the supply of laborers. And that nothing Can increase the laborers' wages which does not diminish their numbers in proportion to the amount of capital. Consequently, wages can be increased only in One or two ways, either by increasing the employers' capital or reducing the number of laborers.

Happily, however, for the advancement of civilization, this doctrine, as elsewhere shown, instead of being the iron law of economic truth, is a monument of economic heresy. It is now susceptible of scientific demonstration that wages are not a badge of slavery, but a necessary and continual part of industrial progress. The economic law of wages, when properly understood, will be found to be as elastic as human wants' and desires, and capable of as much expansion as the social character of man. This law only needs to be understood by the laboring and employing classes in order to enable them to see that the laborers' income may be indefinitely if gradually increased, without impairing that of any other class, and the progress of society be continuously promoted without abolishing the wages system, or subverting existing social and industrial institutions. When the law of wages, which the limits of this paper prevent from more than briefly intimating, is understood, it will be seen to be the social quality instead of the mere numerical quantity of the laborers which determines their income. It will be found that the price of labor (wages), like that of everything else subject to the conditions of exchange, constantly tends toward the cost of its production. This does not mean that the prices of every particular thing are determined by the cost of producing that particular article, nor that the price is determined by the average cost of producing such articles, but that the general price of any given class of commodities is determined by the cost of producing or replacing that portion of the necessary supply which is produced under the greatest disadvantage. That portion of the general supply of a commodity which is produced at less than the maximum cost yields a profit proportionately to the difference.

Applied to labor, this law is that wages (the price of labor) constantly tend toward the cost of producing service (the cost of a thing being that which its owner gave for it, or would have to give to replace it). The cost of labor to its owner, the laborer, is obviously the cost of his living Upon the same principle then, that producers will not consent to continuously sell a commodity for less than it costs to produce or replace it, the laborer will not consent to sell his service for less than it cost him, i. e. for less than will furnish him a living.

More Bailout Obscenity

As if the bailout were not were not bad enough, the Wall Street Journal reports that the Treasury Department is, in effect, rewriting the tax code to give away what will easily be tens of billions of dollars.

On the opposite page, the paper reports that the Fannie and Freddie bailout is likely to cost the government considerably more than expected because of court suits charging, probably correctly, that management misled investors.

One can safely as that more will be discovered later.


Drucker, Jesse. 2008. "Obscure Tax Breaks Increase Cost of Financial Rescue." Wall Street Journal (10 October).

http://online.wsj.com/article/SB122428410507346351.html?mod=todays_us_page_one

Saha-Bubna, Aparajita. 2008. "Fannie Suit Vexes Regulator, May Pay Shareholders." Wall Street Journal (10 October).

http://online.wsj.com/article/SB122428804156146581.html?mod=todays_us_page_one


The $700 billion financial rescue package approved by Congress to shore up banks also carries a parallel bailout of the financial sector and other industries through a series of obscure tax breaks.

Operating mostly under the radar screen, Congress, the Treasury Department and the Internal Revenue Service have been rolling back various provisions of the tax code to help out industries and investors caught up in the turmoil.

The most costly -- and most controversial -- of the moves provide billions in extra tax relief to big banks such as Wells Fargo & Co. and Spain's Banco Santander SA. Another change gives aid to investors stung by the auction-rate securities meltdown. Still another shift relaxes tax rules to help big multinationals bring back cash from overseas.

The total sums involved aren't clear, but the cost will easily amount to tens of billions of dollars, tax experts say.

The latest such move was unveiled on Tuesday, when the Treasury Department declared that the cash infusions for banks won't be considered "federal financial assistance." Normally, that type of funding would count as taxable income for the recipients, and could trigger other unfavorable tax consequences for banks receiving assistance that take part in mergers.

A Treasury Department spokesman said the agency is seeking to "provide clarity and certainty regarding tax issues that have come up during market turmoil."

Tax experts say some of the changes are justified, including a number of technical fixes to protect taxpayers from unintended consequences related to government actions, such as the takeovers of Fannie Mae and Freddie Mac, or the substantial investments in banks. Plus, the broader bailout legislation passed by Congress earlier this month shut some other tax loopholes, including one that permitted offshore hedge-fund managers to get favorable treatment for deferred compensation.

The most controversial move so far is an obscure IRS ruling that gives banks the unfettered ability to use the "tax losses" of banks they acquired.

Typically, companies are permitted to carry over tax benefits from years when they lose money to help offset taxes when they return to profitability. However, for decades, Congress has restricted the amount of those losses that can be used in a given year, to prevent companies from buying and selling other firms solely to benefit from the tax strategy.

In a one-sentence ruling issued on Sept. 30, the Treasury Department effectively lifted that restriction if the company being bought is a bank and the losses are attributable to a portfolio of loans.

Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, has complained about the sudden loosening of the rules. "Congress should have been informed and consulted before Treasury took such an extraordinary action that likely will add billions of dollars to the deficit," he said.

