Business hires to service customers and expand when there’s enough aggregate demand to sustain sales at profitable prices. With or without Obamacare.
Small Business on Obamacare: No Reason to Hire or Invest
By Patricia Orsini
June 28 (CNBC) — Small business owners, who have been waiting for the Supreme Court’s decision on Obamacare before hiring and investing, say the ruling raises more questions than it answers.
“… when there’s enough aggregate demand to sustain sales at profitable prices.” (emphasis added)
The higher the cost of labor, the higher prices have to be to be profitable. The higher prices go, the lower aggregate demand will be. The lower aggregate demand goes the less hiring there will be. Obamacare is equivalent to a minimum wage hike. Without offsetting fiscal adjustments, unemployment will go up.
Hits young workers the hardest, since without community rating mandates, the cost to insure them is pretty low. Starting 2014, it will be much, much higher.
@ESM,
“Obamacare is equivalent to a minimum wage hike”.
Not exactly, because a minimum wage hike will directly raise demand, via more consumption coming from from minimum wage earners. This effect will be absent in Obamacare.
@Jose
Good point.
It does stimulate demand for more medical services, however, unfortunately at the same time that Obamacare dampens supply through various price controls and new taxes.
@ESM,
A big problem with health care is the result of supply and demand. The issue is that notional demand (need) runs far ahead of effective demand (use) for a variety of reasons, the most significant being the affordability. Prices don’t fall and supply doesn’t increase due to monopoly practices that result in induced scarcity to yield economic rent for the gatekeepers that create the artificial scarcity. It is well-known that there are not enough physicians, nurses, and technicians because the system is not qualifying enough people. Is this due to lack of applicants, lack of places in education, cost of qualifying, etc.
Serious distortions come from a model based on delivering health insurance through employers. It is a model that ignores many that aren’t in this system, and it also forces people into employment that they would not choose otherwise and keeps them stuck there. At the same time, it makes US firms less competitive with foreign firms due to labor costs including benefits they must bear. Moreover, realistically wage and benefits is the compensation package that businesses use, not wages. Wages are stagnant for those other than at the tipity top, because the “raises” are through increased benefit costs.
In addition, the health care system ignores alternative approaches for the most part, and insurance generally does not cover them. Regardless of the fact that Americans have been increasingly using alternatives to the tune of billions of dollars since about the 70’s.
Finally, special interests like drug companies have too much control in shaping the health care system, and insurance companies have often usurped the role of physicians in approving and denying care.
The present health care system is a Rube Goldberg device, and it needs to be redesigned taking a systems approach. It is obsolete, even though it is based on cutting edge technology.
The only good thing to come out of the Obamacare is political recognition of the principle that universal health care is a right and not a privilege. However, Obamacare confuses universal care with universal coverage, and it doesn’t even achieve universal coverage.
The only way to achieve universal care effectively and efficiently is single-payer, with an option for those that can afford it to also purchase supplementary coverage or to pay out of pocket for special care or facilities. Universal care doesn’t imply equal care. Not everyone is entitled to a private room, although they may be if the treatment requires it.
But I would say the place to begin is with increasing real resources where there are shortages, especially when qualified people would like to become physicians, researchers, technicians, nurses, etc. For example, the step toward the creation of the “nurse practitioner” qualification was a step forward. Having served in the US Navy, I am aware that smaller ships at sea were tended only by corpsmen, and they managed quite well. China also had its “barefoot doctors.” And I had a Chinese friend who was trained to do only a few things, which she knew well, and she refused to exceed her boundaries.
India is now improving efficiency and effectiveness of surgeons by assigning one type of operation to one person. In the US, the average surgeon by treat 1000 cases of a particular type. In India, its 10,000. Studies should that outcomes are faster and more reliable with specialization.
