Business Realities or What I Have Learned From the Internet.

[SimpleDon]

So you both are saying that the supply and demand mechanism sets prices, except when it doesn't.

The obvious question then is how many prices in the economy are set by the supply and demand mechanism and how many are set by other price setting mechanisms?

It would seem to me that there is a big difference between there being 80% supply and demand set prices and only 20% supply and demand set prices in how the economy reacts to something like an increase in the minimum wage. Wouldn't you agree?

Well... I can't speak for what Loren Pechtel has said, since I believe I've disagreed with some of his positions. But I will answer on my own behalf.

Of course, I don't expect you to speak for Loren. I wouldn't presume that anyone could speak for Loren. As I read it Loren has now agreed with you that a supplier can operate indefinitely at a price that equals their costs, they don't need to earn a profit. [/presuming to speak for Loren]

The model is not perfect. For the most part, prices are set by supply and demand. The minimum price is defined by the cost or production. What this means is that if supply and demand produce and aggregate price that is below the cost of production, then you go out of business. You can't stay in business if you can't recoup your costs. So if you want to be in business, then supply & demand have to produce a price that at least meets your floor - your cost of production.

Profit is the excess of price over that floor. When price is above the cost of production, then the excess is profit.

There's always a bit of a balancing act: You can sell fewer items at a higher price or you can sell more items at a lower price. This is because each individual consumer is going to have a different and unique budget line and indifference curve. The lower a price the seller is willing to accept, the more consumers whose indifference curve they'll meet and whose budget line they'll fall below.

So the seller has to work toward optimizing their revenue: what's the optimal price? What price will get them the highest net profit? That's usually where they try to set their price.

But it's all pretty much supply and demand at play.

The exceptions come in when you've got regulated businesses where some outside entity is setting prices (for example, where the government has oversight on the price of health insurance) or where the seller is a monopoly and can charge whatever they want, or where there is a coercive effect at play (as with some prescription drugs, where you pay the price regardless, or you die).

All the rest of the things that Loren and I have mentioned - concepts around brand and the fungibility of your product, those are all manipulations of supply and demand. So at the end of the day, they're still supply and demand .

This is kind of back to the supply and demand sets prices except when they don't construction, supply and demand with fudging like "that's usually where they try to set their price" and "You can sell fewer items at a higher price or you can sell more items at a lower price." But you do realize that supply and demand don't determine the price completely. This puts you ahead of quite a number here. And you are right that the producer can't stay in business with long term losses.

You believe that supply and demand set the price but that average (not marginal) costs provide some hazy, long term limit to how low they can go and the producer stay in business. You have the right idea, it is just that you have it reversed, almost all prices are set by the supplier at average cost plus an anticipated profit and supply and demand are the hazy, long term limits to the success or failure of the business.

I believe that explanations like yours are the result of trying to reconcile what people know of the pricing process from their own experience with the supply and demand theory that they learned in freshman economics and is recited repeatedly in public. In this case, you would be better off going with your experience

You have to understand a few things about economics in the US. A dreaded list for the sake of brevity. I am willing to expand on any of them as needed, but you probably already knew that.

• Economics education in the US teaches only a narrow band of the economic thought that exists in the world today.
• This narrow band is almost completely focused on the idea that we should change our current economy into the economy of the free market.
• This is pretty much a response to the fact that it is this line of research that attracts funding, from wealthy people and corporations.
• Economists in the US are almost entirely microeconomists, those concerned with the operation of the economy on the level of the individual or a single company.
• Few economists in the US are macroeconomists, concerned with operation of the economy as a whole, on the national level, which is what we are talking about here.
• Economics educators do most of their students a grave injustice, they teach concepts that they know are simple fairy tales that are seriously in question.
• They justify this as being needed to get students 'thinking like economists' in the face of the fact that their students don't have the math skills required to understand the real economics.
• This problem is not just limited to the non-economics majors, to a large degree it also applies to the economics majors who don't go to graduate school.

Enough trashing of economists. Let's look instead to compare their fantasy economy to the current economy as it exists. Once again, a list of the bullet points only,

• The mixed mode, public/private partnership, government policed economy that we have today is the result of centuries of evolution and growth, of trying new things, throwing away those that didn't work and keeping and improving those that did work.
• The economy that we have today is the result of these free choices that the market made, not the result of heavy handed governments wanting to control everything.
• The market decided that they didn't want were prices that varied day by day or month by month.
• The most radical of the free market enthusiasts claim that government interference in the market prevents the prices from providing investors with the information that they need to decide whether or not to invest.
• What investors want is stable prices (and costs) that change slowly and above all else predictably so that they can calculate the probability of making a profit.
• Supply and demand setting prices directly and immediately doesn't provide this stability.
• The modern market is one of price offerers, the producers and retail, and price takers, the consumers, rather than the price haggling bazaar of the free market fantasy.
• As you know the producer bases his price on three things, his average costs, his projected sales volume and the total amount of profits he needs/wants to satisfy his investors.
• He puts the product in the market, offered at his price. If he gets his sales volume at his price he is happy.
• But if he doesn't he has a lot of choices, he can try to brand his product, to increase its perceived value ala Nike, by advertising and promotion.
• He can call his engineers and designers and improve his product or his production efficiency.
• The last thing that he wants to do is to lower his price, because now to get the profit that he needs/wants he has to produce and sell more of his product than he originally planned to.
• The important point is that his goal is to maximize his profits.
• If he was in the fantasy free market economy he would have to take whatever profits that supply and demand allowed him.
• The goal of the fantasy is to prevent all of the producers from maximizing their profits by forcing the price down to its market clearing price, the price that squeezes the production capacity by putting the less efficient suppliers out of business and utilizes all of the available production capacity of the surviving, more efficient producers.
• The promise of the self-regulating free market with prices set by supply and demand is the maximum efficiency of production in the economy, not the maximum profits for the producers.
• The fantasy free market self-regulates when this market clearing price equals the marginal cost of producing the last item produced.
• This has an unfortunate side effect in a largely industrialized economy, it means that there is no profit.
• This is not good, the driving force of capitalism is profit.

I suspect that this is one of the reasons that the market has collectively decided not to embrace the self-regulating free market. But that might just be me.

Do have to tell you that I have been told repeatedly that the free market doesn't need market clearing prices equal to the producer's marginal product in order to self-regulate. I have asked the obvious next question of how then does the free market self-regulate?

There doesn't seem to be any definitive answer yet but I have been assured that the neoclassical economists who are apparently in charge of "free market apologetics" are working on it. The current thinking is along the lines of an expansion of Milton Friedman's "as if" principle, that economic theories don't have to reflect reality as long as the economic actors believe in the theories the economy will behave as if the theories were correct. Neoclassical economists are not big on falsifiability as a principle, obviously.

If you are a member of the free market cult this what you are what you are hanging your intellectual hat on. It is pretty much bullsh*t form beginning to end. Enjoy.

 

[Sabine Grant]

By Loren :Look at what is happening in areas of high hurricane threat. They're being required to sell homeowners policies at far below cost if they want to do business at all.

