The only incentive that will effectively cause companies to pay their employees better is more demand for labor, which is most likely to be caused by increased economic growth. Most other programs end up being more complicated and costly than earned income tax credits and other methods of redistribution.
> The only incentive that will effectively cause companies to pay their employees better is more demand for labor
Or wage regulations (increasing the minimum wage)
Or labor organization (ie Germany)
Or tax regulations (shift tax incentives from machinery to labor)
> which is most likely to be caused by increased economic growth.
Growth is over my friend, at least the growth that would be necessary for wage inflation (ie Japan). EDIT: We can argue this point if you'd like, in a thread about the strongest world economy planning for negative interest rates, while other central banks have already gone (and continue to hold) at negative rates (can't "push the string"!, ie stoke demand with free money).
>"Or wage regulations (increasing the minimum wage)"
Evidence on this is mixed at least; the majority of the studies go against this being an effective policy. The Card and Krueger findings are somewhat convincing, but do not hold over a longer period of analysis.
>"Or labor organization (ie Germany)"
Labor organization may help transfer wealth from shareholders, suppliers, or consumers to the workers, unless it kills the host companies or causes them to move away. I have not seen evidence that labor organization helps the average citizen, though there is some evidence that it may help the unionized people; unless labor organization improves productivity, it can only change distribution, and I'm not sure who it really transfers wealth from.
>"Or tax regulations (shift tax incentives from machinery to labor)"
This may help raise demand for labor, but pay can never go higher than productivity, which usually requires capital investments.
>"Growth is over my friend, at least the growth that would be necessary for wage inflation (ie Japan)."
I disagree, and it is difficult (if not impossible) to prove which of us is right.
> Labor organization may help transfer wealth from shareholders, suppliers, or consumers to the workers, unless it kills the host companies or causes them to move away.
This is by design. If we can transfer more wealth to workers instead of shareholders, we should. If workers can't receive an appropriate wage from a company, than the business is most likely not viable (see: people complaining their business won't work with a $15/hour minimum wage).
>"Growth is over my friend, at least the growth that would be necessary for wage inflation (ie Japan)."
> I disagree, and it is difficult (if not impossible) to prove which of us is right.
I agree that this will be determined by India, China, and to a lesser extent Africa. I believe these economies are growth-limited now, due to the fundamentals around how their economies are structured.
note: I removed a quote child comment responded to, referenced below.
>" If we can transfer more wealth to workers instead of shareholders, we should."
This is a normative goal, but you are assuming that unions always transfer wealth from shareholders to workers, and I am not convinced of this. Shareholders will refuse to invest if the returns are not attractive, so it is difficult to retain them. It seems more likely that unions will transfer wealth from consumers or suppliers to the union members, which is a much less appealing prospect.
>"Can you explain the rational as to how zero interest rate policies can stoke demand on-par with middle class consumers, versus simply enriching lending institutions? If I'm wrong, I am happy to concede the point."
I'm not convinced that the Federal Reserve has much impact on consumer and corporate interest rates. All central banks believe that international bond markets are relatively free. All central banks also believe that they control their national interest rates. These beliefs are not compatible.
note: the second quote in this post was edited out of the parent
>"Also, if monetary policy is driving rates negative, technically, capital "required" for productivity is literally free."
This is only superficially true. Real interest rates also take inflation risk and investment risk into account, so they could easily be quite signiifcant even when the central bank says there is a negative interest rate.
I am not an economist but I am pretty sure you could design tax policies that make it more attractive to pay higher salaries for the average worker or maybe give them shares in the company.
Can you imagine how much demand there would be if average wage growth would have kept up with productivity? People who make 30000/year would spend much more if they had 40000/year. I don't think a CEO's behavior will change much if he has 30 million or 40 million.
Obviously this won't happen but it's a thought that should be brought up from time to time.
>"Can you imagine how much demand there would be if average wage growth would have kept up with productivity? People who make 30000/year would spend much more if they had 40000/year. I don't think a CEO's behavior will change much if he has 30 million or 40 million."
There might be more demand for the consumer goods popular for low-middle income citizens, but then again, this could reduce capital investments and reduce productivity in the long term, thus reducing wage growth in the future. I suppose my answer is that I can't imagine how much 'demand' there would be if average wage growth kept up with productivity, largely because the economy is a complicated beast, and 'demand' is not a simple thing.
I am assuming that we hold M2 velocity of money constant for the purpose of this analysis; which is to say that I assume richer people and poorer people hold on to money for the same amount of time before re-allocating it (to stocks, bonds, consumables, durable goods, etc.). If this assumption is true, both will create the same total 'demand', but for different goods. Richer people tend to spend much less (as a proportion of their income) on consumables and personal items than poorer people; the rich also tend to invest the vast majority of their money, and that money often goes to capital investments.
Supply and demand works the same for industrial buildings, robots, software, and trains as it does for homes, couches, and cars. The primary (economic) difference between these goods is their impact on long-term productivity.
