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Simple Economics: Supply, demand and a bailout for the worker

By       Message Bill Falzett, PhD     Permalink
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I've been paying close attention to what the politicians, bankers, brokers, and lenders are doing with our money. I joke with some of my friends about how they must really like owning a major insurance company and so much stock in financial services companies. Obviously, I'm skeptical as to how our taxpayer investments are going to develop. I suspect that the abovementioned folks will do pretty well. The rest of us will continue to do the best we can with what we have while falling behind.

I figured that a basic economics lesson was in order since so much time is being spent by the corporate media and various pundits on the effects of the bailout/rescue on mortgages, brokers, bankers, and lenders. I certainly have a better picture of how these folks are hurting and how scared they and the politicians are. My sympathy for them is limited. What they haven't really talked much about is basic economics and how the economy works. Here is what really makes the economy go.

There is supply and there is demand. Supply requires that goods be produced--in other words, steady or increasing worker productivity. Demand relies on--guess what?--those same folks, workers and their incomes--in other words, their wages. To repeat, supply = overall average production worker productivity; demand = overall average worker wages.

A historical note: In the last 28 years according to federal agencies who monitor this stuff, average worker productivity has consistently increased every year. This is one of the reasons that people can say that the fundamentals of our economy are strong --we're working harder. In that same period, average worker wages have steadily declined or remained flat. The formula is out of kilter. History demonstrates that if you give the money to the folks on top, it stays there and stagnates.

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OK, so now we have a situation where worker wages are less ,so they can't buy as much as the producers would like. How do you increase demand to keep up with growing productivity? There are a number of ways. The main one is to raise wages. Lately, what the administrations have done is to get Alan Greenspan and the Fed to make money easier to borrow. Then, political leaders can tell you to go borrow and refinance so you increase what you can buy.

Average wages have stagnated unless you add in the CEOs and Hedge Fund managers. So, people have borrowed and run up credit card debt. First quiz question: How did we get in such a pickle? Right answer: we've borrowed to the max and most of the jobs that remain don't pay well enough. The current mess is a symptom of what happens when you ignore the base of your economy, worker wages. Wages have not kept up with productivity--simple formula. Everything else is an offshoot of that basic equation.

It should be obvious that we need to generate more and better jobs that pay better wages if we really want a prosperous economy. Instead, we are bailing out a small sector of economy that props up the stock markets numbers. This inflates our Gross Domestic Product numbers so that the U. S. economy looks good on paper. This small segment of the economy dictates to the rest of us through our government. Most of us are working harder with less purchasing power because the value of our dollars is declining. That's a different lesson.

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I don't want another $300 or $600 stimulus check from the government. I want a prosperous country for as many of us as is possible. When we kids were bugging him, my dad used to say, "Throw "-em a bone."- That's what those checks are. A "bone"- to keep us quiet.

Whoever gets to be the next President and whoever your Representatives are should hear from you. I know that I'm going to be making a lot of noise. Join me. Tell them to put billions into jobs that pay a living wage that are tied to productivity increases. No bones, thank you. I think most of the American people would rather do meaningful work and be paid a fair, living wage than to keep bailing and spending.

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bill@falzett.org
I am a clinical psychologist with forty years of experience as a psychotherapist. I got involved in political activity after my youngest son went to Iraq. It was an invasion I opposed. I am a community activist and educator. My belief is that we (more...)
 

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