That is certainly not the case in Florida. Considering that the variation on cost is dependent on the location of the property. Property located near by bodies of water susceptible to be affected by tropical cyclones surge and beach front properties are certainly not benefiting of any such mandate of selling "home owner policies at far below cost". Further Florida home/property owners are constantly reminded to read the "fine print" considering that the cost of a policy will vary based on the distinction between wind caused damages and water caused damages. Some insurance companies remaining reluctant to offer a comprehensive coverage for water caused damages on homes/properties located in flooding zones. Those flooding zones being clearly designated as such and mapped for each county.

The only reason why as a Florida home owner I benefit of a low cost policy is because our property is NOT located in a flooding zone thus removing the need to contract a policy which covers damages resulting from flooding. Not because there is a mandate for a "far below cost" issued to insurance providers.

 

[Loren Pechtel]

Well... I can't speak for what Loren Pechtel has said, since I believe I've disagreed with some of his positions. But I will answer on my own behalf.

Of course, I don't expect you to speak for Loren. I wouldn't presume that anyone could speak for Loren. As I read it Loren has now agreed with you that a supplier can operate indefinitely at a price that equals their costs, they don't need to earn a profit. [/presuming to speak for Loren]

Only in a steady-state world, something we don't have. In a real world that's taking risk for no gain, the company will phase it out if they can't fix the situation.

This is kind of back to the supply and demand sets prices except when they don't construction, supply and demand with fudging like "that's usually where they try to set their price" and "You can sell fewer items at a higher price or you can sell more items at a lower price." But you do realize that supply and demand don't determine the price completely. This puts you ahead of quite a number here. And you are right that the producer can't stay in business with long term losses.

You believe that supply and demand set the price but that average (not marginal) costs provide some hazy, long term limit to how low they can go and the producer stay in business. You have the right idea, it is just that you have it reversed, almost all prices are set by the supplier at average cost plus an anticipated profit and supply and demand are the hazy, long term limits to the success or failure of the business.

What you are missing is that in a competitive market these are two sides of the same coin. Their competitors are operating in the same environment so if they don't want to be priced out of the market they can't charge too much. That's why they figure cost + a reasonable profit. This is especially true in cases where you can't simply price-match down the road if you're out of line. (Most any situation where deals are negotiated on case-by-case basis.)

- - - Updated - - -

By Loren :Look at what is happening in areas of high hurricane threat. They're being required to sell homeowners policies at far below cost if they want to do business at all.

That is certainly not the case in Florida. Considering that the variation on cost is dependent on the location of the property. Property located near by bodies of water susceptible to be affected by tropical cyclones surge and beach front properties are certainly not benefiting of any such mandate of selling "home owner policies at far below cost". Further Florida home/property owners are constantly reminded to read the "fine print" considering that the cost of a policy will vary based on the distinction between wind caused damages and water caused damages. Some insurance companies remaining reluctant to offer a comprehensive coverage for water caused damages on homes/properties located in flooding zones. Those flooding zones being clearly designated as such and mapped for each county.

The only reason why as a Florida home owner I benefit of a low cost policy is because our property is NOT located in a flooding zone thus removing the need to contract a policy which covers damages resulting from flooding. Not because there is a mandate for a "far below cost" issued to insurance providers.

The policies near the coast cost more but nowhere near the actual price difference. The companies are being made to sell the policies cheap in order to do business at all. The real premiums would be in the 5 figures in most cases.

 

[Emily Lake]

I would like to see an example of regulators forcing an insurance company to sell at a total loss, which for an insurance company would mean that they essentially were forced to give insurance coverage away.

I'm not sure why you're now using "total loss" here. There have been many cases of insurers not being granted requested rate increases, and being approved only for rates that are lower than their expected costs. This means that they operate at a loss for that rate cycle.

In fact, several years ago, one of the not-for-profit health insurers in my region got in trouble for having too much capital. The insurance commissioners of three states together decided not to approve any rate increases for that insurer for two years, I believe. That company operated at a loss for two years until they had spent down their capital to a level that the commissioners deemed appropriate for a not-for-profit insurer to hold.

 

[Emily Lake]

As I read it Loren has now agreed with you that a supplier can operate indefinitely at a price that equals their costs, they don't need to earn a profit.

Well, since I specifically said that they cannot operate at floor, then your read is incorrect.

But you do realize that supply and demand don't determine the price completely. This puts you ahead of quite a number here.

Sure. Because I recognize that the model is only an approximation, and that reality is more complex.

You believe that supply and demand set the price but that average (not marginal) costs provide some hazy, long term limit to how low they can go and the producer stay in business. You have the right idea, it is just that you have it reversed, almost all prices are set by the supplier at average cost plus an anticipated profit and supply and demand are the hazy, long term limits to the success or failure of the business.

It don't think it's necessarily one direction or the other. It's a feedback loop. The consumer deccision is an individual decision: Will I personally purchase this product? Do I personally value this product at higher than the cost? But the Seller's decision is an aggregate decision: Will people in general purchase this product? Will enough people value this product at higher than this specific price? Would more people value this product at higher then another price, by enough to make the net profit larger? So the Seller has to try to estimate the individual supply-demand driven choices of many consumers, and decide on what price works for them based on that estimation.

When it's two individuals negotiating, they each give a little and reach an agreement that is higher than the seller's floor and lower than the consumer's budget... or there's no sale. But in the market, each individual makes a purchase decision against their budget (and against the competitor's product as an alternative option), and the seller makes a pricing decision against the assumption of how many purchasers will be willing to make that purchase decision in their favor.

It's the same concept... but it's the difference between the individual negotiation and the aggregate process.

If you are a member of the free market cult this what you are what you are hanging your intellectual hat on. It is pretty much bullsh*t form beginning to end. Enjoy.

I don't think that a completely unfettered market is the correct answer for everything. I think that some industries cannot "self-regulate", and I think that some industries require oversight. But I also think that there are a great many industries that work just fine without external regulations.

I do think that the supply-demand model is the best model for how and why people make the pricing and purchasing decisions that they make. The model makes certain assumptions regarding the degree of knowledge that is reasonably available by all parties in the negotiation, which is it's greatest weakness. But it seems to most accurately capture the process by which negotiation happens.

 

[SimpleDon]

Look at what is happening in areas of high hurricane threat. They're being required to sell homeowners policies at far below cost if they want to do business at all.

Or look at the big blowup with medical malpractice insurance rates at the turn of the century--the trigger there was the biggest underwriter deciding that they couldn't make a profit at the rates they were allowed to charge and they simply quit writing medical malpractice insurance. It's not that rates really spiked, it's that the biggest, lowest price company pulled out of the market.

So you are defining "total loss" to now mean "having to accept somewhat lower profits."

I think that I finally understand what your concept that 'supply and demand set prices except that prices can't be driven below a below a floor price representing costs + reasonable profit' means. You said that prices can't be driven below the floor but you really meant that if the prices go below the floor for, presumably, very long the producer can't or won't stay in business. Okay, I am finally with you.

