How to deal with the economically redundant? Tax the rich

[Munger]

Re: How to deal with the economically redundant? Tax the rich

One gist of my belief, however, is that there are very, very few people who can do what Ed Whitacre, or Henry Ford, or Michael Eisner, or Jack Welch are able to do, thus there is a tremendous demand for their services and a very minute supply, which of course results in very high compensation for these lucky few. On the other hand, there are billions of people worldwide that can do what a production line laborer can do. Since the supply is so large and the demand, especially today, is small compared to supply then, of course, that results in lower compensation.

I thought this argument had been debunked decades ago:

[flintlock]

Re: How to deal with the economically redundant? Tax the rich

I may be reading incorrectly, but the original article and Munger were both very blackly satirical about Whitacre.

As for his performance - not clear how his maniacal empire building was in any way different than any other empire building CEO or CEO wannabe.



Interesting group you chose: Whitacre the empire builder. Ford the labor crusher. Eisner who figured out you can charge the sky for 40 year old entertainment IP. Welch the financializer of GE (FIRE-man in chief?).

Not sure which of these are unique - to me none of these were non-replicable by any of dozens if not thousands of others.



Ah, the mythical $75/hr.

The actual average base wage for a GM worker is $28/hr. The remainder comes from vacation, taxes, overtime, health care, retirement, etc etc.

As an owner of a manufacturing company, surely you realize that labor costs are not the same as labor's wages?

In any case, the real point is this: how can GM fix the health care cost issue? How can GM fix the retirement issue?

The point is that in Japan and most of the rest of the world, the health care component is handled by the government. Ditto for retirement.

http://www.npr.org/news/specials/gmvstoyota/



Note this is for equivalent North America workforces even; Toyota's advantage there is more one of having less retirees and no unions. But even in this case Toyota's primary reason for US plants is to get around import restrictions.

To this I'll add:

http://www.oanda.com/products/bigmac/bigmac.shtml



Note that the above 4.42% currency undervaluation is with the yen at a near 25 year low of 93 yen/dollar. In the decade prior to last year, the yen was consistently between 110 and 125 to the dollar implying a much higher currency advantage.

While creative destruction definitely has its place, the point is that its use in this case is ridiculous.

The destruction occurring is due to factors other than the inherent business/management.

I'm not saying GM hasn't made mistakes - but if you look closely you realize that the mistakes made were at least partly, if not mostly, due to short term tradeoffs to compensate for the above factors. That these decisions were made and agreed upon is a reflection of American management thinking but in no way absolves the macro situation.

And again, if you think about this hard enough, you'll realize that the equation applies equally to any and every other non-FIRE business in the United States.

Excellent presentation!

Yes, the $75 hour misrepresentation does get a bit old doesn't it? I have a feeling rjwjr is merely repeating this myth as he heard it, because if he's running a business he knows the difference between wages and labor cost.

As far as CEO pay goes, I seriously doubt this guy was the only guy in town who could do the job. And at $150 million, probably not hard to find a crowd of good candidates. High end CEO pay is more about cronyism and the pay cartel that exists at high levels of corporate culture. "I put you on my Board of Directors, you put me on yours, we all vote each other huge salaries and anyone who doesn't like it doesn't get into the club". It's why I no longer buy US stocks. The game is rigged.

I think some deserve to be well paid. Some in the tens of millions even. But I also understand that the way the system works, it's not really necessary that they even do a good job to get this kind of money.

[Thailandnotes]

Re: How to deal with the economically redundant? Tax the rich

Interesting group you chose: Whitacre the empire builder. Ford the labor crusher. Eisner who figured out you can charge the sky for 40 year old entertainment IP. Welch the financializer of GE (FIRE-man in chief?).

