Economists say income gap hurts U.S. economy

[Jeffwhosoever]

Is it worth causing 500,000 people to lose their jobs so that 900,000 who have jobs can make $2.85/hour more? How can you justify such a decision?

 

[A2SG]

Is it worth causing 500,000 people to lose their jobs so that 900,000 who have jobs can make $2.85/hour more? How can you justify such a decision?

Because it will likely increase jobs instead. More money in the hands of working people means more money to buy stuff, and increased consumer demand leads to more jobs, not less.

At least, it worked that way here in New England, so...

-- A2SG, but I guess it depends on which you weigh more, what might happen or what DID happen....

 

[iluvatar5150]

Is it worth causing 500,000 people to lose their jobs so that 900,000 who have jobs can make $2.85/hour more? How can you justify such a decision?

First, it's not merely 900,000 people who'd be affected. It's more like 16.5 million.

Second, you can justify it by pointing out that we have other tools to reduce unemployment, while raising the minimum wage props up the value of the labor itself, so the people who are working will be doing better and need less public assistance. "Having a job" isn't a be-all-end-all if the job pays peanuts and you still need public assistance.

 

[Jeffwhosoever]

First, it's not merely 900,000 people who'd be affected. It's more like 16.5 million.

Second, you can justify it by pointing out that we have other tools to reduce unemployment, while raising the minimum wage props up the value of the labor itself, so the people who are working will be doing better and need less public assistance. "Having a job" isn't a be-all-end-all if the job pays peanuts and you still need public assistance.

Sorry, the 900,000 are the number who gets lifted out of poverty by the increased minimum wage. So which is better for society?

Someone else on here said the real key to reducing the income gap is to increase manufacturing jobs, which already pay more than the minimum wage. If that is true, raising the minimum wage doesn't seem to be the right approach to solve the problem.

 

[A2SG]

Sorry, the 900,000 are the number who gets lifted out of poverty by the increased minimum wage. So which is better for society?

Someone else on here said the real key to reducing the income gap is to increase manufacturing jobs, which already pay more than the minimum wage. If that is true, raising the minimum wage doesn't seem to be the right approach to solve the problem.

Why does it have to be one or the other?

-- A2SG, let's do both!

 

[iluvatar5150]

Sorry, the 900,000 are the number who gets lifted out of poverty by the increased minimum wage. So which is better for society?

Someone else on here said the real key to reducing the income gap is to increase manufacturing jobs, which already pay more than the minimum wage. If that is true, raising the minimum wage doesn't seem to be the right approach to solve the problem.

As A2SG has pointed out, you're presenting a false dichotomy. We can raise the minimum wage AND boost manufacturing.


Also, I'll say that I'm a bit skeptical of the near-worship of manufacturing jobs that seems to be popular these days. Sure, some manufacturing jobs do pay rather well, but many don't. We need a certain variety of manufacturing jobs, i.e. ones which make expensive, higher-tech products. We don't need jobs manufacturing processed food, for example. And we're never going to get American manufacturing back to where it was, so we should try to take care of the service workers who are making up a bigger and bigger part of economy.

 

[Soothfish]

...in other related news, 12pm is still noon.

"WASHINGTON —The growing gap between the richest Americans and everyone else isn't bad just for individuals.
It's hurting the U.S. economy.

So say a majority of more than three dozen economists surveyed last week by The Associated Press. Their concerns tap into a debate that has intensified as middle-class pay has stagnated while wealthier households have thrived.

A key source of the economists' concern: Higher pay and outsize stock-market gains are flowing mainly to affluent Americans. Yet these households spend less of their money than do low- and middle-income consumers who make up most of the population but whose pay is barely rising.

"What you want is a broader spending base," said Scott Brown, chief economist at Raymond James, a financial advisory firm. "You want more people spending money."

"The broader the improvement, the more likely it will be sustained," said Michael Niemira, chief economist at the International Council of Shopping Centers.

Income inequality has steadily worsened in recent decades, according to government data and academic studies. The most recent census figures show that the average income for the wealthiest 5 percent of U.S. households, adjusted for inflation, has surged 17 percent in the past 20 years. By contrast, average income for the middle 20 percent of households has risen less than 5 percent."
​

A myriad of sources

We are a capalist nation where the circulation of money allows demand to promote the creation of goods and services. When the vast majority of people have less money, and a small segment has more, it is counterproductive to a functioning capitalist system.

and who is going to fix the education gap? Or are we going to demand that people be paid $50/hour to push a button on a burger cooker?!

