From: ZIMMERJ@WABASH.BITNET
Newsgroups: bit.listserv.politics
Subject: More economics talk for Jason Z
Date: 17 Nov 92 19:57:25 GMT
Comments: Gated by NETNEWS@AUVM.AMERICAN.EDU
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>From: Andrew Allen <E7L8ALL@TOWSONVX.BITNET>

>Our international market share has increased because of the ongoing
>devaluation of our currency and the robustness of certain other
>countries economies in Europe and Japan. If however, these countries
>were no longer able to sell in our market due to a significant>
>lowering of wages in this country then the whole thing would fall
>apart.

Their output and standard of living would decline, yes.  But the market system
would not "fall apart."  I think you're confusing a recession caused by a fall
in exports (which tends to cause world-wide recessions much like the current
one) with some kind of collapse of the economy.

>As to your statement that additions to capital stock cause wages to
>increase, some figures please?

I have none.  In fact, I doubt that any exist.  The relationship is real,
however, and can be demonstrated theoretically.

Increases in the capital stock give labor more capital with which to work,
which makes labor more productive, meaning that its marginal product has risen.
Holding everything else constant, this means that the marginl revenue product
of labor has also risen, meaning that wages will rise in anything resembling a
competitive market (even a monopoly, in fact).  If you would like to argue with
this reasoning, fine.  But due to the ceteris paribus assumption, I strongly
suspect that easily accessible data could demonstrate this empirically.

>On the face of it this would seem to be false in that the stock market
>has been going furiously for quite some time now,

If you think the stock market is an indicator of the capital stock, I'm wasting
my time.

>all of the government
>figures indicate that productivity is up and real wages continue to fall.

As I said before, productivity growth is only one factor that affects wages, so
wages could hypothetically fall even with productivity rising.  Holding all
these other factors constant, though, an increase in productivity will = an
increase in real wages.

>I am not in a position to take advantage of any of the loopholes that I
oppose.

What a coincidence.  Its pretty easy to gripe about the breaks somebody else
gets.

>>If you blame Volker for "breaking" unions (from the fed, somehow), then why di
   d
>>you lay the blame on Reagan?  Since you are obviously an expert on the fed, yo
   u
>>must know that Volcker was appointed by Carter.  Do you therefore also hold
>>Carter responsible for "breaking" unions?

>I don't think that Carter had any idea when he took office of just how
>much power Wall Street and the Fed really have,

You never answered my question.  How can you blame Reagan for breaking unions
when the person you hold directly responsible was someone other than Reagan
(Volcker) who was appointed by someone else?

>You are probably familiar with the idea that recessions are (at least
>in some instances) caused by Fed policy rather than vice versa. The
>recession that occurred in the early portion of Reagan's presidency
>(81-82) was an engineered recession, that was deliberately prolonged
>by the Fed's tight money policy to drive down inflation.

Right.

>The Fed's tight money policy was maintained by the Open Market Committee
>in late 1981 despite the fact that money growth was well below the
>already constrictive targets that the Fed had set up. Given the sort
>of rhetoric that Volcker was spouting at the time about "wage deceleration,"
>a connection can be reasonably drawn.

A connection between what?  I agree that the 81-82 recession was pretty much
deliberate.  Are you seriously claiming, though, that the real reason for the
recession was to break unions?

>In the long run what got Volcker reappointed was that there was really
>no other person that they could find with Volcker's stature in the
>estimation of Wall Streeters, particularly after Alan Greenspan withdrew
>and endorsed Volcker. Reagan had no other viable choices.

Right again.  That's why I cannot understand why you blame Reagan for breaking
unions when you've already argued that 1) it was Volcker, not Reagan who
supposedly (and highly dubiously) pursued union-busting policies and 2) that
Reagan had no choice but to keep Volcker in the Fed?  It seems to me that by
your own logic, Reagan bears no responsility at all.

>>Yes, but that usually isn't the main source of income for retirees.  Many of
>>them live off interest on CDs or coupon bonds, which are definately NOT indexe
   d
>>and for whom inflation is a serious threat.

>Some figures please. I suspect that the numbers of retirees living off of
>CD's and bonds is small by comparison to those living off of SS alone
>or SS with a relatively smaller contribution from a pension fund.

Again, I have no figures, but I feel pretty safe in my assumption that most
retirees get most of their retirement income from their savings, which carry a
fixed short-term interest rate.  As Jamie correctly notes, anticipated
isn't that big of a problem in the long run in this case, since interest rates
adjust accordingly, but it is in the short run (operationally defined as the
time *before* expectations adjust, which is usually a pretty darn short time).

>-other Andy

JasonZ
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