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[Raz]

Re: How to deal with the economically redundant? Tax the rich

All this thinking lost its moral authority when Wall Street was bailed out last fall. You can whine all you want to but "the rich" bailed themselves out and became nothing more than the moral equivalence of wards of the state on the dole. When there is no correlation between position of wealth and the implied productive capacity to produce that wealth preventing that wealth from being taken away via force or taxation has no moral defense. Moral Hazard is serious stuff in when debating philosophical economics. It doesn't matter whether it comes from automation or corruption.

This is true. And, I might add, very well said.

I just read Doug Kass's piece of August 10th where he said that the broad stock market
had either topped or was in the process of topping.
He laid out ten reasons why our economy faces powerful headwinds.
(Kass called the March low beautifully and said the S&P 500 would rally to 1,000 - 1,050.)

It doesn't make for pretty reading.

Knowing that and the truth of what you said makes me fear for our country.

[Sharky]

Re: How to deal with the economically redundant? Tax the rich

Unfortunately, such measures are only stopgaps. In the end, we may be forced to learn to live in a United States where, by stealth, "from each according to his ability, to each according to his need" becomes the guiding principle of government -- or else confront growing, unattended poverty.

First, we are already living in the US that the writer describes. How else would you describe taxes, social security, inflation, etc, if not as stealth socialism?

The writer's choice of words is interesting. If the system was so good, why should anyone need to be forced, and why would it have to be done in stealth?

Although I agree that the US is on a path of more of the same, the awful truth is that such a system is doomed to fail. History clearly shows that collectivism in all of its forms is not sustainable. It's ironic that something sold to the public as a cure is actually the source of the problem in the first place. The real cure is to eliminate socialism, not to have more of it.

[Sharky]

Re: How to deal with the economically redundant? Tax the rich

Two questions:

(1) A dull kid is born into a world where half-witted robots handle all manual labor for free at the behest of the already wealthy/productive members of society. His parents have no property. The abundance of free infinite labor has created an abundance of all physical necessities and luxuries. Yet how is that kid going to earn a living to get that food into his mouth?

1. In a world of such abundance, prices would be low. Such a child would be lucky; they would be able to afford to live at a much lower cost than they could otherwise.

2. In terms of what the child could do for a living, there are many options. Machines will never replace human contact. I would never hire a machine to watch my kids or to read them a bedtime story.

3. In a world with free markets, there is a natural balance between machine labor and human labor. If machines displace too many people, then the demand for their products declines, prices rise, and more people are able to be employed.

4. Increased machine productivity doesn't mean there is no longer a place for humans. In fact, the more capital that humans control, the higher wages should be.

(2) A brilliant kid is born into a world where Google 2044 zeta (TM) is smarter than all humans that ever lived combined. How is that kid going to earn a living?

1. Caring for the machines. Building more of them. Teaching others how to use it. Building competitors. Growing food. Interacting with people. Basically, all of the ways that people earn a living today. Just having some super-smart machine doesn't suddenly put everyone (or anyone) out of a job.

2. Brilliant kid + super-smart machine = opportunity. Intelligence is not the same as creativity. Machines will never be as creative as people.

[KGW]

Re: How to deal with the economically redundant? Tax the rich

Anyone who needs an "incentive" to actualize their potential is bait.

[Thailandnotes]

Re: How to deal with the economically redundant? Tax the rich

It's the mindset that you get to tell me what to do with my money

They are already telling you what to do with your money.

The tax rates on the medium income family of 4 in the U.S. is between 5 and 15 %.
$67,000 x .15 x .52 = 5,200 to the military per average family of 4 .

[sunskyfan]

Re: How to deal with the economically redundant? Tax the rich

Anyone who needs an "incentive" to actualize their potential is bait.

That is one of best lines I have heard in sometime. Seriously. Is that original?

[Diarmuid]

Re: How to deal with the economically redundant? Tax the rich

Anyone who needs an "incentive" to actualize their potential is bait.

Dylan Moran on possibly why? :p

[KGW]

Re: How to deal with the economically redundant? Tax the rich

. . .Yes, of course! You can't see what is behind you, and when your turn your head, you still can't see what's behind you!;)