Yeah, I mean in the long run if you drive the prices too low the suppliers either go under or pull out of the market.

I am not running the prices too low, it is supply and demand setting prices that is.[/little joke]

Businesses being forced out of business is part of the creative destruction of capitalism.

If raising wages causes businesses out of business so be it. I trust capitalism to adapt and to be stronger, just like it did after child labor was prohibited and hundreds of other restrictions were placed on unfettered capitalism. Why don't you trust it to adapt?

We are not trying to perfect capitalism, we are using it to produce better results for society and its members. Capitalism is resilient enough that we can do this. Why don't you believe that it is?

But you and Emily are just considering the effect on the level of a single business, or more exactly, you are looking at the microeconomic effect. But we are talking about the macroeconomy, the economy as a whole, we can't just stop with a 'companies had to go out of business and this means unemployment,' if it did any increase in wages or other costs would cause unemployment, even an increase in profits. This is obviously ridiculous.

The workers in the destroyed industry add to the unemployment pool. However, the main effect is destroying the industry.

Can you give an example of an industry that will be totally destroyed by a three dollar increase in the minimum wage?

Marginal companies fail all of the time, it doesn't mean that we will have economy wide unemployment. You have to look at what happens economy wide after the failure of the companies do see if we finally lose those jobs.

Look at 2008. So long as the failures don't spike you just get the normal turnover. When they do spike you get big problems.

You must look at why they failed. It wasn't because of the rise in the minimum wage in 2007. It was because of the failure to regulate the financial market and their mishandling of financial 'innovation' in the form of mortgage backed securities, just another attempt by the financial markets to capture part of the huge amount of capital that has been redistributed from wages over the last thirty years.

In the case of a forced increase in wages like an increase in the minimum wage, before the increase, there is enough demand at the pre-increase price and enough profit in the pre-increase price for the marginal producer to stay in business, buy your reasoning, right? And the wage increase won't affect the demand at the price, right? So the only thing that can raise the price is if the supply decreases. (I know the ', right?' at the end of the sentence is annoying. I will stop.)

In reality when you raise the costs on an industry as a whole it rapidly translates into higher prices--everyone knows their competitors are going to have to do the same thing so they won't be pricing themselves out of the market by passing along the price increase. Demand will drop due to the higher price and some businesses on the edge will fail but they're still better off passing on the price increase rather than eating it and having a much higher chance of going under.

So we are back to the argument that supply and demand set prices except when they don't. And when they don't is when I need to prove that increases in the minimum wage causes unemployment and recessions like occurred in 2008.

I take it that substitution effects don't play a large part in your economic world view?

Note, also, that if they do eat it their profit margin is now too low, the normal attrition will not be replaced. The availability of their product will drop over time.

More conditional supply and demand theory. Supply and demand set prices except when it is inconvenient and doesn't support your firmly held beliefs.

So you are basing your theory that 'forced increases in wages cause price increases and unemployment' on the loss in production of the failed companies. But you are forgetting that there is still the undiminished demand at the old price. As long as there are more efficient producers who can make a profit at the old price while paying the higher wages they can make more total profit when they increase their production to provide the additional products that the failed companies were providing.

Once again the infinite pool of profit meme shows up. Your side thinks everything can be funded out of profit!

Ah, yes, the killer argument of the infinite pool of profits. Of course I don't believe in an infinite pool of profits that we can pull from to fund everything. You should have more pride than this Loren. You can do this, you can arrive at a coherent explanation without using such ridiculous arguments. Here is a coherent description of what happened and why, one that relies on facts and local conclusions from those facts.

The economy and the economic actors in it produces goods and consumes them. This generates a total income across the whole economy. This income is broadly split between rewarding capital and rewarding labor, between profits and wages, between the capital share of GDP and the labor share of GDP. Over the last thirty five years the split has turned heavily in favor of an increase in capital at the cost of lower wages. Had the split between capital share and labor share stayed the same over the last thirty years about twenty trillion dollars more in that time would have gone to labor. As it was it was redistributed to the capital share. The difference in 2009 was more than one trillion dollars, more about the total wages earned by the lower 50% of the earners. Most of this money was created by government debt, not by growth in the economy which has slowed over the last thirty five years.

Why this redistribution of money occurred is strangely considered to be a mystery today. I can clear it up in one two paragraphs.

In the late 1970's and early 1980's neoclassical economists, conservative politicians and the very wealthy all agreed that the economy was suffering from too little capital investment. They had always said this, but at that point in time it was possible that it was marginally close to being true, although it didn't have anything to do with the economic problems that we were having at the time, stagflation caused largely by the oil price shocks. But they also agreed on something else, that it was the government's fiscal policies that were starving the economy of capital and were over rewarding labor. So the fiscal policies were changed. And capital started to accumulate and wages started to drop.

Fast forward to today. Now neoclassical economists, conservative politicians and the very wealthy claim to have completely forgotten that government fiscal policies determine the split between capital share and the labor share, something that they were so certain of in 1980. They currently believe that the redistribution of income favoring capital was due to either unknown and unknowable economic forces or the magical appearance of some of the very same changes that were the results of the policy changes that they fought so hard for thirty five years ago, changes like the effective suppression of the minimum wage, globalization and weaker unions. Silly people, right?​

See, coherent and logical, unlike hanging your argument on something as ridiculous as people having to believe that there is an infinite pool of profits.

And I have repeatedly warned you about putting me on anyone's side. I have had to surrender a lot of my beliefs and most of the economics that I learned and taught to get to the meager understanding of the economy that I have today. Fortunately for you what I do understand pretty well is the misunderstanding of the economy by neoclassical economics and the fantasy of the self-regulating free market, the foundation, in differing degrees, of the spectrum of modern US economics from the batshit crazy Austrian/Libertarians on the far reactionary right to the center left New Keynesians, who should know better, like Paul Krugman, and the New Institutionists who do know better but but who pretend to toe the line when they need to get professorships and grants, like James Galbreath.

I don't normally read Krugman's column in the NY Times. I do occasionally read his blog which is less liberal political preachy and more economics wonkish, i.e. technical. He readily answers questions from the blog comments that interest him, that seem to challenge him.

I had to go to the Times for reference for this dissertation. I can never remember his first name and and for some reason I always think that I am misspelling his last name. His column today touches on some of this. It is here http://www.nytimes.com/2014/09/15/o...n-region&WT.nav=c-column-top-span-region&_r=0 to get behind the pay wall.

I will break it here, continued below.

 

[SimpleDon]

Continued from above.

In the modern industrial economy it is likely that the remaining more efficient producers will be able to increase their production to cover the lost production of the failed inefficient companies, especially an economy like ours that is currently using only 75% of its capacity to produce. How can they do this? Let's count the ways,

• Adding extra shifts of production.

• 
  
  My former employer tried that to cope with demand. We gave up because we couldn't get competent swing-shift workers.