Some experts argue that the Treasury has effectively shifted from administering parts of the tax code to changing tax laws on its own. "It doesn't seem possible that they have this authority," said Robert Willens, an independent corporate tax analyst.

The biggest beneficiary so far is likely to be Wells Fargo. The big San Francisco-based bank recently agreed to buy Wachovia Corp. of Charlotte, N.C., which has been hammered by huge losses on mortgage-related securities and loans. Wells Fargo has said it expects to take $74 billion in write-downs on the Wachovia portfolio.

Under the old rules, Wells Fargo would have been limited to annual tax deductions stemming from the Wachovia losses of roughly $930 million over the next 20 years, or a total of $18.6 billion, estimates Mr. Willens. Wells Fargo will now be able to use all $74 billion in losses. That will likely mean additional tax savings to Wells Fargo of about $19.4 billion -- or more than the total purchase price for Wachovia's common stock, currently about $14.3 billion.

A Wells Fargo spokeswoman wouldn't comment on the role of the tax change in its decision to bid for Wachovia, which bested an earlier offer by Citigroup Inc. Wells Fargo's offer took place two days after Treasury's move.

The new tax benefit applies to already-completed bank deals done in the past three years, and possibly even older ones, according to the Treasury Department.

Another winner from the new rule is Banco Santander, which recently agreed to buy the rest of Sovereign Bancorp. The Spanish bank will be able to take advantage of Sovereign's $2 billion in tax losses more quickly than under the old regime, which would have required it to wait nearly two decades to use up the losses.

Because of the Sovereign purchase, Banco Santander also will be one of the many beneficiaries of a separate break, aimed at hundreds of banks that lost money on preferred stock in Fannie Mae and Freddie Mac. The shift allows the banks to count those losses as ordinary losses, rather than less-useful capital losses. The change is expected to cost the federal government $3 billion, according to the congressional Joint Committee on Taxation. [Bailout]

Many investors were caught by surprise when the auctions for auction-rate securites began to fail, leaving them holding notes for which there was no market. New York Attorney General Andrew Cuomo brokered settlements with investment banks and brokerage houses, in which the banks effectively agreed to cover any losses suffered by the investors.

A recent ruling by the Treasury protects the investors in those arrangements, in part by making clear that an agreement by a bank to cover the losses isn't akin to taxable income. Another ruling protects investors who loaned shares to Lehman Brothers Holdings Inc. from being taxed on the transactions. Ordinarily, they are required to get the shares back within a prescribed time frame to avoid owing taxes. That rule isn't normally waived, even if the borrower of the shares goes bankrupt. But the IRS made an exception that effectively applies to transactions with Lehman, which filed for bankruptcy protection last month.

And earlier this month, the IRS relaxed the rules covering how U.S. corporations can repatriate cash parked overseas. The ruling allows companies to bring back money for months at a time without incurring a 35% corporate income tax they normally would owe. It is intended to make it easier for companies to borrow money directly from their foreign subsidiaries, instead of in the uncertain short-term lending market. It is unclear how much this will cost the government.

Economic and Social Importance of the Eight-Hour Movement

While no proposition for industrial reform can produce any real improvement in the laborer's condition which does not promote the advance of real wages, even that can only be economic and wise when it takes place without permanently increasing prices or reducing profits.

This measure is presented to the community for consideration and discussion, wholly as a practical economic proposition in the adoption of which all classes are mutually interested. It is just as irrational to expect the employing classes to favor a proposition which would destroy profits as it would be to expect the laborers to support the scheme for reducing wages. There is no good reason for asking any class to support a proposition which would be injurious to its own material and social well being. No measure for social reform is worth considering which contemplates improving the condition of one class by impairing that of another. Therefore, while no proposition for industrial reform can produce any real improvement in the laborer's condition which does not promote the advance of real wages, even that can only be economic and wise when it takes place without permanently increasing prices or reducing profits. Would a general reduction of the hours of labor tend to promote this result? We unhesitatingly answer yes!

We are entirely willing that the proposition for the general adoption of eight hours shall be accepted or rejected upon the scientific correctness of this reply. All we ask is that the subject shall receive the unbiased consideration to which it is entitled; and that its merits be determined by the widest induction and the closest deduction that accessible industrial data and economic science afford.

This proposition really involves three questions which we will briefly consider separately: First, would it tend to increase real wages? Second, would it tend to raise prices? Third, would it tend to reduce profits?

Praise the Lahde and pass the marijuana

by the Sandwichman

Joe, the [unlicensed] plumber, meet Andrew, the [former] hedge fund manager.

Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out....

Capitalism worked for two hundred years, but times change, and systems become corrupt.

Amen.

Do you believe in the American Dream?