>I am assuming that we hold M2 velocity of money constant for the purpose of this analysis
Poor people have to spend money on essentials as soon as it comes in. Rich people don't. That's pretty much the simplest possible definition of being poor. So that is not a valid assumption.
>If this assumption is true, both will create the same total 'demand', but for different goods.
This can't possibly be true either. Rich people spend money on essentials and on luxury goods and on investments and keep some spare cash on hand, because why not?
Poor people spend money on essentials, and perhaps a little distraction and entertainment.
Why would the total demand from both somehow be the same?
> The primary (economic) difference between these goods is their impact on long-term productivity.
Which is the crux of the problem - speculative casino "investment", which is based on gaming markets, isn't economically productive. Neither is an economy that leans heavily on usury.
Productive investment in R&D, small business development, and wage growth stimulates economic capacity and increases confidence.
Speculative investment - including speculative gambling, systems of forced debt like student loans and payday lending, and asset inflation which drives up rents and property prices - destroys demand and economic capacity.
The fact that we're even discussing negative interest rates while in the middle of severe commodity deflation proves the core problem hasn't been addressed.
>"Poor people have to spend money on essentials as soon as it comes in. Rich people don't. That's pretty much the simplest possible definition of being poor. So that is not a valid assumption."
Rich people invest money in capital goods as soon as it comes in, either through a direct purchase, or because the investment bank where they hold the money gives it to someone who spends it.
>"This can't possibly be true either. Rich people spend money on essentials and on luxury goods and on investments and keep some spare cash on hand, because why not?"
I said 'as a proportion of income'; rich people spend far less on living expenses than the poor do as a proportion of income. They might have a car that is 10x as expensive, but with 100x the income to pay for it.
>"Poor people spend money on essentials, and perhaps a little distraction and entertainment."
This agrees with my previous statement.
>>"If this assumption is true, both will create the same total 'demand', but for different goods."
> I am assuming that we hold M2 velocity of money constant for the purpose of this analysis; which is to say that I assume richer people and poorer people hold on to money for the same amount of time before re-allocating it
There are two problems with that: the most obvious is that differences in velocity at the first level is one of the main bases on which distribution differences are held to effect demand growth, so you are just assuming away the main issue.
The second is even assuming away velocity differences at the first step, you also have to assume that velocity is the same in the different markets to which the rich and poor allocate funds: even if velocity were the same in the first case, this assumption would be invalid. (In both the first instances and later steps, this is even more true when you are considering growth of the domestic economy, where you aren't just concerned with velocity at each step, but also the propensity to spend within the domestic economy.)
>"There are two problems with that: the most obvious is that differences in velocity at the first level is one of the main bases on which distribution differences are held to effect demand growth, so you are just assuming away the main issue."
Demand growth for what? CNC machines and tools, or LCD televisions? Making a capital investment in semiconductor fabs will affect production and inspection equipment demand, as well as driving down production costs for a wide variety of goods, whereas buying an LCD television will increase demand for TFT screens, backlights, and slightly increase demand for television production machinery. I am making an assumption because we have to. No one has ever make a comprehensive economy-wide microeconomic model that worked, and no one ever will; this is the essence of the calculation problem.
>"The second is even assuming away velocity differences at the first step, you also have to assume that velocity is the same in the different markets to which the rich and poor allocate funds: even if velocity were the same in the first case, this assumption would be invalid. (In both the first instances and later steps, this is even more true when you are considering growth of the domestic economy, where you aren't just concerned with velocity at each step, but also the propensity to spend within the domestic economy.)"
I agree that there is probably a difference between velocity of spending between rich and poor, but I'm not sure which one is faster (; please provide a link to such information if you have it). It seems likely that the poor spend more money on low cost foreign imports (stuff made in China) than rich people who are investing in very expensive specialty goods made in the West, so I think it likely that allocating more money to the rich is beneficial from a mercantilist point of view.
You might be living paycheck-to-paycheque, yet still take the same time to allocate money as someone much more well-off. A full time investment management staff can allocate money quite quickly, and tend to plan ahead (thus avoiding delays). Being 'leveraged' does not hasten allocation of funds, it affects how the money is used.
Well, there is a pretty large existing population of college grads who cannot afford to spend much because of the existing debt. Most proposed regulation (that I think has no chance of passing) talks about new loans. Immediately lowering rates on existing loans would actually give millennial more spending money.
As for tuition skyrocketing, I think that will slow down or even reverse soon. Colleges thought that they could raise rates now, and expect the economy to catch up with higher salaries later. That didn't happen. In fact the opposite happened: the economy tanked, and a bunch of people were left with lots of debt and jobs that can't support it. I think the market will correct itself, especially as online/remote education becomes more prevalent, state schools show that your earning potential is not really linked to the prestige of your school's name anymore, etc.
I disagree, I think the desperation for jobs will increase demand on colleges and universities and the availability of student loans make that possible. Colleges have been able to, and will continue to, charge whatever students can be loaned.
The student loan problem is one of the most challenging problems.