 

[JoyJuice]

and who is going to fix the education gap? Or are we going to demand that people be paid $50/hour to push a button on a burger cooker?!

No one is saying that, but thanks.

 

[JoyJuice]

I disagree! When the sales person pays his morgtage, or for gas, food, etc. he is paying with money he earned for the work he did.

Yes

The sale of the car was simply a reimbursment of money he was already owed. That is why I said except for the profit, the sale of the car is just reimbursment of money already spent

Yes, the sale of the car makes a profit. With that profit of the sale of the car not only is the salesperson, but everyone from janitor to Dealership owner is compensated. They take that profit and it multiplies when the profit is used to buy other essentials; as well as the person selling them those essentials makes a profits; and then they turn around and they do the same thing.

It is about the profit, and moreover the money already owed as you mention is borrowed to pay for the cars. So money is made there by the loaning institution, as well as the manufacturer of the car in the materials purchased to make the car, and the profit made from selling the material, the profit made in manufacturing that material in parts, also make a profit. So even once that money is "reimbursed" as you say, more of a multiplier effect is created going the other way behind that sunk cost of having the car on the lot.

Not sure what you mean by "spent on the whim of the company" but when money is invested it goes in a pool with all the other money that is used for whatever the company chooses to use it for.

Yes, that is what I mean by "whim" which a lot of the time it is NOT spent immediately and retards economic growth. The million people have an immediate impact.

Usually it is used for research and development which makes the company more efficient, expanding the company which leads to more jobs and taxes paid, paying shareholders, which brings in more shareholders and more money to invest, or something else that is going to benefit the company.

Actually, it really depends on what kind of company it is to say it is usually used for R&D, as a lot of companies spend more on sales then R&D. Most people who invest take those gains and roll them back into investment just to avoid taxes. So money just being circulated back into investment will not by any means have the same economic growth as the million people who have to spend that billion.

 

[SolomonVII]

And so long as people believe that nothing can be done, nothing will be done.

We get the government we deserve.

Most certainly. When sub-par legislation and overt lies are rewarded with yet an election victory, America indeed did get the government it deserved.

And they're going out of their way to prove it correct.

If they all went to the Bahamas for the rest of the election cycle, the results would be the same. For example, the Tea Party shut down government to delay the onset of Obamacare, lost that battle big time, and Obama preceded directly to do exactly what they shut down the government for in the first place, through executive order— lest it all kick in before the next election cycle.

Um....how is that any less politically impossible? Keep in mind, the ones crying the loudest for "limited government" mean nothing more than "limited to what I want".

No, limited government means exactly that-limited government. It means keeping the balance of powers divided and decentralized as well, so that it becomes exceedingly difficult for special interest groups of any kind to buy out the whole system.

Liberals don't just say increase spending, we try to target spending in ways that help the economy and working people. Things like increasing the minimum wage, spending on infrastructure and civic improvements, etc. Some people like to believe that we simply trumpet for more spending, and disregard where we think the spending should go!

-- A2SG, it can't all go to the oil industry, can it?

The quantitative easings of the Keynesians in charge were all about increased spending. Six years later, all those shovel ready jobs to go into infrastructure and civic improvements are still in the planning and environmental/cultural impact phases, if indeed they have even got that far off the ground.

It is the oil industry on the other hand that has been buoying up the economy to the extent that things are not much worse.

 

[Viren]

Sorry, the 900,000 are the number who gets lifted out of poverty by the increased minimum wage. So which is better for society?

Someone else on here said the real key to reducing the income gap is to increase manufacturing jobs, which already pay more than the minimum wage. If that is true, raising the minimum wage doesn't seem to be the right approach to solve the problem.

I think it's a mistake to focus on certain sectors. What we need is for all wages to go up and raising the minimum wage has been shown to do just that.

 

[Jeffwhosoever]

I think it's a mistake to focus on certain sectors. What we need is for all wages to go up and raising the minimum wage has been shown to do just that.

It has also been shown that raising the minimum wage makes unemployment go up. Hence the 500,000 in the CBO analysis.