Me personally, my American Dream was to have a house, a dog, a couple rifles, a bass boat. I believe in living life easy and simple. I don’t have grand designs. I don’t want much. I just wanna be able to take care of my family and do things with them outdoors and that’s about it, really. I don’t have a “grand scheme” thing. My American Dream is just more personal to me as far as working, making a good living and being able to provide for my family, college for my son. Things like that – simple things in life, that’s really what it comes down to for me. That’s my dream.(1)

The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.(2)

The reform of consciousness consists only in making the world aware of its own consciousness, in awakening it out of its dream about itself, in explaining to it the meaning of its own actions.... Hence, our motto must be: reform of consciousness not through dogmas, but by analysing the mystical consciousness that is unintelligible to itself, whether it manifests itself in a religious or a political form. It will then become evident that the world has long dreamed of possessing something of which it has only to be conscious in order to possess it in reality.(3)

1. Samuel J. Wurzelbacher, Interview, Family Security Matters, October 15, 2008.
2. James Truslow Adams, The Epic of America, 1931.
3. Karl Marx, Letter to Arnold Ruge, September 1843.

The Economic Crisis: A Wal-Mart Economy Dimension

Wal-Mart offers a valuable window into the current economic crisis. Before addressing the current crisis, let's put Wal-Mart in perspective.

Wal-Mart is, at least in part, both a cause and a symptom of what went wrong in the economy, as well as a hint of what might be done to correct the problem.

Wal-Mart represented a logical business strategy to an economy in which real hourly wages have been stagnant for more than three decades. Wal-Mart presented the face of low prices (which were not in reality always lower than elsewhere). At the same time, Wal-Mart contributed to the low wage environment that made it such a successful business.

Besides paying low wages to its own workers (and sometimes not even paying all the wages that it owed), Wal-Mart helped to lower wages elsewhere. For example, grocery stores have put enormous pressure on their unionized workers because of competition from Wal-Mart's nonunion operation. Admittedly, Wal-Mart displaced some small retailers that may have paid lower wages.

As is well known, part of Wal-Mart's strategy was to rely on imports from countries that paid low wages. Competition from these imports both destroy jobs and limited wages from jobs that remained in the U.S.

According to a somewhat dated report, if Wal-Mart were a country, it would rank as China's fifth-largest export market, ahead of Germany and Britain.


Goodman, Peter S. and Philip P. Pan. 2004. "Chinese Workers Pay for Wal-Mart's Low Prices: Retailer Squeezes Its Asian Suppliers to Cut Costs." Washington Post (8 February): p. A 1.

Here is where we can begin thinking about the current crisis. Because of the lack of investment in production in the United States, the annual imbalance between its exports and imports is approximately equal to the $700 billion bailout. To pay for these imports, the country must borrow about $2 billion every day of the year.

China alone holds about $2 trillion in U.S. debt. Until recently, a substantial amount was held in paper from Fannie Mae and Freddie Mac.

Here is a report from the Wall Street Journal:

"It turns out the biggest supporter of the Fannie Mae and Freddie Mac bailouts has been the Chinese government. The Chinese own about half a trillion dollars in Fannie and Freddie securities and they've put the warning out to Treasury Secretary Hank Paulson they expect to be repaid in full. The fear among Mr. Paulson and other Treasury officials is that if Fannie and Freddie debt isn't repaid at 100% par, the Chinese may start dumping their hundreds of billions of dollars of Treasury securities, possibly causing a run on U.S. government debt and sharply raising Uncle Sam's borrowing costs."

Moore, Stephen. 2008. "Bailing Out the Bank of China." Wall Street Journal Political Diary (30 July). http://online.wsj.com/article/SB121734906485393697.html

The Chinese had already sold about a quarter of their holdings of Fannie and Freddie, by last summer. Earlier, Chinese officials had already said that they intended to diversify their holdings of foreign assets rather than committing is much to the United States.

Bloomberg later reported:

"A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. 'If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,' Yu said in e-mailed answers to questions yesterday. 'If it is not the end of the world, it is the end of the current international financial system'."

In the end, Fannie and Freddie were saved, along with the investment of China and other exporters, who will be expected to purchase more US debt to pay for the bailout.

Obviously, Wal-Mart is only a small part of the complex set of conditions that led to the recent crisis. Even so, we can tell a simplified Wal-Mart story to explain the linkages involved here:

Low wages helped to give Wal-Mart a competitive advantage in retailing, which, in turn, helped to spur off-shoring, leading to a serious balance of trade deficit. The low-wage exporters, especially China, attempted to keep their currency cheap, in order to prevent swelling unemployment at home.

To keep the value of its currency low, China and the other exporters sent much of their profits back to the US buying investments in Fannie, Freddie, and U.S. Treasury debt. These funds helped to keep interest rates low, which stimulated both consumption and speculation. In this environment, housing prices and financial assets increased in value, creating even more consumption and a greater knowledge of trade deficit.

Wal-Mart also offers a hopeful pointer. Here is a company whose sales may be greater than the GDP of half the members of the United Nations. Using modern technology, the company has been able to create magnificent efficiencies, along with its less-desirable exploitative consequences. Someday, maybe we can create an economy that can take advantage of the beneficent innovations of business and turn them to public advantage rather than private profit.