Morning Ed: Brexit II {2016.07.03.Su}

DavidTC in reply to Brandon Berg says:

@brandon-berg

So here’s the fun question: If removing minimum wage in the US made clothing affordable, then…would clothing *actually* be affordable if people didn’t make the minimum wage?

Or, to try from another direction: You mentioned productivity, which often an economic force. More goods being produced is a net good.

But let’s actually analyse what happens when a factory moves overseas:

Yes, Americans have cheaper clothing, but they also *make less*, on average. In fact, even if you average *everyone*’s salaries, Americans and people overseas, people make less! (The overseas factory is hardly going to be *more* expensive to operate.) The clothing might change from 2% of 99.99% of people’s salary to 1%, but it also changes from 2% to *infinite* percent of the salary of the laid-off people.

See, here’s the problem: It is not more efficient to make clothing overseas. (Barring efficieny gains like ‘no safety regualtions’ and ‘no restroom breaks’ that we actually *dislike* on moral grounds.) It is not more productive to make clothing overseas. (It’s actually rather less productive.) We don’t get more clothing for less work, we get…exactly the same amount of clothing for exactly the same amount of work, except we then have to ship it overseas. There is *nothing* about it that provides any sort of net economic benefit by itself.

It is cheaper solely because it can bid labor cheaper. That’s it. That’s the entire thing.

And there are two claimed ‘net goods’ as a result: ‘Americans have cheaper stuff’ and ‘poor people in poor countries earn some money’.

But the benefits to Americans are *completely pretend*…yes, a huge percentage of people are lucky and have a few dollars more, which can really make a difference to the poor…and the small fraction of laid-off people are *immensely worse off*. No net benefit, actually a net loss. It’s jsut *hard to see* unless you’re one of the unemployed…and it get *especially* hard to see after a few years, where people are not ‘unemployed due to the factory moving overseas’, they are just saying ‘there are mysteriously no jobs’.

And to the second idea, that ‘poor people earn more money’, I have a couple of replies, several of them unprintable, but most of them are like ‘Wow, it’s amazing how global capital suddenly cares about poor people.’ and ‘Hey, wait a second, wouldn’t those communities actually be better off if factories were making stuff for *them*?’ and ‘Is this really a reasonable way to do economic aid to poor countries? Couldn’t we actually take the tax base we *used* to have and do, well, anything else?’Report

DavidTC in reply to Dark Matter says:

A thousand? Let’s say 20 Thousand (200 factories of 100 people each).
Assuming $50,000 per worker, that’s a loss to society of $1 Billion.

Now, that 114 Billion in extra income to households will go on to create more jobs (so the effect is greater), and a lot of those displaced workers will find other employment (so the effect is a lot less, my job has been destroyed at least 3 times so far).

First, while *those* displaced workers might find jobs, that, obviously displaces *other* workers. If there were 100,000 people out of work before, and 20,000 jobs are removed from that area, there will be 120,000 people out of work, even if the unemployed people are not actually the people whose jobs were removed.

Secondly, the cost of clothing has not actually halved. The cost a few, specific, really cheap things has halved. The extremely poor can now wear new clothing instead of secondhand.

Third, the amount of money spent on clothing was not halved either. A good deal of the savings has resulted in them just buying *more clothing*. (Or, if poor, new clothing, as I just said.) The American people spent $1644 on clothing in 1994, and $1786 in 2014 per household. Or, to adjust for inflation, $2626 in 1994, and $1786 in 2014. That’s an decrease of 30%. (And, yes, the spending on clothing does presumably slightly increase the amount of jobs in the clothing retail market, but it mostly create jobs overseas, right next to the *rest* of the apparel manufacturing industry.)

Now, despite all this, you somehow got the correct amount per household (?) Roughly $112 billion extra dollars. But before we play the game of calculating what that did, let us first subtract the $47 billion we lost.

So $65 billion extra dollars a year. Will that create enough jobs to cover almost a million people of work?

Or, to put it another way, can $65,000 extra a year generally sloshing around the economy cause one one person to get a $50,000 a year job?

When it is put that way, the answer is pretty clearly: No, it cannot. That idea is absurd.