 

[Ken-1122]

Not when the paycheck itself is worth less than it used to be. And that is exactly the case, since (sing along if you know the words!) WAGES ARE DOWN.

You are wrong again! Even though both paychecks may be less than the one, both paychecks combined are more than the one paycheck by itself.

Yes, but it still means less money if the money lent isn't paid back. Also, even for those who are paying back their credit card debt, it means money spent toward that goal isn't being spent on daily necessities, meaning the family suffers as does the economy.

I disagree! When the money isn't paid back, the only one who suffers is the credit card company.

Unpaid debt doesn't help anyone.

It helps the person who got something for nothing.

It all depends on where the money goes. More people means the money goes more places. It's spread around more, and that means more movement. Remember, more movement is better for the economy.

I already told you where the money goes; if you have a thousand people from different parts of the country going to Sears to buy a refrigerator, and all that profit goes directly to the CEO's salary, it isn't spread around more.

Nope.

In fact, the new jobs that replace the ones lost during the recession
pay less than the ones lost.

Oh, and corporate profits rebounded pretty quickly from the recession.

An analysis by The Wall Street Journal of corporate financial reports finds that cumulative sales, profits and employment last year among members of the Standard & Poor's 500-stock index exceeded the totals of 2007, before the recession and financial crisis.
​

That article is from 2012, meaning "last year" was 2011, so corporate profits rebounded within a couple of years.

Oh, and you may have seen where the article states that "employment" also rebounded along with sales and profits. Before you start to think that invalidates what I've been saying, check this out, also from that article:

The performance hasn't translated into significant gains in U.S. employment. Many of the 1.1 million jobs the big companies added since 2007 were outside the U.S. So, too, was much of the $1.2 trillion added to corporate treasuries. Two-thirds of Apple Inc.'s $82 billion in cash and marketable securities as of Sept. 30 was held by foreign subsidiaries, for example.
​

Laying off workers during the recession allowed some of the larger corporations to outsource even more than they had been doing before!

So, overall, corporate profits are way, way, WAY up, jobs and wages are down.

As I've been saying.

Corporate profits are up but that isn't always adjusted for inflation
Record Corporate Profits and Inflation | The Free Economy

It does, or you wouldn't have said it. If you wish to quote these two totally different statements, I'l be happy to explain what you might have misunderstood.

Your exact words were;
Look, it's not that hard to understand: if a billionaire invests, say, a million dollars in a corporation, and that corporation in turn pays a million dollar bonus to its already rich CEO, that money stays with the rich.

When the middle class gets paid, they pay bills and buy stuff; if the places that provide those services or things are owned by rich people, they get a cut, and the rest goes to paying employees of the companies that provide those services and things, etc."
I think I can see how the misunderstanding came about. You provided a scenerio that we both know does not happen. When someone invests in a company, that money does not go directly to the CEO as a bonus.

When corporate profits are up and wages are down, what that means is the profits mostly go to highly paid executives and shareholders, very little of it filters down to the employees of that corporation. So long as wages go down or stagnate, that will remain so.

If that is what you mean than all money stays at the top with very little filtering down; weather it be profit from sales or the investor investing in the company, it all goes to the same place.

So let's not just give money to it, let's address the problem and fix it!.

When you get if fixed, then come ask me for more money.

You posited getting rid of the government: "we should quit throwing money at the government". That's the getting rid of the car part of the analogy.

No, my point is; I have complete control over my car but I do not have conmplete control over the government.

There is nothing illegal about having holdings in foreign countries, the illegality comes from not declaring it on your taxes. The money I mentioned is known, so it likely was declared. Who knows how much hasn't been!

But that's just one area where the rich keep their money. I've mentioned others, like real estate and expensive things like art, there are also holdings like mutual funds and such, also investments in corporations. The rich have no end of things they can do with their money!

There is no doubt that some rich may do some foolish things with their money, but so do the poor and middle class. Is it fair to claim that the middle class spend all their money on lottery tickets, Casino's and alochol?
I think we both know most rich use their money to work for them and while doing so they create more jobs for everyone else which is good for the economy.

You've misunderstood what I said. When I talked about money only on paper, I was talking about appraisals, and only that.

My point is, stocks are the same way!

