A world in economic crisis

Time for a lesson in economics

Posted in Uncategorized by Aussie on December 13, 2011

For several months the LSM has been pre-occupied with the astroturf movement known as Occupy Wall Street. What the LSM is not telling is that the movement is grounded in Marxism. What the LSM is also not explaining is that those behind the Occubaggers are the usual suspects that have been known since the 1960s: William Ayers and Bernadine Dorhn of the terrorist organization the Weather Underground, Van Jones (a well known watermelon and Marxist) as well as the incarnation of ACORN. The question that should be uppermost is: Who is sponsoring this astroturf movement? One name springs forth – George Soros.

The purpose of OWS is one that is extremely conflicted, but it is that way in order to get approval from those who were for example opposed to Wall Street merchant banks getting bail outs. The aims sounded so noble, and their notions seemed to be quite catchy, especially the meme “we are the 99%”. However, such memes are in themselves a lie. The movement is one that is based upon envy, which is as bad as any greed that one might see amongst traders at the New York Stock Exchange, or amongst those who spend money with hedge funds.

At the same time the whole OWS movement is nothing more than a diversionary tactic that is meant to drag people into their way of thinking as a result of some of their populist arguments. For example, they rage about economic inequality. Wait a minute, who says that we should have economic equality?

The arguments regarding income inequality are extremely false. It is all about supply and demand stupid!!  The latest meme has been that the wealthy do not supply jobs, and again this is a false meme. It is all about savings and investment, stupid!!

For a moment, let’s go back in time in order to illustrate why these are false memes. In this case I will travel to 1491-92 to the court of Queen Isabella of Spain. In this scenario a young Italian sailor came to Queen Isabella to get her patronage for a voyage. The purpose of the voyage was to discover a new route for the supply of Indian spices. The sailor’s name was Christopher Columbus. As a result of obtaining that patronage Christopher Columbus set off with 3 ships and crew and despite thinking that he had reached India, he ended up discovering a new continent – the Americas.  This is an illustration of how a wealthy individual invested in a sea voyage, and that investment gave employment to those who went on that voyage with Christopher Columbus.  There are many examples of the wealthy and their patronage of various business and other ventures in the past. 

This illustration could be repeated when looking at things like the invention of the steam engine, the invention of the cotton gin, and a whole variety of goods and services. In order to invent such things and bring them to the “market”, there was a need for investors. You could say that was a first step in supply and demand.  My illustration is not that great but it serves to point out that the economic illiterates who are a part of the OWS occubagger movement do not understand how markets work.

However, let me move on to the issue of income inequality, whatever that means. These days there is talk of “wage justice” and it is normal to hear the bleatings about how women are paid less than men. The problem is that you need to have a look at occupations which involves also looking at the qualifications or otherwise required for those occupations. First off, there are unskilled jobs such as street sweeper, taxi driver, building janitor, shop assistant, farm labourer, where there are no formal requirements to do the job. It is because there are no formal education requirements that such jobs normally do not pay all that well. At the same time there is usually an oversupply of job market entrants willing to do these jobs for the lower pay. Second, there are the professional jobs such as accountant, lawyer, doctor, dentist etc that require formal qualifications attained from an institution of higher learning.  It should be pointed out that for some of these positions there are restrictions upon entry into the field and that these restrictions actually affect the level of supply for those professions.  These are extreme examples.

One example that is usually pointed when the subject of income inequality is raised is that of a doctor versus that of a nurse. In some ways it is comparing apples and oranges. However, this comparison is changing since nurses have begun to gain further educational qualifications. I could use a more absurd example of my engineer husband who has the capacity to earn at least 3 times what I have earned when I was working. We are both degree qualified, yet I earned a fraction of his income. It boiled down to the type of work where I was directed, and had nothing to do with my degree qualification. In other words a comparison of our earning potential is false.  

On the other hand, I can point out that supply and demand in the labour market does in fact affect employment opportunities. What usually happens is the following: 

1. there is a demand for aeronautical engineers that suddenly increases but there is a shortage of these engineers in the labour market place. Since demand outstrips supply the price for that labour is high. 

2. The increased demand for these engineers causes two things to happen: (a) immigration of skilled workers who can meet the demand (2) students choose to undertake undergraduate courses in order to obtain jobs within that industry.

3. As a result of these two factors, the number of entrants in the market increases which leads gradually to an oversupply for aeronautical engineers, which in turn leads to decreases in salaries offered for the available jobs in the market.

This can be applied more appropriately to professions such as law and accountancy where there is presently an oversupply, thus lawyers and accountants are a dime a dozen.  It can also be applied to watermelon science.  In other words, what can happen is that students will often graduate only to discover that there are either no available jobs, or that the incomes that they thought that they would get once they hit the job market have been reduced.

Basically, the pay for a given job is determined by market factors, including skill levels required, as well as education required, and experience required. The CEO of a big business is expected to have a high level of expertise which is one reason why CEOs are often paid at a salary level which we tend to think is bloated. Sometimes, thanks to the interference of unions, the pay levels for occupations that are at the bottom to mid-range  are inflated, but the expectations of the employer are over-inflated. A good example of this is the salary levels of teachers. Most of them get really good pay considering the hours that they work and the amount of leave that they get during the year, yet they are greedy with their constant demands for higher pay.  



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