Let’s try to build a specific hypothetical (Despite this being generalized across the entire economy.): Let’s say that a group of people took that extra money, and, came to a local business and bought some additional things for a total of $67,000, causing enough additional work that the business thinks it would be nice to hire someone. But *is* that enough to hire someone?

Let’s not forget taxes. The business is only keeping ~93% of that $65,000 or so, the rest was to cover the sales tax, so the business only has ~$60,000 it can spend on someone. And if the person is getting paid $50,000, that, *at minumum* costs the employer $53,000, thanks to their 6.2% FICA duty…and presumably there’s some sort of training, and other additional expenses.

And the obvious problem is…no business can can spend $53,000 on an employee that takes in $60,000 a year at the cash register, because of the obvious fact they have to *buy* what they sell, and that’s presumably not with a 85% markup! The stuff being sold doesn’t appear out of nowhere.

The 2009 Stimulus bears this out…it cost about $280,000 per job created, which sounds right to me. $280,000 in the economy might make one job. And a lot of that was specifically targeted things that created jobs, not ‘hope everyone takes their extra clothing money and spend it on other things’

That $112 billion is maybe 400,000 added jobs.

And the ‘multipler’ thing is…multiplers are for the *economy*. Putting X dollars in the economy might, indeed, create 2X more economic output. But that doesn’t do a damn thing for people who *don’t have jobs*. To get jobs created, you have to put several times that job’s salary in the economy.

To make an absurd analogy: If space aliens came down tomorrow and gave everyone magical boxes that, when a button is pushed on the top, it built a house for them…yes, the economy would be more productive. Yes, less people would be without houses.

But there would *still be less jobs*. The economy is not some sort of vague thing where all indicators point in the same direction. It is entirely possible for things to be good for ‘the economy’ in general and yet result in unemployment. It is even entirely possible for things to be good for the economy and yet bad for the *median* American.

Like, for example, offshoring. Or anything else that puts ‘money in the economy’ at the expense of people able to actually work to *access* that money.Report

DavidTC in reply to Dark Matter says:

You were claiming that closing *one* factory (not 200) clearly wasn’t worth the cost even if it gave 1% of household income to everyone in America.

Erm, it’s hypothetically possible to read it that way, but there’s as there’s no actual way that one factory could reduce the *average* cost of American’s clothing by any noticable amount, which was the *other* side side of my hypothetical, I don’t know how you can read it that way in good faith.

And, in fact, you didn’t at the time, and you’re just now trying to read it that way because I pointed out that moving apparel manufacturing overseas has caused *much* more job losses than you estimated.

Starting one small business or making a new product doesn’t auto-magically eliminate another. If you notice your neighborhood doesn’t have a lawn mowing service and you start one, then not only are you creating jobs but the people paying you may actually be making more money if they’re working more hours because of the time you’ve freed up for them.

What the hell does that have to do with anything? People do, for no obvious reason, create jobs…which they can do *regardless*.

You seem to be arguing that removing jobs auto-magically *creates* other jobs. There is no evidence of this. You didn’t even actually make an *argument* for it, you just used an example of someone creating a job, and had them do it when they were out of work. But, of course, they could have done it just as easy or easier when employed!

If there were 50 people at a local clothing factory, and 50 unemployed people in the same town, for an unemployment rate of 50%, and one of those unemployed people decided to start mowing laws, now unemployment is a 49%. If one of the *employed* people started mowing lawns, unemployment is probably also 49%, because that person just left a position that someone else will be hired to fill.

If all those jobs move overseas, unemployement is now at 100%…and if one person starts a lawn mowing business, unemployment is now at 99%, regardless of where that person was previously employed.

Your argument is literally claiming that unemployment makes some extra employment (?!), and seems to have a rather dubious grasp on how the labor market works. Specifically, in the real world, *new* jobs are much more likely to be created by *employed* people, because employed people have money and resources to *risk* things like that. Unemployed people cannot buy lawnmowers or send out advertising. (I mean, seriously, you literally posted a link to an article talking about how people need $15,000 in savings to start a business. People who just got fired from their jobs probably do not have $15,000 in savings!)

Some people who lose their jobs from FT will be damaged, others will actually be helped, in practice you divide the total lost by a factor to reflect how many people got jobs (or how good those jobs are)

Economics says that, if people not having their current job would have helped them in any sort of average, then they would have, tada, quit their job. If there was something better for them to be doing, *they would already be doing it*. At least, the vast majority of them would.