• 
  
  And this means that no one can add shifts to increase production. Silly me.
  
  

  [*]Trade, in an open economy the lost production can come from other countries.

  
  Depends on the product. We had no foreign competition because of shipping times and costs.

  
  And this means that no foreign products can make up shortages in domestic supply. Those rumors of Chinese imports flooding into the US aren't true, at least in your world?
  
  

  [*]Using spare capacity. Companies ask for more capacity than they need when they build production plants, spare capacity is cheaper if it is included in the original plant design. Say 20% extra capacity might only increase the facility cost by 10% if included in the initial design. Adding 20% capacity to an operating plant might cost 3 to 4 times that.
  [*]Tolerance spare capacity, the designers of the plant will always design the plant using over sized machinery, a safety factor to make sure that they achieve the production required.
  [*]Optimizing, once any production facility is running even if the owner is getting the production that he asked for it will be obvious that there is only one or two critical machines limiting production, replacing or modifying these machines will increase the production of the entire facility up to the point that another critical machine limits it, allowing the process to start again.

  
  All of these things have limits, when they're gone they're gone--and in the case of a growing company they'll be gone in time.
  
  These are all basically variations on the pool of profit meme.

  
  No, they aren't. The infinite pools of profit meme is only in your head. These are valid ways for more efficient companies to increase their production. Just dismissing them as having limits doesn't change the fact that there is a huge amount of spare production capacity available to prevent shortages and higher priceS The US is currently using only about 75% of its production capacity.
  
  

  [*]The production facilities of the failed company don't disappear, someone can buy it probably at a discount that reflects the realities of the market such that it will be profitable.

  
  It depends on the situation. And note that you can't have growth this way--but our population is growing. If the industry doesn't grow the effective supply drops.

  
  The claim that production facilities are lost was your claim. I am just telling you that they aren't lost. I am not saying that buying the facilities of bankrupt companies will provide for growth in the economy, just that it helps to avoid the loss of production that is so much the cornerstone of your "increases in wages causes unemployment" argument.
  
  

  This will cover about 98% of all of the production in the US. There maybe a small number of industries where all of the competitors are running at full capacity and no one is making a profit. But high demand and restricted supply and low prices are not going to happen. It is not only going against economics, it doesn't make any logical sense.

  
  Unless someone is artificially holding prices down. For an example consider generic drugs bought mostly by the government. Shortage after shortage after shortage because there isn't enough profit to make it worthwhile for the companies to spend to ensure a continual supply when glitches happen.

  
  Non-sequitur. But I will play. The government has to pay full list prices for drugs that are purchased under the Medicare drug program, more than half of the drugs sold in the country. It is not the government that negotiates the non-Medicare purchased drugs down, it is private health insurance companies, except for the military purchases and Medicaid purchases in the Red States.
  
  I assume that the current 'free market' practice of the large drug companies paying the generic drug companies not to produce generic copies of the large companies drugs is unknown to you or like most of your responses here you dismiss it because it undercuts your firmly held beliefs.
  
  Another break, continued below.

 

[SimpleDon]

Continued from above.

I assume that you are also talking about long term effects. I would hope that you would agree that a slow gradual increases in wages will just lower profits in the short term. That your "can't operate without profits" is a long term effect, say years.

Yeah, I'm taking the long term view. In the short term you can feast on seed corn.

I want to be absolutely clear, I want to reduce profits in the long term. The seed corn as you call it has filled all of the available storage. As I said before tens of trillions of dollars in monetary capital are sitting in banks here and overseas, money earned in profits over the last thirty five years of conservative, supply side economic fiscal policies.

The reason for the large amount of monetary capital just sitting in banks is that this money can't find any real investments in production facilities that is the only investments that finally count to grow the economy. The reason is that there is insufficient demand for the production that the investments would produce. And what is the primary source of demand? Wages. What is the obvious solution for a excess of monetary capital caused by high profits and a lack of demand caused by low wages? I will leave you to work it out. If you need help contact me. Or re-read this.

But the ability of more efficient suppliers being able to add new production capacity to satisfy any unfulfilled demand from the long term loss of the inefficient supplier going bankrupt is in the same time frame, years.

You're assuming there are more efficient suppliers. You have no basis for this assumption.

I am assuming that the survivors are more efficient than the marginal companies that fail. This is wrong because you think that the more efficient companies will fail while the less efficient companies don't?

Not to mention that no business that was making a profit before an increase in wages who can't make a profit afterward is going to be rare.

I can see arguing that a specific wage increase is too high that it will put people out of business, the 100 dollars an hour or a million dollars an hour that some wag always puts forward as the killer argument against any increase in the minimum wage.

But a moderate increase in the minimum wage slowly introduced over a number of years to recoup its loses over the years to inflation something less than its historical high isn't it.

There are always some on the edge that will be pushed over.

Loren, you live in a world of absolutes. Where everything is either black or white, either good or bad. I am sure that I can't be the first person to tell you this.

Coupled with a rather incomplete knowledge of the economics theories that you believe in and champion it leaves you rather poorly equipped to discuss these matters. If this is the way that all of your opinions are formed I would think that this observation would extend to almost any adult subject.

I don't mean to be overly harsh. Your opinions did seem to be softening in some areas, the absolute surety of them I mean. But on this subject you seem to have, if it was even possible, to have become further entrenched in your rather stark, absolutist position. It seems to go well beyond the "glass is half empty" pessimism all the way to that "the glass is completely empty, you people only imagine that there is any water in the glass, and if I keep saying it over and over again you will finally realize that I am right."

Among the rabid opponents of any increase in wages you stand out as the most determined. There is no exception to "this will cause unemployment" that you won't dismiss out of hand without any explanation, but with a simple chant, "no exceptions, any increase is economic suicide."

I am sorry, you believe that only forced increases will bring unemployment and economic Armageddon, that voluntary increases, such as increasing the CEO's wages, can't cause the massive layoffs that would accompany even the smallest increase in the minimum. Money is only money except when it is bestowed with the evil powers that come from being forced. [/literary overstatement license]

I must admit that I was trying to dangle little pieces of the puzzle in front of you to see how you would put them together. You didn't bite, you ignored them, stomped your feet and shouted "no exceptions" with the absolute certainty of a middle schooler.

I don't get upset at the often offered idea of "if a ten dollar minimum wage is a good thing and won't cause unemployment why don't we raise it to one hundred dollars?" (Which I am not saying that you have ever asked.) I am an engineer and we are taught to consider the boundary conditions of any question. This is a boundary condition and obviously it tells us something, that there is a limit to how high (and how fast) we can raise wages, obviously.

But it is not the only boundary condition. So I ask you, will we cause unemployment if we raise the minimum wage by 10¢ an hour? About what inflation will reduce the purchasing power of the wage this year.

If I asked this of a less determined absolutist I would expect their answer to be that no, that wouldn't cause unemployment. And then putting the conclusions to both boundary conditions we would arrive at the obvious third "Goldielocks" conclusion that a moderate rise, not too big and not to small would be just right. But when I proposed that very same thing to you your response was "There are always some on the edge that will be pushed over."