The US needs to revisit its entire approach toward a systems view that increases capacity, efficiency and effectiveness, and eliminates the dead weight imposed by special interests.
no mention of my universal healthcare proposal ;(
@ESM,
@Tom:
Pretty much agree, although my solution would be to go towards less government control and more market based solutions. I have to quibble with the idea that health care is a “right.” You have to define what health care is. Sure, urgent, life-saving care should be provided to all regardless of ability to pay (which is already done by the way), but what percent of the health care economy does that represent? Advocates of universal health care conflate universal insurance coverage with universal health care precisely because they want to expand the “right” into something way beyond what most Americans would accept.
no comment on my universal health care proposal ;(
@ESM,
ESM, leaving the moral argument aside for the moment, the most efficient and effective public investments are in education, health care, other welfare, infrastructure, R&D, pretty much in that order of priority, setting defense side as not oriented toward the domestic economy (even though the US economy is driven in significant measure by defense expenditure).
This kind of public investment improves both production (economic effectiveness) and productivity (economic efficiency). Human resources are a countries most valuable assets and a country improves them through education and maintains them in good working order through health care. Infrastructure is obviously important in a more tangible way, and the public demand that basic infrastructure that they use on a daily basis, like the federal highway system and state and local roads. We need to be looking economically at education and health in a similar fashion, and assigning a higher priority on this basis alone. Then there are the moral issues.
In fact, in addition to maintenance and improvement, a sound economic approach reduces he dead-weight cost of negative externality involving human resources directly, like crime and unnecessary debilitation through health issues. The US is spending huge amounts on security, judiciary, incarceration, and illnesses resulting from inadequate health policy that could be redirected positively by addressing already known causes.
But if Americans want their country to maintain its competitive edge, these matters are high priority. Adopting an MMT-based monetary and economic understanding is the way to show people that affordability is not the issue they believe it to be. We need to be focusing on real resources, not bookkeeping, and even looking at the accounting in the wrong way.
I don’t see this as a left-right issue if it is framed correctly in terms of the economics. Then the policy follows, policy being the basis of decision=making and that is “public management.” As Peter F. Drucker is often quoted as saying, “Efficiency is doing things right; effectiveness is doing the right things.” I haven’t found the source of the quote yet, but it is the basic principle of his seminal management book, The Effective Executive.
@Tom Hickey,
Nicely put, Tom.
@ESM,
@Tom:
“Human resources are a countries most valuable assets and a country improves them through education and maintains them in good working order through health care.”
First, I only care about the country maintaining its competitive edge (whatever that means) to the extent it improves or safeguards the lives of people here. Competitive edge is the means to an end, not an end itself. As far as I can see, that means only trying to maintain a competitive edge in defense and perhaps Olympic basketball and snowboarding.
The idea of getting a competitive edge by making or keeping our citizens healthier is ludicrous, unless you’re talking about using steroids and blood doping to win Olympic medals (an area in which we are no doubt world leaders). Giving people more health care will not improve productivity one measureable iota. It’s not like we’re a 3rd world country where everybody is suffering from malnutrition and cholera, for goodness sake.
The only reason to spend more on health care or to make health care delivery more efficient is to make peoples’ lives better. I claim that the first order of business is to allow people to make their own cost-benefit decisions. Nothing allocates resources more efficiently to maximize utility than that.
the whole point of work is to ultimately consume the output, one way or another,
presumably to make people’s lives better
the point of govt. is public infrastructure for public purpose, also, directly or indirectly,
to make people’s lives better.
but points taken
@Tom Hickey,
Great responses. Wise.
@ESM,
@MamMoTh,
whatever. this idea that higher wages cause an increase in productivity looks utterly ludicrous to me, and makes MMT look that way too if that is one of its implicit underlying assumptions
The issue is really a free rider one. Businesses that pay beneath a living compensation package socialize the difference. Income below the living wage is a negative externality in a society that has made the political choice to provide a welfare floor.
@Tom Hickey,
That has nothing to do with the claim that higher wages cause an increase in productivity.
And actually those who get higher wages without a higher productivity (that’s pretty much everyone except engineers) can be considered free riders. Not that I have anything against it.
@ESM,
MamMoth: “And actually those who get higher wages without a higher productivity (that’s pretty much everyone except engineers) can be considered free riders.”
That’s generally considered monopoly rent.