Yes, there are a few *specific* counter-examples, but you can’t run around basing macro-economic analysis of the entire economy on a hypothetical ‘Well, maybe they’d buy winning a lottery ticket’ or ‘Maybe they’d start their own company’ nonsense. And, it’s worth pointing out, this could literally justify *anything*, economically. Why don’t we burn down their houses so the construction industry can hire them!

You’re basically trying to apply the broken windows fallacy applies to labor, that labor is somehow better off because a specific job is removed from them.

99.99% of people working in an apperal factory are working there because they see that option as *the best option currently on the table* for them…and they’re almost certainly correct.

Remove that option, and they take a *worse* option. It might, indeed, be another job, if they’re lucky…but now you’ve removed *that* option from someone else, etc, etc, sliding every person one rung down the employment ladder until one additional person is unemployed.

(And, *sigh*. Once again I, a liberal, find myself arguing from the *wrong direction* against a conservative that doesn’t understand basic market principles. Aren’t *I* supposed to be the guy arguing ‘People sometimes do not behave rationally, and the government shouldn’t assume they always know their best interests?’. Instead, I’m having to explain ‘People generally have the best job they think they can get.’.)

The percentage of household income devoted to clothing went from 10% in 1960 (when we made everything) to 3.5% today (link for 10%, your own source agrees with 3.5% http://ww2.kqed.org/lowdown/2013/05/24/madeinamerica/ ). This means an increase in household income of 6.5%, not 1%

If you think we were offshoring a large portion of apparel manufactoring before the early 80s, I don’t know why.

The decrease in cost before that point came from *efficiency* gains. We had more productivity.

Which costs jobs, yes, but actually *does* counter that in the economy, in the way you’re pretending that offshoring does.

Doing things at the same level of quality for less time and effort *is* good for the economy as a whole.

Doing things at the same level of quality, for the same time and effort, but for *less labor costs*, is not good for the economy as a whole, it is is, in fact, *exactly* neutral for the economy as a whole.

Exactly neutral on ‘average’…with losses accruing to labor, and gains accruing to owners. Same amount of goods for everyone, except that corporate owners made more money from their sale and manufacture…and labor made less.

And offshoring adds the fun twist of offshoring is the money still going to labor is now going to extremely poor labor in a mostly separate economy, so it isn’t even really ‘neutral’…that money tends to disappear over there. (Yes, the actual *money* comes back, but the *wealth* stays over there.)

The Stim was enough money to give EVERY unemployed person a check for $60k and let them try to start a small business.

Okay, you have wandered completely off the point, but I have to point out that, giving all unemployed people $60,000 to start a small business would, even pretending things were normal, result in half them back out of work at the end of 5 years…and I have to suggest that society launching *twenty times* as many small businesses as normally launch a year, would, uh, result in a lot more of them failing. Like, almost all of them. (And that’s ignoring the weird unfairness of just giving *unemployed* people money, and the fact they would not, in fact, use it to start businesses.)

To get back to the point, you’ve gotten completely confused as to what we’re trying to figure out. The stimulus isn’t under discussion. We are discussing your claim that $X dollars in the economy resulted in $X/50,000 jobs paying $50,000.

Please note there isn’t ‘how much *extra* money a business must have to hire someone’. We aren’t talking about that. We are talking about things being cheaper, aka, money now in the pockets of *people*, who will then attempt to buy extra things with it.

Like I pointed out, something like 10-15% of that pocket money *instantly disappears* due to taxes before it can hypothetical make it to a new employee, via sales and payroll tax! Poof, gone.

But even that’s a bit silly to worry about, considering that businesses tend to operate on profit margins of many 10%, so customers giving a business $50,000 means that business might now have *$5000* it can now spend on a new employee.

A business doing an extra $50,000 in sales cannot *possibly* afford an extra employee of $50,000. That’s so silly I have no idea why I’m even discussing it.

This is especially true for Free Trade (FT) because (for the simplest text book version) you’d have one country which used to produce X+Y shift to X while their trading partner does the reverse.

No. That is how text books *justify* free trade, which is entirely true when different countries have mostly the same sort of economies and have an advantage in producing specific goods.