Let me illustrate the point I tried to make: if something is appraised at, say $3 million, you don't actually have $3 million dollars, you have a piece of paper that says something is worth that much. If you try to sell that thing and no one wants to pay you $3 million for it, but you only get $2 million, can you get that extra million from the appraiser?

Now let me illustrate a point. Lets say a CEO gets a bonus of 30,000 company shares worth $100.00 per share so everyone says he got a $3 million dollar bonus. If nobody is willing to pay $100.00 per share for his stock, but he only gets $50.00 per share, can he get the extra money from the company?

I wasn't talking about shares.

But I am in order to make a point. When wealth is considered, you can't only refer to the amount of liquid accets they have, you have to count the hard accets as well. Most rich have very little liquid accets; most of it is hard.

If the $4 million is someone's appraisal of how much the company is worth, then it's the appraiser's opinion (though it may very well be an informed opinion). If the $4 million is additional revenue, that it comes from more goods or services sold.

In my scenerio it was both. Remember I said I invested a million dollars in your company, and you used that money to expand it to the point of hiring more people, selling more product, and accumulating more accets so now it is worth an additional $5 million dollars, so where did the additional $4 million come from.

Yup. But wealth is measured in money, so they're very much related. The value of a company comes from it's revenues, the money it takes in from thsoe who buy the product or service offered.

It also comes from the hard accets the company ownes.


Ken

 

[A2SG]

Most certainly. When sub-par legislation and overt lies are rewarded with yet an election victory, America indeed did get the government it deserved.

Hey, it worked for Bush in 2004, didn't it?

If they all went to the Bahamas for the rest of the election cycle, the results would be the same. For example, the Tea Party shut down government to delay the onset of Obamacare, lost that battle big time, and Obama preceded directly to do exactly what they shut down the government for in the first place, through executive order— lest it all kick in before the next election cycle.

Thing is, our elected representatives are supposed to work for the public good, not to prove how ineffective they can be.

No, limited government means exactly that-limited government. It means keeping the balance of powers divided and decentralized as well, so that it becomes exceedingly difficult for special interest groups of any kind to buy out the whole system.

I know what the term is supposed to mean. However, it will never happen, ever. The special interests have too much money, and so long as they are allowed to use it to their heart's content (thanks, Citizens United!), it will govern the shape of government.

So this fantasy of "limited government" is no less politically impossible. The best we can do is be responsible citizens and be the watchdogs of our own government, work toward making government work better and hold any elected representative who abuses the public trust accountable for it.

The quantitative easings of the Keynesians in charge were all about increased spending. Six years later, all those shovel ready jobs to go into infrastructure and civic improvements are still in the planning and environmental/cultural impact phases, if indeed they have even got that far off the ground.

Care to document that? I ask, because most critics of the stimulus say we spent money on the wrong things, not that it hasn't been spent yet. This is a new one on me.

It is the oil industry on the other hand that has been buoying up the economy to the extent that things are not much worse.

Really? How?

How, for example, does paying $4 a gallon for gas buoy the economy?

And why does an industry that makes profits in the hundreds of BILLIONS need taxpayer subsidies on top of that?

-- A2SG, this oughtta be good....

 

[Jeffwhosoever]

No, you aren't telling me that Exxon Mobil gets taxpayer subsidies. Tell me you are kidding.

 

[A2SG]

You are wrong again! Even though both paychecks may be less than the one, both paychecks combined are more than the one paycheck by itself.

Yes, 1 + 1 = 2, we all know that. But you're missing the fact that WAGES ARE DOWN!!! This means those two paychecks, combined, often can't support a family without assistance. Once upon a time, one could.

That's the dilemma many working class families are finding themselves in.

I disagree! When the money isn't paid back, the only one who suffers is the credit card company.

And the people who work for that credit card company, and the people who work for businesses that do work for that credit card company, to say nothing of the creditors of those families who cannot pay back their credit card debt and declare bankruptcy.

The dominoes fall. We're all interconnected.

It helps the person who got something for nothing.

Not in the long run.

I already told you where the money goes; if you have a thousand people from different parts of the country going to Sears to buy a refrigerator, and all that profit goes directly to the CEO's salary, it isn't spread around more.

Well, the CEO doesn't get ALL the profit; a huge chunk of it maybe, but not all of it. But the fact remains, if corporate profits are up (as they are) while wages and jobs are down (as they are) the economy suffers as a result.