Which makes me think that you are not so concerned with the unemployed as you are that no single business, no matter how marginal, should be put out of business by government action, in this case, by raising the minimum wage. That all of this time you have been making an argument that we should continue to condemn 4 million minimum wage workers to a steadily eroding wage (to inflation) so that a presumably ever increasing number of marginal businesses dependent on that wage can stay in business? Not even to mention that there are a vastly larger number of profitable businesses that have minimum wage workers who will enjoy increasing profits every year that the wage isn't increased.

That your stated concern for the unemployed is a false one? That you really don't care if increasing the minimum wage results in unemployment or not, what you don't want to see one marginal business go under due to government action? Or profitable business who have minimum wage workers, or near minimum wage workers, deprived of ever increasing profits that they gain from the lower static wages?

That this in your mind is a reasonable way to run an economy, to give businesses profits on the backs of their workers? Profits that they have done nothing to deserve. They didn't invest to gain those profits. They didn't innovate to earn those profits. They didn't become more efficient to gain those profits. Don't you realize how dangerous this is for our economy? These are the incentives that capitalism relies on for growth. Not to mention the corrosive nature of seeing marginal businesses kept afloat solely by effectively paying their employees less every year.

This can't be your position, can it?

 

[Loren Pechtel]

So you are defining "total loss" to now mean "having to accept somewhat lower profits."

1) I'm not the one that used "total loss".

2) The reaction of business to the situation depends on the profit margin:
2a) Acceptable profit. They remain in business, if a business fails for some reason it's likely a new player will enter.
2b) Unacceptable profit. They will generally remain in business but there will generally not be any new entrants to the field to replace those that fail.
2c) Above marginal costs but below total costs. There will definitely be no new entrants, attrition will be heavy.
2d) Below marginal costs. Businesses will cease operations as fast as they can.
in the C and D cases bankruptcies very well might happen.

Businesses being forced out of business is part of the creative destruction of capitalism.

Inefficient producers are forced out. I'm talking about systemic problems that affect an industry. These are either caused by regulators or by big economic problems.

If raising wages causes businesses out of business so be it. I trust capitalism to adapt and to be stronger, just like it did after child labor was prohibited and hundreds of other restrictions were placed on unfettered capitalism. Why don't you trust it to adapt?

Wages that rise naturally are not a problem. Inefficient producers are forced out and replaced with efficient ones. However, when you mandate wage increases you have a very different situation--there's no supply of good jobs to replace the ones that fail. Thus you get unemployment.

We are not trying to perfect capitalism, we are using it to produce better results for society and its members. Capitalism is resilient enough that we can do this. Why don't you believe that it is?

But full employment is not a goal of capitalism. Inefficient producers are cast aside--even when they are workers.

Look at 2008. So long as the failures don't spike you just get the normal turnover. When they do spike you get big problems.

You must look at why they failed. It wasn't because of the rise in the minimum wage in 2007. It was because of the failure to regulate the financial market and their mishandling of financial 'innovation' in the form of mortgage backed securities, just another attempt by the financial markets to capture part of the huge amount of capital that has been redistributed from wages over the last thirty years.

I didn't say they failed due to a minimum wage increase. I'm talking about the effects of too many failing. We still haven't crawled back out of that hole and you want to dig deeper.

So we are back to the argument that supply and demand set prices except when they don't. And when they don't is when I need to prove that increases in the minimum wage causes unemployment and recessions like occurred in 2008.

There are two factors:

Supply & demand and the price floor (cost + reasonable profit). If there is a shortage supply & demand rules, if there is no shortage competition forces the price to the floor--and since we generally have enough goods available things which are competitive are generally priced not far above the floor.

Ah, yes, the killer argument of the infinite pool of profits. Of course I don't believe in an infinite pool of profits that we can pull from to fund everything. You should have more pride than this Loren. You can do this, you can arrive at a coherent explanation without using such ridiculous arguments. Here is a coherent description of what happened and why, one that relies on facts and local conclusions from those facts.

Except your argument makes no sense if you don't assume it.

In the late 1970's and early 1980's neoclassical economists, conservative politicians and the very wealthy all agreed that the economy was suffering from too little capital investment. They had always said this, but at that point in time it was possible that it was marginally close to being true, although it didn't have anything to do with the economic problems that we were having at the time, stagflation caused largely by the oil price shocks. But they also agreed on something else, that it was the government's fiscal policies that were starving the economy of capital and were over rewarding labor. So the fiscal policies were changed. And capital started to accumulate and wages started to drop.

I don't see this wage drop you are referring to. What I see is a shift from good jobs being hourly to good jobs being salaried--and those who want to pretend there's a wage drop just look at the hourly data.

 

[Horatio Parker]

Why this redistribution of money occurred is strangely considered to be a mystery today. I can clear it up in one two paragraphs.

In the late 1970's and early 1980's neoclassical economists, conservative politicians and the very wealthy all agreed that the economy was suffering from too little capital investment. They had always said this, but at that point in time it was possible that it was marginally close to being true, although it didn't have anything to do with the economic problems that we were having at the time, stagflation caused largely by the oil price shocks. But they also agreed on something else, that it was the government's fiscal policies that were starving the economy of capital and were over rewarding labor. So the fiscal policies were changed. And capital started to accumulate and wages started to drop.

Fast forward to today. Now neoclassical economists, conservative politicians and the very wealthy claim to have completely forgotten that government fiscal policies determine the split between capital share and the labor share, something that they were so certain of in 1980. They currently believe that the redistribution of income favoring capital was due to either unknown and unknowable economic forces or the magical appearance of some of the very same changes that were the results of the policy changes that they fought so hard for thirty five years ago, changes like the effective suppression of the minimum wage, globalization and weaker unions. Silly people, right?​

See, coherent and logical, unlike hanging your argument on something as ridiculous as people having to believe that there is an infinite pool of profits.

My understanding is the big change was the result of computer technology and telecommunications, air transportation etc. all of which made possible the global economy. The productivity gains pretty much all went to management. Less labor was required, ending a century old trend of real rising wages for labor in the US. The civil rights and women's movements also put pressure on the labor market.

Instead of raises, workers were offered unsecured loans in the form of credit cards.

 

[Loren Pechtel]

I want to be absolutely clear, I want to reduce profits in the long term. The seed corn as you call it has filled all of the available storage. As I said before tens of trillions of dollars in monetary capital are sitting in banks here and overseas, money earned in profits over the last thirty five years of conservative, supply side economic fiscal policies.

In other words, you want to freeze the total standard of living and redistribute it instead.

Down the road we won't develop solutions to our resource problems. Goodbye humanity.

Note: There's no such thing as being full up with seed corn. It's just a matter of diminishing returns.

The reason for the large amount of monetary capital just sitting in banks is that this money can't find any real investments in production facilities that is the only investments that finally count to grow the economy. The reason is that there is insufficient demand for the production that the investments would produce. And what is the primary source of demand? Wages. What is the obvious solution for a excess of monetary capital caused by high profits and a lack of demand caused by low wages? I will leave you to work it out. If you need help contact me. Or re-read this.