My undergrad is probably thought by most on HN to be a diploma mill (UCF) - University of Central Florida. But, UCF has done something really special. They said screw it and they worked really hard to keep tuition low. The median Tuition is just $6,368. That low tuition + easy Florida scholarship money has worked well for the University as the acceptance rate has fallen below 50% (That is comparable to many universities in the top 100 globally).
I think UCF's bet that they need to compete on price is going to work in their favor. The biggest downside is massive class sizes, but that is made up for with more online learning and better lecturers.
When someone asks me where I would go, I tell them pick one: Really, really prestigious or cheap and decent. UCF does not provide the opportunities that Harvard does, but it will still beat out an unknown liberal arts college charging $200,000 for 4 years.
> I tell them pick one: Really, really prestigious or cheap and decent
In reality, there is really only one criterion: affordable.
The really elite universities will make themselves affordable if you can get in, and if you can't then you're better off going somewhere cheap. There's no point in paying for the expensive middle.
Hopefully, this will do more to eliminate degrees as a (useless) hiring signal.
There are multiple definitions. No one thinks UCF is illegitimate, but it is a large university which pumps out a ton of students and some people here question any school which isn't a top ten university.
I would say that's what's happening right now and it can't last much longer. Eventually people will realize the debt isn't worth it and universities will be contract.
The problem is when you have a flooded labor market any education becomes a differentiator. So whether the debt is or isn't worth it becomes a question of whether or not you want a middle-class job.
So unlike every other service colleges are special and the more people looking to do it the more expensive it is.
It isn't possible to open more colleges and create competition. That wouldn't work in this case, because as stated unlike every other good or service in the world colleges are special and don't work like that.
Glad we cleared that up, now we can just do nothing about the problem.
It's not just special, there are social pressures that totally distort rational thinking. People (parents, teachers, advisors) tell kids to go to the best school they can. There is a ton of hype about attending the "Right school for you" etc. There are rankings and all sorts of other stuff.
Schools distort true cost through murky financial aid processes. Then the gov't continues the scam by calling loans "financial aid."
Plus the customers are 17 year olds whose most expensive purchase before this was saving up for that really cool concert that one time. And now they are borrowing tens of thousands (sometimes hundreds).
It's also impossible to judge the worth of college.
It's just a mess. We shouldn't be giving kids and young adults that much rope to hang themselves with.
The government should institute price controls for anyone using federal loans. 30k tuition is a total scam.
I don't think we disagree in principle, but in detail.
I fundamentally disagree that
"Schools distort true cost through murky financial aid processes. Then the gov't continues the scam by calling loans "financial aid.""
That argument says that there is essentially free money just by charging more, no increase in services. If that where true the amount of money to be made would force more colleges to be opened.
Couple that with the fact that public colleges are much cheaper than their private counterparts and community colleges are cheaper still and I don't know exactly where this argument comes from.
There is a lot of high cost options which loans unfortunately do cover, but to blame the price distortion on the availability of the loans seems backward.
Private K-12 schools are just as outrageously priced with no loans available to fund them.
I think there is a stigma (depending on your area maybe justified) around public educational institutions, which allows profiteers to do their thing.
Instead of fixing the underlying problem, we throw money at it. Which is the American way.
> So unlike every other service colleges are special and the more people looking to do it the more expensive it is.
Uh, what? Are you being sarcastic?
Because it's pretty much a basic rule of economics that if demand for a good increases its price will increase (at least until new supply is introduced).
s/millenial/millenials that have not yet paid off their student loans/
It would have been fun to galavant around Europe for fun instead of paying off my loans, but I guess I'm the sucker for being responsible.
I'm totally fine with people being able to refinance their loans to market rates, if those rates happen to be negative then good for them. I'm annoyed by this prevailing view that everyone with student loans are unemployed and can't pay them back. I know plenty of people with lots houses, cars, and taking vacations that haven't paid off their student loans yet. Outstanding balance left is not a good measure of the loan's burden or the circumstances under which the student took out the loan.
I think it's safe to say that people are generally irresponsible, all things considered.
As for how to handle the mountain of student loan debt -- inflation used to work as a soft form of debt relief but banks screw with people by jacking up private student loan interest rates in lockstep. We need something stronger -- actual debt relief.
Insisting that we need debt relief is not an argument. It's not self evident to me why we need to invalidate principal on loans. I like the idea of inflation a hell of a lot more because it benefits me as someone that paid off my loans ($80k!) in full. We can't seem to do it via monetary policy, but if you give me the choice between helicopter money and student loan debt relief, I'm going with helicopter money every time.
I think you are onto something but lowering student loan rates would probably just cause even higher tuition.
How about lowered student loan rates with an inflation adjusted cap? Then perhaps schools would be motivated to increase the number of students educated, as opposed to getting more money out of each student.
They are, because their state funding is increasing at a lower rate than inflation, and because they have to pay for new buildings and equipment to support growing student populations.
And contrary to right-wing pundits, growing student populations are not a problem, they are the stated goal of public universities. You can't just raise tuition to discourage people from applying because the entire point is to get as many applicants as possible.
How about incentives for companies to pay their employees better? I know it's sacrilegious to even think such a thing...