If one country can produce something *with less resources*, (less time and/or effort) than another country, than *it* should make that, and other countries should make other things, and they should trade. That is all 100% true. As I said, increasing *efficiency* is good for the economy. I have no argument there.

The problem is…this isn’t how offshoring works. Is is not more efficient to produce things overseas, in fact, it’s a generally less efficient…new factories have to be built, new workers have to be trained, source material and finished goods have to be shipped everywhere. There is *absolutely* no increased efficiency in having a t-shirt made in China than in the US. (This is partially a lie, in that some of that reduced efficiency is countered by not meeting *safety requirements*, adding efficiency. This…is hardly to anyone’s credit. Safety regulations are fact ‘a reduction in efficiency’ our society have decided, on a whole, it *likes*, and has mandated by law.)

It’s just *cheaper labor*. That’s it. Cheaper labor. Doesn’t help the economy, as a whole, at all. Helps the people who make profits from those companies, hurts people who are employed by those companies.

Seriously, think about this argument you’re making, and ignore offshoring for a second and pretend companies just started paying *American* workers much less?

Are you actually arguing we’d be better off because we could buy stuff from those companies for less? If, like, tomorrow, everyone’s income was cut in half, and prices of everything were cut in half, that would be some huge boon to the economy? How do you think that possibly works? How does that help anything?

Of course, ‘everyone’s’ income wasn’t cut in half, and prices of ‘everything’ also didn’t drop. It was a more randomized process, with some incomes dropping to zero, and price drops of random things. But it’s not some sort of economic *bettering*, it’s just a *shuffling*…and prices are stickier than new factory wages, so a lot of the money was shuffled into the pockets of the owners.

But that’s just the problems if we pretend these are *American* workers, where it’s all ‘neutral’ to the economy. It’s just harmful to labor and beneficial to the owner class, but neutral in general. But it’s *not* American workers.

We, as Americans, have a duty to keep Americans from dying on the streets, so all the out of work people *here* end up causing a drag on the economy, because we’ve got to cover their tax burden now, *and* help them out also. Whereas people in China who *were* out of work didn’t harm us at all…and the workers collecting paychecks in China don’t pay American income taxes on them…and mostly didn’t spend their wages on things over here either.Report

DavidTC in reply to Dark Matter says:

Getting fired and having no job is a huge shake up, and moving away from family/friends/church/school becomes a lot more reasonable in that context.

Taking away someone’s job *does not benefit that person* in any sort of sense. You keep trying to *imagine* circumstances where it does, but the actual fact is, we are talking about *averages* here.

You are functionally a person claiming that the poor play the lottery more often, so it’s better to be poor, because they’re more likely to win the lottery.

You do not seem to understand how macro economics functions at all, that we don’t give a damn about outliers in it. Anything at all *might*, in theory, make *some* random person better off…the question is what does it do to the vast majority of people?

Ergo I hand-waved the cost to create a job as $50k (those links I put out claim it’s less). Ergo if you add $50k to the economy you’re creating one, median job of $30k.

As I pointed out, there is no possible way that makes sense, and it isn’t *slightly* what those links say.

The first link is literally about someone starting a new business because they have $16,000…which *cheaper clothing* is extremely unlikely to result in.

The second is how much it costs a *business* to create a job. But you realize that, for a business to have extra money to spend, we’re talking about *profits*, right? And you realize when people go a business and buy $50,000 worth of stuff, you understand the business did *not* make $50,000 in profits, right?

Business, I repeat *once again*, generally have a profit margin under 10%, depending on the field. That means 90%+ of that $50,000 went into *purchasing inventory* and *rent* and *existing labor costs*, which means it can’t be used to *hire someone*. That $50,000, yes, continues on from there…with taxes reducing it the entire time, so the *next* cycle of business getting even less.

This, incidentally, is where that *multiplier* you are talking about is, and why it’s, at most, *two*. Spending hits one business, a fraction of that hits the next business, and a smaller fraction hits the next, etc. Money get spent multiple times, until it peters out in taxes. (Smaller multipliers generally are because the first person didn’t spend all the money.)

But that’s *total economic activity*, not ‘money to create jobs with’.

