Monday, May 2, 2011

Cause and effect

I have had low back pain on and off for years. My doctor’s are not sure what causes it but I dumped one who told me that my back hurt because I had bad posture.

Why did I dump him?

Because any doctor who can’t identify that walking bent over is an effect of back pain not the cause darn sure can’t help me find the cause.

In much the same way we are lingering in the current recession much longer than we really need to because the decision makers are mistaking effect for cause.

The high debt level of American workers was not the cause of the recession. Debt levels were a symptom of wages not keeping up with costs and workers trying to maintain their standard of living! Creative housing loans were not a cause they were a symptom. The salaries of jobs that used to pay enough to support home ownership fell behind costs, so banks developed creative loans to keep those people (whose salaries used to allow them to buy those same houses) as customers for home loans.

This confusion is caused by economists that don’t understand that economics is just money at a national or global scale. Money a medium to exchange and store labor. I do work today and either get goods directly from you in return or I accept money that I exchange for someone else’s goods or hold to exchange in a day, week, or year.

That’s it. All the economists do is track and project that process. Banks aggregate the medium (money) by collecting stored labor (cash deposits) and share it in the form of loans in exactly the same way that a battery stores electricity and delivers it elsewhere later.

If I get paid one quart of milk for chopping a cord of wood or a dollar for the same effort and can trade that dollar for a quart of milk, the rate of labor exchange is equal. When I make a small part that ends up in a larger and more complex product it gets harder to see the relationships, but it is there just the same.

In my wood for milk example, I can clearly see that if I can figure out how to cut more wood in the same time, I would be more productive and I would get the direct benefit of that increase. If I am doing more work in the same time, shouldn’t I get more per hour?

If I am chopping that wood with a hand axe and buy a chain saw then I should be able to cut more wood per hour and my income per hour will go up. But what if I work for someone else and they pay for the chainsaw? Who gets the increase? Should we both share in that increase or should the owner of the saw get it all? The chainsaw takes training to operate and I paid for the training and you paid for the chain saw. Shouldn’t we split the increase somehow?

This is close to what has been happening for the last 10 or 15 years. Industry has been investing in improved tools while workers have been investing in improved training. The cause of the recession is that most businesses have not passed on enough of the increase in profits as higher salaries to cover the workers’ investment in their skills and knowledge.

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