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The Cancer in Free Market Theory

Discussion in 'American Politics' started by Umaro, Jan 14, 2012.

  1. Umaro

    Umaro Senior Veteran

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    Before I start, I want to specify that I only wish to discuss Free Market theory, not government involvement.

    The theory of free market supply and demand works in many instances in the economy. If you make hammers and people buy them, the market balances itself out. If too few hammers are made prices go up and competitors enter the market, which puts more hammers out and brings the price back down. If too many hammers are made, the factories cannot cover the cost of production and some close down, lowering the number of hammers and boosting the price. Thus not only does supply dictate the price, but price keeps the supply in check.

    But when it comes to unskilled labor, it doesn't abide by the same rules. If there are too many unskilled or unemployed skilled workers, the price will be pushed down. Like everything else the price is determined by supply and demand. However, it is immune from the other side of the balancing practice. Unskilled laborers don't stop being produced, and never will. If there's too many hammers then hammers stop getting made. If there are too many workers, workers still keep getting added. With technology lowering the number of needed workers, and outsourcing increasing the supply, it has simply made the process faster. Even with 13 million surplus workers, more are added each year.

    I feel it is a cancer in the theory, in that it doesn't function within the system. It's much like a tumor that continues to grow when other body cells shut off. Pointing to it claiming supply and demand works is like pointing to the tumor saying cells are supposed to divide. It's only half of the story, and eventually it breaks the system.
     
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  2. Received

    Received True love waits in haunted attics

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    The only solution to too many hammers is manipulating the number of hammers and eventually decreasing them. The only solutions to too many workers are manipulating the numbers through population control (which involves governmental intervention), and manipulating the very rule that rewards scarcity and punishes plenty (which involves governmental intervention).

    But the cancer is only a cancer to humanism, or the concern beyond the market itself and those who laud it that involves being concerned for issues such as justice or fairness. The market works according to scarcity and maximizing profits. Humanism disregards scarcity and works according to maximizing happiness. To claim that maximizing profits and maximizing happiness is the same is a huge stretch -- and precisely the recipe for neoliberalism.
     
  3. MachZer0

    MachZer0 Caught Between Barack and a Hard Place

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    The solution to your problem is for unskilled workers to learn a skill. They move up leaving fewer unskilled workers.
     
  4. heymikey80

    heymikey80 Quidquid Latine dictum sit, altum viditur

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    Bingo. There're actually two downward forces on the labor supply, but they're both triggered by this.

    One is skilled labor. As labor acquires salable skills, the market shrinks for unskilled labor. This increases the number of people in particular skills, and the price for skilled labor drops as well. as skilled laborers populate the workforce and the price drops, the economy is capable of performing more and more important skills, thus increasing the economy's capacity for doing more and more things requiring skills.

    Skills lead people statistically to assess their reproductive choices. The populations of the developed world are largely plateaued or declining. This reduces the number of people in all groups, skilled or unskilled. But it definitely reduces the population of unskilled workers.

    Finally, there's a side effect. As automation eliminates unskilled work, people leave dead-end jobs for jobs of constant improvement. But also, the goods and services that can be automated cost less and less. Many of these being necessities, we find grocery stores and food services being some of the biggest benefactors of the hungry of the United States, feeding them out of their surplus and distribution networks. Yes, there are economic incentives in the USA to giving this away, and the grocery stores take advantage of anything to push down their tax liabilities. But this is quite a beneficial system.

    I expect "starving" will be the next thing on the "unintended consequences" thread though, if the democrats start eliminating such charitable deductions.
     
  5. PHenry42

    PHenry42 Newbie

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    Which is kind of difficult to do if you are living on the edge of subsistence already. Learning a skill requires an investment of time and effort, something you don't have any of to spare if all your time and effort goes towards simple survival.

    Not to forget that many of the "skills" necessary to succeed require expensive education.
     
  6. PHenry42

    PHenry42 Newbie

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    This.

    Basic market theory further presumes that supply increases as price increases, as there is a greater incentive to produce that particular kind of good or service. But that doesn't work either with unskilled labor. People don't feel like working more simply because pay/hour increases, nor is anyone incentivized to move to the unskilled labor pool because of higher price, since that would be a move downwards from any other subsegment of the labor market.

    When wages get low enough, it actually works in reverse. When one full-time 40h/wk job isn't enough to make a living, unskilled workers have to get a second job, and the supply of labour greatly increases. Which, of course, drives down wages further, or would do if minimum wages were abolished.

    So instead of the self-regulating behaviour where prices rise or lower to the point where an upwards-sloping supply curve meets a downwards-sloping demand curve, you get a self-reinforcing cycle where lowering wages lead to an ever-increasing supply of labor, which further pushes wages down. Repeat until bottom gets hit.
     
  7. Umaro

    Umaro Senior Veteran

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    You're thinking in terms of the individual, not the system as a whole. Yes, an individual burger flipper can go to law school and become a lawyer, but the number of jobs available has not increased. He's merely displaced a different lawyer who now becomes unskilled labor on the market, since there is no slot for his skill.

    Try to think of the whole system. If there are 100 jobs of skilled/unskilled, and there are 80 people, workers can move around depending on their jobs, and the slack of the missing 20 will be picked up by the remainders. But if there are 100 jobs for 120 people, there are always going to be 20 people in the unskilled labor pool. They may be perfectly qualified for some job, but if it's not available they're unskilled labor in the mean time. With outsourcing and automation meaning that less people produce for more, you're invariably going to have a system where there are less jobs than people, and now you've reached the cancer of the market. You can talk all you want about hard work and learning a skill, but you're really just swapping pieces on the board, the whole system is still cancerous.
     