A short-term problem. You're trying to fix it with a long-term solution.

But the ability of more efficient suppliers being able to add new production capacity to satisfy any unfulfilled demand from the long term loss of the inefficient supplier going bankrupt is in the same time frame, years.

You're assuming there are more efficient suppliers. You have no basis for this assumption.

I am assuming that the survivors are more efficient than the marginal companies that fail. This is wrong because you think that the more efficient companies will fail while the less efficient companies don't?

The point is that you are assuming there is always a more efficient supplier. When things get bad enough even the efficient ones fail.

Loren, you live in a world of absolutes. Where everything is either black or white, either good or bad. I am sure that I can't be the first person to tell you this.

No. I recognize that there is a spectrum, you do not. Since it's a spectrum there's always somebody on the edge that won't take a lot of pushing to fall over. You're dividing the world into efficient (able to withstand any shove you might choose to administer) and inefficient (which will go under anyway.)

Coupled with a rather incomplete knowledge of the economics theories that you believe in and champion it leaves you rather poorly equipped to discuss these matters. If this is the way that all of your opinions are formed I would think that this observation would extend to almost any adult subject.

Your "economics" only make sense if there is an infinite pool of profit to take to fund your ideas.

Among the rabid opponents of any increase in wages you stand out as the most determined. There is no exception to "this will cause unemployment" that you won't dismiss out of hand without any explanation, but with a simple chant, "no exceptions, any increase is economic suicide."

I'm not saying it's economic suicide. I'm saying that you are trading wages for unemployment. Saying it's a bad thing isn't the same as saying it's suicide.

I don't get upset at the often offered idea of "if a ten dollar minimum wage is a good thing and won't cause unemployment why don't we raise it to one hundred dollars?" (Which I am not saying that you have ever asked.) I am an engineer and we are taught to consider the boundary conditions of any question. This is a boundary condition and obviously it tells us something, that there is a limit to how high (and how fast) we can raise wages, obviously.

But it is not the only boundary condition. So I ask you, will we cause unemployment if we raise the minimum wage by 10¢ an hour? About what inflation will reduce the purchasing power of the wage this year.

But you're still missing the point. We are proving two data points: Current unemployment vs the extreme unemployment of an extreme minimum wage. An engineer certainly can draw the line through those two points. Realistically, also, there's a third point, albeit fuzzy: Minimum wage $0 leaves almost no unemployment. Thus you have something approximating a hyperbola in the first quadrant.

If you are right that raising the minimum wage will improve the situation you have to show that it's actually at least a third order equation. No effort is being made to show how this effect works--and I'm sure you're familiar with Occam's razor.

 

[Togo]

But the ability of more efficient suppliers being able to add new production capacity to satisfy any unfulfilled demand from the long term loss of the inefficient supplier going bankrupt is in the same time frame, years.

You're assuming there are more efficient suppliers. You have no basis for this assumption.

I am assuming that the survivors are more efficient than the marginal companies that fail. This is wrong because you think that the more efficient companies will fail while the less efficient companies don't?

The point is that you are assuming there is always a more efficient supplier. When things get bad enough even the efficient ones fail.

This is an example of you taking a small change, and figuring the result as if it were an infinite change. This is a flaw in your reasoning.

Loren, you live in a world of absolutes. Where everything is either black or white, either good or bad. I am sure that I can't be the first person to tell you this.

No. I recognize that there is a spectrum, you do not. Since it's a spectrum there's always somebody on the edge that won't take a lot of pushing to fall over. You're dividing the world into efficient (able to withstand any shove you might choose to administer) and inefficient (which will go under anyway.)

Which is a true statement for any given place on the spectrum. No matter where you are on the spectrum, there will be firms on either side of the line. The flaw, again, that you are introducing is measuring the effects of a small change as if it were an infinite change (able to withstand any shove you might choose to administer. This is a flaw in your reasoning.

Coupled with a rather incomplete knowledge of the economics theories that you believe in and champion it leaves you rather poorly equipped to discuss these matters. If this is the way that all of your opinions are formed I would think that this observation would extend to almost any adult subject.

Your "economics" only make sense if there is an infinite pool of profit to take to fund your ideas.

No, it makes sense as long as the amount of profit is above zero. The idea that for there to be an amount above zero, there must be infinite profit, is the same flaw in your reasoning as above.

Among the rabid opponents of any increase in wages you stand out as the most determined. There is no exception to "this will cause unemployment" that you won't dismiss out of hand without any explanation, but with a simple chant, "no exceptions, any increase is economic suicide."

I'm not saying it's economic suicide. I'm saying that you are trading wages for unemployment. Saying it's a bad thing isn't the same as saying it's suicide.

But you can't demonstrate that any change in wages changes employment.

I don't get upset at the often offered idea of "if a ten dollar minimum wage is a good thing and won't cause unemployment why don't we raise it to one hundred dollars?" (Which I am not saying that you have ever asked.) I am an engineer and we are taught to consider the boundary conditions of any question. This is a boundary condition and obviously it tells us something, that there is a limit to how high (and how fast) we can raise wages, obviously.

But it is not the only boundary condition. So I ask you, will we cause unemployment if we raise the minimum wage by 10¢ an hour? About what inflation will reduce the purchasing power of the wage this year.

But you're still missing the point. We are proving two data points: Current unemployment vs the extreme unemployment of an extreme minimum wage. An engineer certainly can draw the line through those two points. Realistically, also, there's a third point, albeit fuzzy: Minimum wage $0 leaves almost no unemployment. Thus you have something approximating a hyperbola in the first quadrant.

If you are right that raising the minimum wage will improve the situation you have to show that it's actually at least a third order equation. No effort is being made to show how this effect works--and I'm sure you're familiar with Occam's razor.

Unemployment is not zero at a minimum wage of 0$, or even near zero, because being employed involves significant costs to the employee. This is why you get situations in Detroit where the bulk of unemployment is concentrated away from the local bus routes - because people can't get to a job without a car, and can't run a car without a job.

Similarly unemployment is not 100% beyond a certain point, because many jobs have no connection to minimum wage, including the self-employed and those paid by commission.

All you're demonstrating is that taking minimum wage to the extremes and trying to use each extreme to plot the middle doesn't work. Which it generally doesn't. Or to put it another way, you're taking a proposed small change, and insisting on figuring the result as if it were an infinite change. Which again, is a flaw in your reasoning.

 

[SimpleDon]

Just a time out to get back to the subject of the thread, things that I have learned on the internet, things that I have been told, unavoidable conclusions from what I have been told and my observations from all of that. I leave it to you to sort out which is which.

