Comment by ergoproxy | Hacker News Reader

Comment by ergoproxy | Hacker News Reader

Quite simply, "productivity" is the sum of all real goods and services produced in the economy, while "wages" are simply the share of that produce brought home by the workers who produce it. The difference is profit. If productivity increases (as it has since the 1950s) and wages flatline (as they have since the 1970s), then the result must be rising profits. You can see this graphed in the brief "The wedges between productivity and median compensation growth" at http://www.epi.org/publication/ib330-productivity-vs-compens...

The question left unanswered in this article is why are wages in the US falling relative to productivity?

Since wages are the "price" of labor, and prices are set by supply-and-demand, falling wages imply either (1) an increasing labor supply or (2) a shrinking demand for labor (or both). So here are some specific reasons for stagnating US wages:

INCREASING LABOR SUPPLY - Slave labor, prison labor and child labor in countries like China. - Immigration from Latin America after NAFTA. - Liberated women entering the paid US labor force starting in the 70s.

DECREASING DEMAND FOR LABOR - New labor-saving technology, computers and robots that work faster, better and cheaper than humans. - Financialization: Investors can make more money from asset bubbles in housing, bonds, and dollars than they can from labor. -- ZIRP: With real interest rates heading to zero (or less), why should I continue to pay high interest on the money I borrowed a decade ago to build this US factory? Liquidate the factory, fire the workers, and relocate somewhere cheaper; or better: simply use the money to buy bonds and bet on falling interest rates. -- High housing prices: An employer needs to pay his workers subsistence wages, which means enough to buy a place to live, but with housing prices so high, this is impossible. Better to bet on the housing bubble than buy labor.

> Financialization: Investors can make more money from asset bubbles in housing, bonds, and dollars than they can from labor

There is some dark humor in the fact that it was the laboring folks whose pockets got drained by the housing bubble.

> INCREASING LABOR SUPPLY - Slave labor, prison labor and child labor in countries like China.

China had enough farmers moving into industry. Slave, prison and child labour may happen, but they are not particularly efficient and so don't make much of a dent in overall figures.

For there to be equilibrium between supply and demand, several conditions must be met: perfect competition; perfect information; no economies of scale; no barriers to entry; no negative externalities; and no cheating.

Things like slave labor, prison labor and child labor are cheating. There's a lot of evidence China cheats the free market in these ways, and that's why I singled them out.

For example, "Apple has cut ties with one Chinese supplier that was found to have 74 workers under the age of 16." Source: globalpost.com (January 26, 2013) http://www.globalpost.com/dispatch/news/business/technology/...

Foxconn's factories in China installed suicide nets to catch workers jumping off the roof, which sure makes them look like forced labor camps. Picture here: http://news.cnet.com/2300-13579_3-10013733-14.html

If being cheated means being able to buy cheaper consumer goods, come by and cheat me any time you like.

Just because a market is not perfect, doesn't mean it provides no benefit.

So its OK if Chinese workers are cheated, as long as you get a bargain?

The ultimate impact of foreign slave labor on US free labor boils down to this: Is free labor superiority per hour more than counterbalanced by labor that can be flogged, worked to death, and quickly replaced? Is there slave labor with which no free labor can compete? If your answer is no, then go on buying cheap goods produced by slave labor, because it will have no consequences for the US standard of living. But if the real answer is yes, then buying slave-made goods paves the road to slavery for America.

Frankly, my dear, I don't give a damn about the US standard of living. If anything, the more numerous Chinese deserve around 5 times more caring.

(And for the record, the Chinese are not making inroads because of slave labour. They make inroads in spite of some slave labour.)

"deserve": Are you arguing economics or social justice?

I'd like to see everyone's standard of living go up. But when equilibrium doesn't exist because of cheating, Pareto optimality no longer obtains, and some people profit at the direct expense of others. Slavery is a prime example. It shouldn't exist at all.

I'd recommend anyone reading this thread take a look at "Apple (and America’s) Chinese Slave Labor Problem" by Karl Denninger at http://www.financialsense.com/contributors/karl-denninger/20...

> "deserve": Are you arguing economics or social justice?

Social justice. I am not from the US of A after all (and even if I was, I don't see the point about worrying about some accident of geography / history).

> Just because a market is not perfect, doesn't mean it provides no benefit.

Imperfect markets that permit slave labor provide a clear benefit to the slave holders. No real benefits for the slaves--they're worse off.

1st & 2nd theorems of welfare economics say markets in equilibrium are Pareto optimal: In every transaction, at least one party does better, but nobody does worse. Since slaves are clearly worse off, we know there's no general equilibrium in such an imperfect market.

> For there to be equilibrium between supply and demand, several conditions must be met: perfect competition; perfect information; no economies of scale; no barriers to entry; no negative externalities; and no cheating.

What do you mean by that? Prices work well to balance supply and demand in all kinds of `imperfect' markets.

Arrow-Debreu (1954) showed that under conditions of perfect competition, a general equilibrium must exist. But no comparable existence theorem can be found in the various models with imperfect competition. For example, if you remove the condition "no economies of scale," you exclude convex feasible production sets, and you don't get guaranteed existence. Models of imperfect competition need to add other less plausible assumptions to get back existence of equilibrium. (This won't bother Austrian economists or post-Keynesians, because they reject General Equilibrium Theory as misleading and useless anyway. However, these schools of economics don't frame their ideas in mathematics such that it is possible to prove theorems about the existence, uniqueness, and stability of equilibrium.)

Arrow-Debreu nice result gives you sufficient theoretical conditions for a unique (!) equilibrium to exist.

As you say, in practice, our markets are different, and the conditions don't apply fully. But I don't see how that applies here? There might be multiple equilibria, but that doesn't have anything to do with slave labour.

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