As it has.

Corporate profits are up but that isn't always adjusted for inflation
Record Corporate Profits and Inflation | The Free Economy

Proving what, exactly? Are you trying to say profits aren't high, or that wages aren't down?

Inflation is pretty low right now, so I'm not sure how that article is relevant to the discussion we're having.

Your exact words were;
Look, it's not that hard to understand: if a billionaire invests, say, a million dollars in a corporation, and that corporation in turn pays a million dollar bonus to its already rich CEO, that money stays with the rich.

When the middle class gets paid, they pay bills and buy stuff; if the places that provide those services or things are owned by rich people, they get a cut, and the rest goes to paying employees of the companies that provide those services and things, etc."
I think I can see how the misunderstanding came about. You provided a scenerio that we both know does not happen. When someone invests in a company, that money does not go directly to the CEO as a bonus.

Not all of it, no. I simplified it to make the point: since profits are up and wages are down, clearly more money is going to those at the top than to those at the bottom, by a huge margin. CEO pay, on average, has skyrocketed, while wages for everyone else (meaning not those in upper management) has stagnated or gone down.

Now, let me anticipate your response: "of course the CEO makes more money than a janitor, his job is more important!"

I don't disagree. However, the gap between CEO and janitor is so wide and so disparate, it actually has a negative effect on the economy overall. It leads to the huge gap in income inequality, and a huge gap like that is bad for the economy, as history has shown us. If you need more evidence, don't forget the OP presented a myriad of sources as well.

What it boils down to is this: If CEOs around the country suddenly decided to take a slight pay cut (considering 50 CEOs made a combined $126 million in bonuses alone! I'd say they can afford it), and shifted that money instead to raises all around for everyone else who works for that company: middle managers, secretaries, janitors...everyone, the economy would rebound almost immediately, and we'd all benefit!

Instead, they increase revenue by outsourcing jobs.

If that is what you mean than all money stays at the top with very little filtering down; weather it be profit from sales or the investor investing in the company, it all goes to the same place.

No, it does not all go to the same place. More goes to the top executives than to the rank and file who work for the company. Much, much more. So much so, in fact, that the inequality between the two has an effect on the economy.

As the OP stated.

When you get if fixed, then come ask me for more money.

Sorry, doesn't work like that. We, the people, remember?

We're all responsible. Not just us liberals. You conservatives have to take some of the responsibility too, you can't just shovel blame elsewhere.

No, my point is; I have complete control over my car but I do not have conmplete control over the government.

That's because it's WE, the people. We. As in all of us.

We have to work together. That's how it works!

There is no doubt that some rich may do some foolish things with their money, but so do the poor and middle class. Is it fair to claim that the middle class spend all their money on lottery tickets, Casino's and alochol?
I think we both know most rich use their money to work for them and while doing so they create more jobs for everyone else which is good for the economy.

When they do, sure. But when they don't, that's a problem. Or when they do hire people, but don't pay them enough, that's also a problem.

Both of which are happening, and we're all dealing with the effects of low jobs and low wages.

My point is, stocks are the same way!

To an extent, maybe. Stocks have a certain specific value that's set when you buy it. The value often changes, up or down, after that, but any changes in that value are only on paper until you sell it, then it becomes a tangible amount. But not before.

Those changes, however, are based on a lot of factors, including company revenue, so it's not purely based on an assessor's opinion. In part, perhaps, but not completely.

Now let me illustrate a point. Lets say a CEO gets a bonus of 30,000 company shares worth $100.00 per share so everyone says he got a $3 million dollar bonus. If nobody is willing to pay $100.00 per share for his stock, but he only gets $50.00 per share, can he get the extra money from the company?

Nope. But, unlike when you invest in art or real estate, the CEO can directly affect the price of his stocks with his own decisions on where to take the company. If he increases profits, say, by cutting workers and outsourcing their jobs to third world nations, then his stocks go up, his pay goes up, and US workers suffer the loss of jobs.

But I am in order to make a point. When wealth is considered, you can't only refer to the amount of liquid accets they have, you have to count the hard accets as well. Most rich have very little liquid accets; most of it is hard.

Not sure what the point you're making with that distinction, but go on.....