  8. MachZer0

    MachZer0 Caught Between Barack and a Hard Place

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    It's always been that way. One can choose to remain uskilled and possibly poor one's entire life, but the motivated worker will do what's necessary to move up
     
  9. MachZer0

    MachZer0 Caught Between Barack and a Hard Place

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    That's possibly true if you view the job market as a zero-sum game, which it is not.
     
  10. jpcedotal

    jpcedotal Old School from the Backwoods - Christian Style

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    Being unskilled is one thing but it is the "unwilling to work" group that is causing the biggest problem. There is a growing group of people who would be offended if you offered them a job, that would make up a hundred excuses why they can't work, that UNDERSTANDS that unless you make 35k, one is better off not working...that's the cancer.
     
  11. MachZer0

    MachZer0 Caught Between Barack and a Hard Place

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    You also have 2nd and 3rd generation welfare families. If a young girl grows up in a home where her mother sat home every day and collected a check from the government and her grandmother did the same, she is likely going to follow her role models and do the same. That's why Newt proposed a system to instill a work ethic in poor young people, to break the cycle of professional welfarism (I made that term up by the way).
     
  12. Umaro

    Umaro Senior Veteran

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    I'm speaking pure theory here. Please don't derail it into "workers are lazy" or things involving the government. Even if we assume all workers are working with full enthusiasum, we'd still have 13 million unemployed right now because the jobs for them don't exist. Even if they all had degrees in business, medicine, and engineering they'd still be unemployed because the jobs don't' exist for them. That's the theory I mean, and how those excess workers will drive the labor cost down indefinitely because there's no market force to prevent the population from growing.
     
  13. jpcedotal

    jpcedotal Old School from the Backwoods - Christian Style

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    Capitalism isn't the reason there are no jobs for unskilled workers. The open trade agreement is. Shut down the import side of foreign trade and all of a sudden there will be more factories who LOVE unskilled labor because companies can train them to do EXACTLY what is required for the job without have some previous experience getting in the way...as long as the unions can be held at bay.

    Again one can not do this without the government...and still there will be this group of people that will drive pass the "Help Wanted" signs on the way to the food stamp office....granted this number I believe will be substantially lower.
     
    Last edited: Jan 16, 2012
  14. heymikey80

    heymikey80 Quidquid Latine dictum sit, altum viditur

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    No, I'm thinking of the system as a whole. There's increased productivity, is there not? So the cost of goods goes down, and the number of litigants goes up, thus demand for lawyers goes up.

    If productivity remains flat while the population increases, then sure, you're set up for a serious problem. But at that point you don't have other people's money to steal to establish a socialistic state.

    Displacement only occurs if you reduce or flatten the national product. Like now. Under democratic rule.
     
    Last edited: Jan 16, 2012
  15. Steve Petersen

    Steve Petersen Senior Veteran

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    Shut down imports. You want to start a trade war? Ever heard of Smoot-Hawley. For God's sake, study up a little.
     
  16. Yekcidmij

    Yekcidmij Polymath

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    Too bad their money loses it's purchasing power if that happens and too bad borrowing costs would rise. So now you're employed but can buy no more than before.

    There are 2 components to international trade - the current account and the capital account. You can't change one without doing the opposite to the other.
     
  17. jpcedotal

    jpcedotal Old School from the Backwoods - Christian Style

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    Bad diplomacy got us into this situation and it is going to take some tough decisions to get us out. America comes first....period.

    I fully understand what even cutting down 50% on imports is going to do, but if nothing is done there will be no America in 50 years.

    There should be zero tax to exports and at least a 50% tax on ALL imports.
     
  18. Yekcidmij

    Yekcidmij Polymath

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    The "trade" deficit means that our currency is the reserve currency of the world. If we're running a trade surplus (really, a current account surplus) then it must be the case that the world is transacting in more of some medium of exchange other than dollars.

    "Trade" deficit is really a current account deficit which means a capital account surplus. Why don't we ever hear about the massive trade surplus?
     
  19. NightHawkeye

    NightHawkeye Work-in-progress Supporter

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    As already mentioned, the job market is not a "zero-sum" game: Zero–sum game - Wikipedia, the free encyclopedia
    In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which a participant's gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Thus cutting a cake, where taking a larger piece reduces the amount of cake available for others, is a zero-sum game if all participants value each unit of cake equally (see marginal utility). In contrast, non-zero-sum describes a situation in which the interacting parties' aggregate gains and losses are either less than or more than zero. A zero-sum game is also called a strictly competitive game.
    Skilled workers expand the availability of resources ... improve efficiency ... allow populations to grow ... allow people to live better than ever before ... allow people to have more leisure time than ever before ...

    And yet the population does stop growing ... as evidenced in the birth rates of industrialized nations.

    Which appears to be a much better solution than the periodic famines evidenced in less advanced cultures.


    .
     
  20. PHenry42

    PHenry42 Newbie

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    That doesn't justify it continuing to be that way. Or if it would, you would have to maintain that nobility and divine right of kings is justified too.

    Presuming that there is something that can be done in the first place. Which is a straw man, I was talking about a person *subsisting*, not a person who can afford to save.

    And if the fact that there's a theoretical possibility to escape one's current position makes a system acceptable, I take it you have nothing against gulags. It is, after all, theoretically possible to escape from one.
     
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