Evening star., 1947-04-23

Letters to The Star
Says Flexible Costs Can Check
Economic Recessions
To the Editor Of The Star
about a decline in business. Al down.
turn in business is forecast because in
creastng economic disequilibrium calls
for correction. There is disparity In
income of the various groups In the
community. Farmers and organized
labor have the highest income in history.
Persons with fixed incomes find their
purchasing power shrinking. But food
purchases cannot be deferred, therefore
less income remains for non-food items.
Consumers cannot buy. The causes OF
the disequilibruim are errors committed
by the GoVernment. by labor and by
business.
When rises in wage rates exceeded the
increase in the cost Of living, labor lead
ers invented new formula: Wage
rates must be raised because profits in
creased" However, this Is a fallacy.
Wage increases are permanent, but pro-
fits are transitory. Wages are rigid, but
profits are fluctuating. Wages have the
first claim on the dollar of income, but
profits have no claim. They merely
represent the balance, sometimes q
minus, left after paying all prior claims,
wages, raw materials, taxes, deprecia-
ton, interest, etc.
The increase of wages raised the cost
of production and raised the break-even
point. Plants must work at higher
percentage of capacity to reach the
point of profitable operation Or rela-
lively smaller decline could make opera
ton Improbable
Yet union leaders insist that wages
living declines and even when profits
disappear. The resulting losses to en-
ployers mean unemployment for the
workers. Even if the owners were wiped
out and the workers or the State took
over the business as in Russia, costs
could not exceed selling prices. Wages
would then have ceiling, determined by
selling prices. Today the owner who
has losses really subsidies his workers
until he is threatened with bankruptcy.
Trade Decline Has Sad Effects.
The effect of a decline in business is
unemployment and its corollary evils
Eventually, even the workers in industry
must themselves suffer because of UNI
economic wage. increases. BY raising
Its wages, labor prices itself out of the
market and causes workers to be laid off
that much sooner. Discharging workers
keeps the employers from bankruptcy
but 1t creates social problem. Unem-
ployment produces discomfort, fantastic
economic theories, irrational legislation,
social Illustrations and resulting aggres-
sion against minorities, economic social,
racial and religious. The subversive ele-
ments that threaten a stable society then
sprout and flourish. They charge that
free enterprise in a democracy won't
work. But actually 1t is prevented from
working by selfish groups. These must
be checked.
Is there cure? The errors of the
past cannot be undone. But to 60
through business recession without
large scale unemployment would mark
distinct social and economic progress.
If costs of production could decline in
proportion to the decline in selling
prices, deflation could be less painful
to the individual and less harmful to
society.
To achieve this goal requires f1exibility
of costs. Flexible wages will accomplish
this. Wage rates have gone up with
the cost of living and with profits. They
must also go down with the cost of
living and profits. A free economic sys-
tenn cannot be rigid.
In Great Britain wages are flexible in
several industries like coal, iron, steel,
metal trades textiles, shoes, pottery and
railroads In these wages move up and
down with the cost of living, with the
per cent of capacity operations, or with
the earnings of the employer But with
us, the unions insist on maintaining a
high rigid wage rate even in the face of
declining cost of living and declining
profits.
No wage cuts should be considered un-
less dividends are passed and profits
turn to losses. But when the employer
suffers 100 per cent cut in income, the
worker should be willing to take small
cut to enable the business to continue
to employ him. Under flexible wages,
profits would be smaller in prosperity
and losses would be smaller in de-
preston. As a result, there would be
less violent fuctuation in plant expan-
sion in heavy industry, in raw materials,
in new securities issues and in bank
credit. Managerial policy can rein
force this trend Then employment
and workers earnings would be more
stable. The evils of depression would be
mitigated.
The interests of employer and work.
ers are mutual. Both sides must give
and take. There must be reciprocity
and equity between employer and work.
er. Otherwise, if wage rates rise with
profits and do not decline with deficits,
labor's policy would be heads win,
tails you lose"
Competition A Useful Principle.
A democratic economy, responding to
the free choice of the consumer, can