In my scenerio it was both. Remember I said I invested a million dollars in your company, and you used that money to expand it to the point of hiring more people, selling more product, and accumulating more accets so now it is worth an additional $5 million dollars, so where did the additional $4 million come from.

Revenue from sales probably accounts for a lot of it. Beyond that, if the amount reflects an assessment of worth beyond revenue, then it's an assessor's informed opinion that only results in actual cash if and when those assets are sold, but not before.

So the money that makes up that $4 million comes from the people who buy the company's products and the people who paid for whatever assets they sold.

The point being....?

It also comes from the hard accets the company ownes.

Only if they sell those assets. Then the money comes from whoever bought them.

-- A2SG, in all cases, no money just appears out of the air, it comes from somewhere....

 

[SolomonVII]

Elizabeth Warner did a study on all this. I can't remember all the details, but women's wages have risen, and men's have remained flat or slightly decreased in terms of real spending. The prices of most things have decreased in terms of real dollars, and for the most part, two wages would really take up any slack.

The one big thing though, is the price of housing. That is the one thing that no amount of wages has really been able to keep up with.

 

[Viren]

It has also been shown that raising the minimum wage makes unemployment go up. Hence the 500,000 in the CBO analysis.

That's what the CBO predicts, but if you look at what has happened in the past there isn't any correlation.

http://www.bing.com/images/search?q...F9D036E2FED3B6C5263243F111540&selectedIndex=0

 

[Ken-1122]

Yes

Yes, the sale of the car makes a profit. With that profit of the sale of the car not only is the salesperson, but everyone from janitor to Dealership owner is compensated.

No, the money for the salesperson, jajnitor, dealership owner etc. these are all a part of the cost of production. The profit goes back into the company, and the managers and owners decide how that money is spent.

They take that profit and it multiplies when the profit is used to buy other essentials; as well as the person selling them those essentials makes a profits; and then they turn around and they do the same thing.

This is done when the person spends the money they earned; this is not from company profit.

Yes, that is what I mean by "whim" which a lot of the time it is NOT spent immediately and retards economic growth. The million people have an immediate impact.

The money invested in business is not put on a shelf so it can get eaten up by inflation; it is used to improve the business and help it grow. That is how you get the multiplier effect. Example; a person invests in the business and it expands and they add to the size of the building thus the contractor who gets paid to enlargen the building gets a cut, the company has to buy more equipment because of the increased size so the business who sells the equipment gets a cut, because of the larger building and additional equipment they can now serve more customers so they hire more people to work for them, so unemployment goes down, then because of the increased foot traffic near the building during lunch time the hot dog venders outside the business and the surrounding resturants get increased business and so fourth and so fourth my point is, anytime money is spent it has a multiplier effect; the more that is invested the more the multiplier effect it has.

K

 

[JoyJuice]

No, the money for the salesperson, jajnitor, dealership owner etc. these are all a part of the cost of production. The profit goes back into the company, and the managers and owners decide how that money is spent.

The point of revenue is the sale of the car itself. That is where profit potential is realized. Yes, that "cost of business" is paid for through that sale. You can call it what you want but those earnings are used as economic multipliers when they are spent on essentials.

The money invested in business is not put on a shelf so it can get eaten up by inflation; it is used to improve the business and help it grow. That is how you get the multiplier effect. Example; a person invests in the business and it expands and they add to the size of the building thus the contractor who gets paid to enlargen the building gets a cut, the company has to buy more equipment beca use of the increased size so the business who sells the equipment gets a cut, because of the larger building and additional equipment they can now serve more customers so they hire more people to work for them, so unemployment goes down, then because of the increased foot traffic near the building during lunch time the hot dog venders outside the business and the surrounding resturants get increased business and so fourth and so fourth my point is, anytime money is spent it has a multiplier effect; the more that is invested the more the multiplier effect it has.

You simply can not predict how and when a business spends investments. All businesses are not the same nor are all of them ripe for expansion. So it really depends on what the investment is in. They could easily decide to buy back stocks. The seller of those stocks usually reinvests if there is any capital gains realized.

What I am saying is given the million people we KNOW that billion is going not only directly into the economy with a multiplier effect. A person spending a billion will not by any means have a more positive economic effect then the million individuals. There are just to many variables with the one individual and even with the example you gave it still will have a slower multiplier effect.