That’s intuitive, but no, this is a misunderstanding of how relative efficiency works and it’s wrong. Free Trade doesn’t depend on one country being more efficient than the other country, it depends on them having different relative efficiencies.

*sigh*

I don’t actually *care* about relative efficiency, which has been this gigantic lie used to explain free trade. Yes, it does exist, but it is almost completely moot with *factory work*.

Relative efficiency explains things like farming production, or rare minerals, or wind farms, or anything where geographic location can actually *alter* the efficiency. Factories, being enclosed buildings where things that are shipped in are turned into other things, *do not have relative efficiencies* based on location. Unless the factory is on the goddamn moon allowing heavier items to be moved easily, the actual location of a factory has no bearing at all on the efficiency of it. (Barring superficial crap like needing different levels of AC or whatever, or adding inefficiencies like safety regulations we’ve mandated *by law*.)

There is nothing about China that makes it more *efficient* for t-shirt to be produced there. There is no magical quality of the Chinese people that makes them better factory workers. Now, China produces twice as much cotton as the US, which makes it sound like apparel might be a bit more efficient for China until you realize that the US produces more than enough cotton for its own clothing, and is in fact having to ship cotton to China to make clothing to ship back.

It is, in fact, hugely *less* efficient (Not in the factory per se but in the entire process) to ship cotton halfway around the world, run it through a *newly built* factory as opposed to the factories we used to have the US, (often *very close* to the origin of the cotton), and then ship it back.

This is because offshoring factories, 90% of the time, has *nothing to do* with relative efficiencies.

It is entirely due to *labor* costs.

On a side note, there’s a lot of really counter-intuitive stuff in all this and it takes a semester or two for most people to get their head into it.

How long does it take for most people to actually learn what ‘efficiency’ is? Because ‘cheaper labor’…does not count as ‘efficiency’.

Efficiency, in economics, is how much product you make using a specific amount of resources, tools, and labor. (That is, I feel I must point out for perhaps the hundredth time, the *amount* of labor, not the *cost* of labor.)

A decrease in the cost of labor does not increase efficiency.Report

DavidTC in reply to Dark Matter says:

GDP/Job: $110,525

Note this is a *serious* overstatement. This is mean, we want median, the Financial sector (etc) is going to be a serious distortion, so the amount of economic activity to justify a job will be a lot less. If we want to adjust for that…

First, you’ve completely completely forgets sales tax exists yet again. To get people to be able to *spend* $110,525 on stuff counted towards the GDP, you have to give them $110,525 * 1.08 or whatever sales taxes is. A trivial fact, yes, but it is relevant.

Second, you’re assuming that every extra dime people have will *go* towards the GDP. But, uh, no, it doesn’t. Not if they don’t spend it. Admittedly, poor people probably will, but you can’t just pretend *all* decreased costs will go back to GDP. It is *hypothetically possible* for human beings to save money.

And you are, for some reason, looking at the productivity side of the GDP…but we’re actually talking about looking at GDP from the income direction here.

The ‘distortion’ there is the fact that GDP is basically wages + corporate profits + investment income. So what is actually happening is you’re…sorta right in that each *current* job is less than $110,525…it is, in fact, exactly the average income, and the rest of the GDP is from corporate profits and investment income.

The ratio is not GDP/Job: $110,525, the ratio is ‘GDP due to jobs’/job = exactly average income. This proves…nothing at all. It shows that each job is, on average, making the amount of average income. Good job, laws of math!

And that leads us to the actual problem: To show that this would increase jobs, you’d have to show it increased the total amount of wages, *instead* of just increasing the total amount of corporate profit or investment income.

Or, to put it another way: To make a $30,000 job, a business only does need to be willing and able to spend $35,000 or so. (‘able’ requires it doing several hundred thousand dollars worth of business.) The important thing in that sentence isn’t the ‘$35,000’ that you think it is, it’s the word *willing*. It has to be willing to do *that* instead of operating on the current amount of staff and giving that $35,000 to the owners. Or giving $20,000 to the owners and reinvesting $15,000 in the business, or reinvesting it all in the business. (Or even paying workers more, although that would tend to *average* out to more jobs.)

And there is the problem: There have been *huge* increases in corporate profits and investment income over the decades, and wages have stayed steady or slowly declined.