• We need poverty and the "dying wage" to provide the proper incentives for the poor to work harder.
• We must not tax the rich and must try to direct ever larger amounts of money to them to provide the rich with the proper incentives to work harder.
• We mustn't just give money to the poor, it reduces their incentive to work.
• We allow the rich to leave all of their money to their children or it will reduce their incentive to work.
• Prices are always set by supply and demand except when they aren't.
• Supply and demand setting prices is suspended when we have to make the point that increased wages increase prices.
• Profits are fixed, increased wages can't reduce them, and therefore prices must go up.
• Profits aren't a cost, but the price of the goods must include the profit.
• Increased profits don't add to the cost, therefore increasing them can't increase prices and unemployment.
• If you believe that profits are too high and must be reduced it is the same as assuming that there is an infinite pool of profits is available.
• Prices and values are set objectively, we just don't know how.
• An increase in the minimum wage always results in an increase in prices and unemployment.
• Other wage increases don't.
• The Marshall Islands study of an increase in the minimum wage is the only example that shows that it causes an increase in unemployment, but it is the only one we need to prove the point.
• Inflation devalues our money except when it drops in value against other countries' currency. This devaluation of our money is deflation.
• "I don't understand what 'deflation' is so I will call almost any economic situation I don't understand 'deflation.'" [/liberal paraphrasing]
• "I also don't understand what 'stagflation' is so I will call any other any economic situation I don't understand 'stagflation.'" [/liberal paraphrasing]
• Inflation is not an increase in prices that causes an increase in the money supply, it is an increase in the money supply that increases prices, most of the time even before the money supply increases.
• People only study enough economics to prove that their preconceived theories and biases are correct. For most that is precious little.
• Economists who discover a small truth about the economy usually destroy its effectiveness by trying to expand it to explain the whole economy, for example, marginalism.
• Any time someone anyone uses the term "Econ 101" they are about to tell you what they wished that economics says about something.
• The term "if starting from an economy at equilibrium" really means "there is no way in hell that this could ever happen."
• Economists in the US study the full range of economic thought from "M" to "N."
• It is easy to explain the concept of "the velocity of money," it means that the economists who came up with it don't understand money.
• The US trade deficit was $800 billion in 2007, the rest of the world had a trade surplus of, wait for it, $800 billion. Apparently we are not to talk about this any more,
• Government spending can't stimulate the economy.
• Lower government spending costs us jobs.
• The human brain is essentially unchanged in a hundred thousand years or so, all of our advances have been achieved because we have learned to come together as a collective; a family, a tribe, a clan, a nation.
• The way forward from here is as autonomous individuals, doing for ourselves, rejecting the collective.
• When people come together and collectively form a government with the best intentions to do good it can't help but result in evil and oppression.
• When people come together and collectively form a corporation with the intention of maximizing profits it can't help but to result in all that is fine and good in the world.
• The way that we all know that governments are evil and oppressive and inefficient is because we all have had to wait in line at the DMV only to find out that that we filled out the wrong form. And Hitler!
• If only government was run like a business with businesses' consumer first orientation, like the cable company.
• Fifty percent of all new businesses fail in the first three years, so it might take awhile and a few tries before we can run government like a business.
• The free market is the natural form of capitalism, but it has never occurred naturally.
• The free market will be able to regulate itself with little or no government interference, but since no one can conclusively explain how it will do this we will just have to wait until it happens to see how it works, but it will be wonderful to see when it finally happens.
• I always had a hard time understanding if a free market cult member was talking about the economy that he wants us to have or was he talking about the economy that we do have.
• Finally I realized that they don't know that there is a difference.
• The only mechanism that the theory of the free market has for correction is a feedback mechanism, which means that there has to deviation from the norm before the corrective action can compensate.
• Unfortunately there are a lot of people in the position to force deviations who can make a lot of money before the feedback mechanism can correct for them.
• The economy, like other social structures like the family, has no purpose, no reason to exist.
• A basic tenet of current neoclassical economics in the US is that if history or empirical data conflicts with their theory then there is something wrong with the data or the interpretation of the history.
• A basic tenet of current neoclassical economics in the US is that the more assumptions that are made to simplify a theory or a model the closer it is to being an universal truth.
• A developing tenet of current neoclassical economics is that it doesn't matter if economic theories are correct, if everyone believes that the theories are correct then the economy will behave as if the theories are correct.
• Economics in the Anglo American countries is based on ideology, not on the practical assessment of how our current economy really works.
• Basing an economy on ideology and theory hasn't worked out so well in the past, for example, the economies based on Marxism.
• The concept that the free market can exist and that it can self-regulate is not based on faith, it is the conclusion of unimpeachable logic that starts from bedrock, universally accepted truths, starting with the bedrock, universal truth that the self-regulating free market can exist.
• The self-regulating free market is a solution that parallels what we often find in life, that there is always a simple solution to a complex problem if you don't know enough about the problem.
• Only a True Libertarian® can achieve True Libertarian® goals like deregulation of the economy.
• The only True Libertarian® is the one you are talking to, but he has doubts even about himself.
• Every libertarian believes that they are one of the one in ten thousand übermenchen that would excel to save the world if it weren't for oppressive government regulation.
• Of course, 99.99% of them have to be wrong.
• The only failing that the in all other ways vastly superior Libertarian/Randian übermench has is their curious, total inability to understand government regulations, a flaw that leaves them completely paralyzed and unable to perform.
  [*}Lowering wages doesn't increase profits, and increasing wages doesn't lower profits, if you knew the difference between being pro-market and being pro-business you would understand why.
• Government regulations kill jobs, and someday soon we will be shown an example of one that does.
• Apparently it is easy to oppose regulation in the abstract but impossible to do so in the real world.
• Libertarians want to replace government regulation with the streamlined, efficient, always fair, inexpensive process of everybody suing everyone else, because there is nothing better than a judge telling you what you should have done three years or so after the fact.
• And instead of having to understand and keep up with hundreds of regulations you only have to understand and keep up with tens of thousands of court decisions which can and therefore will vary from jurisdiction to jurisdiction.
• The most radical Libertarians, the followers of Murray Rothbard, want to limit the defendants in a civil suit to the direct participants in the exchange transaction, resulting in multiple, cascading suits, for a defect in your car you could only sue the car dealer who, in turn, would sue the manufacturer.
• Capitalism has to be a nearly perfect economic system for there to be a self-regulating free market.
• Capitalism is a terrible economic system, but it is the best one that we been able to come up with so far.
• Capitalism's biggest flaw is that the trait that makes it work so well, that it rewards innovation and risk taking, is also its biggest problem, that it rewards destructive innovation and criminal risk taking even more.
• The most radical politicians in the nation's history, the ones that were the most committed to the radical change of society and of the status quo, the founding fathers and Lincoln's Republicans, were actually conservatives.
• It is unfair to say that modern conservatives are afraid of change.
• If conservatives were afraid of change would they be so willing to rollback sixty years of social and economic progress?
• It isn't change that the modern conservative is afraid of, it is modernity.
• Conservatives don't trust science.
• Liberals don't trust technology, unless it has an apple logo.
• In general people don't trust what they don't understand.
• The obvious conclusion from this is that virtually no one trusts mathematics.
• Neoclassical economics doesn't include money, banking, debt, financial malfeasance or the possibility of economic instability in their theories and models.
• Six years after the The Great Financial Crisis and Recession which started when financial malfeasance by the banks left unchecked by the Bush administration triggered economic instability which was prolonged and made much worse by the massive amount of private debt which produced a huge shortfall of liquidity, and the neoclassical economists still can't figure out how their models and theories failed to predict it or explain how deep it would go or how long it would last.
• Their best guess is that the 40 year old Community Redevelopment Act forced the banks to make bad loans to poor minorities. Or Fannie Mae and Freddie Mac. Or animal spirits. Not Global Warming, no such a thing. Not Hitler, no, not this time. Mystery, total mystery.
• The word "liberal" now means anyone who is a moderate, a liberal, a social democrat, a Keynesian, a radical, socialistic, communistic, a fascist (Hitler!!), in short anyone who is not a conservative in its modern meaning of being a reactionary or a libertarian in its modern meaning of an imaginary reactionary, that is one who wants to return to a past that never existed.
• Modern movement conservatism is a symbolic relationship between the rich and the stupid, the stupid keep the rich rich and the rich keep the stupid stupid.
• Modern movement conservatism in the early 1980's eagerly embraced supply side, or neoliberal, economics, the idea that the fiscal policies of the government set the split of the total income of the nation between wages and profits, between consumption and investment, between the poor, the middle class and the rich, and that these fiscal policies should be changed to favor profits, investment and the rich.
• Once this was done the beneficiaries of supply side economics, the rich, set about to use their money to wipe any memory of fiscal policies being changed from the minds of the movement conservatives (but leave the fun![/Frozen™ reference]) to where today they can be heard repeating the drone that the change in the income distribution over the last thirty five years was either the result of unknown and unknowable economic forces or, alternately, the result of the natural operation of the free market, but not in anyway a result of the nation's fiscal policies.
• Keeping the rich rich and the stupid stupid since 1980.
• We have always had wingnuts in this country, those that declare that the president is trying to be a dictator or a king and who is trying to subvert the Constitution or that black-brown-red-yellow-green-orange-Jewish-Catholic-atheistic-Irish-Italian-Chinese-Mexican-illegals-anarchistic-socialistic-communistic-Islamic-terroristic-homosexual-drug dealing-pornographer-deviant-femNazi (Hitler!!) fanatics-maniacs are close to taking my guns away taking over the country, but except for short time after the implosion of the Whig party and the brief existence of the Know Nothings we have been able as a sane society to ignore them and their rants, to provide them with the obscurity they so deserve. But no more, thanks to money from the rich they now have control of one of the two major parties and effective veto of anything coming out of Congress.
• All in the name of maintaining the rich and the stupid.
• This state of affairs has to at least partially be blamed on the incompetence of the other major party whose not so brilliant idea was to box in the stupid by becoming half stupid themselves, which only pushed the stupid further to the right into previously uncharted levels of stupid.

