Sunday, January 16, 2011

Different View

I like this Post for what it does say, but not the reasoning behind it. This always comes out when working with economic models, which is the principle of diminishing effect at the extremes. Paul Krugman states that there is a position at which falling Wages would produce full employment. I contest this view. Current Production factors–We are talking structural unemployment here–will preclude any labor expansion to full employment without real alteration of modes of Production; by this I do not mean labor intensive practices of old. I will try to explain what I mean in as positive a manner as I can elaborate.

We are currently in a mid-technological range of Production; this means there will not be overwhelming investment in new Production facilities until the old facilities are Aged, or a new Cost-Saving technology has been introduced. Management has already learned How to maximize Productivity under this existing technology with minimal labor assets, minimal Operating Costs, and maximum Profitability factors. Business will hire according to the new labor model, not the developing labor model originally utilized to develop the technology. Mass labor is not going to come back to the Production cycle until new technology development is under way; which without new major advance in technology, will only come with the Ageing of old equipment.

We have here a factor which must be understood: no amount of monetary or fiscal policy will alter the plans of Business Management to significant degree to depress the unemployment rate. There is only one other factor which can alter the paradigm, which is to alter the return ratio of Profits to current business formation. This can be done by higher Taxes, placed on the Profits themselves, or on the composite materials and Resources used in current production. I advocate the double approach, and would call for a complete Overhaul of the US Tax Code–basically eliminating all special tax exemptions and deductions; the principle here is that the Tax rates should conform to the natural economic environment, which means ‘Pay as You Go’ Government Spending. This is the quickest venue to impel Business management to seek additional Profits-Making endeavors with heavy employment of labor. lgl

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