Now, it’s completely impossible to say where the extra money specifically *from offshoring* went. In fact, it doesn’t really make much sense….that’s just money being spent, and all the money floating around is, in some sense, fungible.

A conspiracy involving 10s of thousands of economists and hundreds of governments? Why for?

Erm, no, it’s not. Ecomonists are quite clear what they’re talking about when they talk about relative efficiencies. It is not their fault that people are being taught the theory of relative efficiency and then using it to justify something that doesn’t have anything to do with it.

Factories located next to their customer have reduced shipping costs, in our just-in-time economy shipping and so forth becomes a big deal.

Dude, can you actually *hear* this conversation? You do realize that is literally what I just said, right?

Factory location also brings into play things like legal/governmental stability, electrical stability, availability of labor, and availability of other inputs.

Again, is this thing on? *taps mic*

You do realize you are supposed to be arguing *for* offshoring having more relative efficiency, right?

Electrical stability, availability of labor, and availability of other inputs are relative efficiencies…and the US wins in all them! (Not sure about whether stability of government would technically count as a relative efficiency, but I guess anything done to *deal* with it would be…but the US wins there also!) As does it win in location! The US wins every comparison of relative efficiency there!

To recap this thing we’re discussing that you seem to have forgotten: Offshoring factory work from the US is not justified via relative efficiency. It is only justified because *labor is cheaper*, which is *not*, economically speaking, classified as a relative efficiency. (Because cost has noting to do with efficiency.)

Or to put it another way: If this was *actually* relative efficiency, than we’d have *American* factories making things for *China* also. That’s how relative efficiency is supposed to work, right?

You were staring at an efficiency increase and you totally missed it. In our textbook example, the output of the larger economy increased. The efficiency of the entire economy went up, even though it happened via trading with a partner who was actually less efficient than they were.

The economy does not have ‘efficiency’. The economy has *productivity*.

And, again, the amount someone is paid has nothing to do with their measured productivity.

And bringing in extra people and only counting their *work* and not their *consumption* is cheating on the amount of work being done.

Productivity is (input+labor)/output. You can make *any* economy look really productive by ignoring input when you add people.

Who is feeding those people? Where have the input supplies come from? What is producing the power?

You want to talk about the ‘larger economy’ instead of America’s, you have to measure their *entire* economy and add it to ours. You can’t just grab the *output* of something overseas and pretend it’s part of the US GDP.

And, incidentally, the economy is becoming more efficient all the time, but it’s generally due to technological advancements.

Most of the benefits from FT come from opening up your own economy, i.e. imports, not exports.

Again, that is literally what I am arguing. (Have I even *mentioned* exports?) You sound like some sort of weird PR guy not actually addressing anything I say.

Free trade in factory work is a way to shift money from labor to capital by having lower labor costs, which also reduces the price of goods.

However, *I* assert it shifts more money from labor to capital than it saves the average person, making it a net way for money to go upward. (This is actually pretty easy to prove…if it wasn’t a net profit for factory owners, *they wouldn’t do it*.)

You…seem to be ignoring this idea completely, instead sprouting primers on free trade.Report

DavidTC in reply to Dark Matter says:

All of these effects push pretty hard in the same direction.

You seem to think the GDP demonstrates something about jobs. It…doesn’t, really. Part of it is income, part isn’t. It can go up and down based on employment…and it can go up and down based on corporate ownership. It is an imperfect attempt to measure the economy, not any sort of attempt to measure jobs.

Additionally, offshoring won’t raise the GDP at all! The GDP is the gross *domestic* product! It’s how much goods and services are produced *within the US*, or, to put it another way, how much money is distributed to workers and owners *from* producing those goods and services. Producing things overseas *lowers* the GDP, not raises it, due to things not being produced domestically. (Which is literally what the GDP measures!)

And, on top of that, cheaper things *lower* the GDP, not raises it, due to people generally spending less and savings more. (Or, to put it another way, people roughly need the same amount of stuff, so lower prices means they spend less, even if they aren’t consciously ‘saving’.)

Doing both, producing things overseas for cheaper, lowers the GDP even more!