I tried to break up the list but the system kept putting it back together.

 

[Nice Squirrel]

Bravo!

 

[SimpleDon]

I would like to see an example of regulators forcing an insurance company to sell at a total loss, which for an insurance company would mean that they essentially were forced to give insurance coverage away.

I'm not sure why you're now using "total loss" here. There have been many cases of insurers not being granted requested rate increases, and being approved only for rates that are lower than their expected costs. This means that they operate at a loss for that rate cycle.

In fact, several years ago, one of the not-for-profit health insurers in my region got in trouble for having too much capital. The insurance commissioners of three states together decided not to approve any rate increases for that insurer for two years, I believe. That company operated at a loss for two years until they had spent down their capital to a level that the commissioners deemed appropriate for a not-for-profit insurer to hold.

The term a ”total loss" was Loren's, not mine.

Yes, a non-profit insurance companies is not suppose to make a profit. Obviously. Profits accumulate as excess capital, capital beyond what is prudently required to cover extraordinary claims. A health insurance company doesn't require as much capital as a some other types of insurance companies. It doesn't take a very large number of people who are covered to average out claims to a very predictable, very constant number. This is why a corporation can self-insure with as few as 100 employees. There is little risk. And reinsurance policies are cheap. Policies that limit their total exposure to extraordinary risk.

Many non-profits are mutual companies, they are owned by the policyholders and they rebate any excess premiums that they have collected over the year to the policyholders.

 

[Nice Squirrel]

I'm not sure why you're now using "total loss" here. There have been many cases of insurers not being granted requested rate increases, and being approved only for rates that are lower than their expected costs. This means that they operate at a loss for that rate cycle.

In fact, several years ago, one of the not-for-profit health insurers in my region got in trouble for having too much capital. The insurance commissioners of three states together decided not to approve any rate increases for that insurer for two years, I believe. That company operated at a loss for two years until they had spent down their capital to a level that the commissioners deemed appropriate for a not-for-profit insurer to hold.

The term a ”total loss" was Loren's, not mine.

Yes, a non-profit insurance companies is not suppose to make a profit. Obviously. Profits accumulate as excess capital, capital beyond what is prudently required to cover extraordinary claims. A health insurance company doesn't require as much capital as a some other types of insurance companies. It doesn't take a very large number of people who are covered to average out claims to a very predictable, very constant number. This is why a corporation can self-insure with as few as 100 employees. There is little risk. And reinsurance policies are cheap. Policies that limit their total exposure to extraordinary risk.

Many non-profits are mutual companies, they are owned by the policyholders and they rebate any excess premiums that they have collected over the year to the policyholders.

Side note: Many self-insured entities were upset that the evil Obamacare made them refund the excess premiums to the employees and would no longer let them skin the excess into management bonuses.

 

[coloradoatheist]

How about on the other side. That we can take the several billion transactions made in a year and very accurately weight and measure all these transactions so that we can officially say that the inflation rate over a period of time is X. And then we can honestly say that with that X we can say that one group is worse or better off using that X.

 

[Nice Squirrel]

How about on the other side. That we can take the several billion transactions made in a year and very accurately weight and measure all these transactions so that we can officially say that the inflation rate over a period of time is X. And then we can honestly say that with that X we can say that one group is worse or better off using that X.

Are you saying that the CPI is flawed? I'd agree with you there.

 

[coloradoatheist]

How about on the other side. That we can take the several billion transactions made in a year and very accurately weight and measure all these transactions so that we can officially say that the inflation rate over a period of time is X. And then we can honestly say that with that X we can say that one group is worse or better off using that X.

Are you saying that the CPI is flawed? I'd agree with you there.

Yep. So I don't think we can really make a comparison with a group living X years ago compared with with today

 

[ksen]

Are you saying that the CPI is flawed? I'd agree with you there.

Yep. So I don't think we can really make a comparison with a group living X years ago compared with with today

SimpleDon's observation #42:

•A basic tenet of current neoclassical economics in the US is that if history or empirical data conflicts with their theory then there is something wrong with the data or the interpretation of the history.