If I have $1000, and spend it on American clothes, I just added $1000 to the GDP. If the price of clothing halves, so I spend $700 on overseas-produced clothing (And let’s say that those clothes were $400 in value when imported, which means only $300 of that counts as ‘American production’, aka, the packaging and shipping and operating a retail store to sell them in), $200 on tacos from the local taco cart, and I kept $100 in the bank, I only added $500, aka, ($700-$400)+$200, to the GDP. Or, to do it via subtraction, I had $1000, and didn’t spend $100, and imported $400 worth of goods, so the amount of production I caused that counts towards the GDP was $500.

In some sort of *mutual* trade setup, of course, that $400 in money I just sent to another country would then be spent purchasing *American* goods, and *that* spending would count towards the GDP. But, of course, we’re running a rather large trade deficit, so maybe $200 got back..

Although note, even with out a trade deficit, that my example still lost $100 to the GDP via savings, and can’t possible make GDP be *higher*. People can spend more if they have more money. Actual, real money, in their bank account. They cannot spend more if they have the same amount solely because stuff is cheaper…they literally have the same amount of money! They can only spend it on *different* things.

And the GDP, again, has very little to do with employment to start with! Employment *affects* the GDP, but the GDP changes based on a bunch of different things, only one of which is employment. (Which is obvious to anyone paying attention to the current recovery, which had GDP recover very quickly and employment lag way behind.)

The multiplier effect deals with this issue (that’s it’s job). If no one spent anything we’d have a multiplier of zero, if everyone spent everything it’d be infinity.

Again, taxes apparently do not exist in your universe. Because there *are* taxes, if everyone spent everything the multiplier would be, essentially, two.

There is about 50% of taxes each cycle of money. That means every cycle causes ~50% to disappear. The first cycle you have 1, the second cycle is .5, the third cycle is .25, etc, etc. And all the cycles up and you converge on (But do not quite reach), a multipler of 2.

~50% disappearing a cycle is a rough estimate. But there’s an average income tax rate of 33%, plus 6% payroll tax with that income tax, plus 6% the business pays, gets us to 45%…plus there’s sale tax on the *other* side of the cycle, which tends to be about 8% as far as I know. OTOH, the owners are *not* paying payroll tax on their dividends. I think 50% is a reasonable guess. Again, that’s what is *possible*, not what actually happens.

It’s not just sheer random chance that multipliers in the actual real world are somewhere below 2. Because you can’t really get above that with our current tax rates. (Oh, and it’s worth nothing that one of the best stimulus, increasing food stamps, with a multiplier of 1.73, isn’t subject to sales tax the first cycle. Well, that’s one way to add an extra 0.08% multiplier to it!)

And anyway, the job of the multiplier effect is to tell you what money does to the *economy*, not what it does to *jobs*. Which, as I keep pointing out, are not the same thing.

Earlier you claimed the Stimulus, which did something similar (but worse designed and temporarily) did increase the number of jobs by just dropping money on the economy.

What do you mean, ‘worse designed’? The method you are talking about literally was not designed *at all*. It’s just random cheaper prices.

And the stimulus cost us hundreds of thousands of dollars a year to make a job. *Before* any multiplier.

If you want to argue that every unspent $300,000 floating around the economy causes a job to be added, I won’t disagree. I will certainly disagree with any number under $100,000, though.

And yet my example of “relative efficiency” show trade worked just fine even though Country “A” was less efficient at everything. By all means, come up with some Country A/B, Product X/Y math which shows what you mean and why I’m wrong about what economists believe. One of us doesn’t understand what “relative efficiency” means in this context, perhaps the math will show it’s me.

I think it is worth pointing out at this point that, regardless of this ‘relative efficiency’ thing, jobs are not the same thing as efficiency. In fact, they are literally the *opposite* of efficiency, as labor is an input. And efficiency goes *up* when inputs go *down*.

As I pointed out, technology is something that actually *does* increase efficiency…by putting people out of work.

You have conflated ‘jobs’ and ‘the economy’ again, assuming that because the economy is doing better, that jobs exist. In fact, that appears to be heart of everything you say, because you simply cannot grasp that something that is good for ‘the economy’ can be bad for the average American.

Note ‘the average American’ is not the same as ‘every American on average’. Take ten dollars from every American, give that and another billion dollars to Bill Gates, and the Americans, on average, just got better off.Report