The issue we face is increasing productivity accompanied by stagnant nominal wage and falling real wage, and a trend of rising involuntary unemployment over several decades.
@Jose,
The correlation between high productivity and high wages, must go from productivity to wages and not the other way round. Otherwise any country should increase its minimum wage tenfold and become a high earning country overnight. The only clear way an increase in the minimum wage can lead to an increase in productivity is, as ESM pointed out, by removing the least productive from the workforce
@MamMoTh,
confusion of workers and units of labor? Increased productivity results from technological innovation that reduces the units of labor to produce the same amount and reduces the need for the number of workers in aggregate. This results in involuntary U3, U6, and also participation rate. Unless demand is stoked in some way, this slows down and eventually interrupts the circular flow. Although China has a plethora of low-paid workers, they are adopting robotics in order to keep abreast of quality improvement that automation makes possible. Most labor in the world can be automated and will be. Where is the income to buy the stuff going to come from. The world already has a excessive supply capacity relative to demand for goods, as well as way too many people willing and able to work that have no job offer.
@MamMoTh,
whatever. this idea that higher wages cause an increase in productivity looks utterly ludicrous to me, and makes MMT look that way too if that is one of its implicit underlying assumptions
First thehigher cost of labor is some ones
Second it encourages substituting capital for labor
Third if aggregate demand does fall taxes can be that much lower
@WARREN MOSLER,
“the higher cost of labor is some ones”
If in the form of insurance premiums, then this primarily goes to the (health) insurance industry, no? And USG in the form of non-compliance penalties and surtaxes on high incomes?
So distributional effects would seem to be:
Health insurers – (+) premium revenue, (-) operating expenses, financial investments (reserves), (-) provider payments
HC providers – (+) service and related income, (-) operating expenses (including employee income but also student loan pmts and med mal premiums)
USG – (+) revenues (I’m not very familiar with the legislation, might be missing outflows here?)
Seems we’re just talking about reallocating command of resources (slightly?) and rearranging real economic activity?
“if aggregate demand does fall taxes can be that much lower”
But Admin and Dem Congress made sure it was fully ‘paid for,’ and austerity fever seems to be rising again here, even as it recedes a bit elsewhere. Might not happen until stabilizers kick in?
The idea of exchanges is nice, but it seems to me the economic impacts would have been a whole lot better if a public option had been included.
@Art Patten,
See Clonal’s start to #2 below…a $2K per employee penalty on employers probably changes the impacts listed above substantially. Could end up more like a USG employer head tax on employees, and leave employees in those situations to fend for themselves, albeit on ‘exchanges’. What a mess.
don’t forget the exchanges designed to employ more competition, just to complicate the possible outcomes a bit further.
yes, agreed govt turns a good thing into a bad thing all the time by being out of paradigm regarding their monetary system.
@ESM,
Minimum wage hikes have been shown to increase economic output and productivity in the past. If a worker costs more, companies with capital tend to invest in production capital to increase the output per worker. In other words, a business tends to waste what is cheap and conserve what is expensive. If workers are cheap, a business will tend to hire to meet demand, then lay-off easily during lulls, ignoring more expensive capital investments. But when workers are expensive, a business will tend to invest as noted above.
This is also why small businesses tend to hire more people per the output the business produces because they tend to have less capital so must more depend on variable cost workers. SO instead of looking at small business doing a lot of the economy’s hiring being a good thing, one should see it for what it is – low productivity and inefficiencies.
@Crake,
“Minimum wage hikes have been shown to increase economic output and productivity in the past.”
Please cite some references. Theoretically, your argument makes no sense. Putting extra constraints on trade (here, the trade in labor), which are not compensating for externalities, cannot be more optimal.
Sure, if you prevent the least productive 10% of the population from working, you’ll raise the productivity of the average worker, but you’re getting less output overall.
@ESM,
ESM: Please cite some references
Germany has no minimum wage. France has one of the highest in the EU. Productivity in France is higher than in Germany. Productivity is GDP output per hour worked.
Source – Eurostat.
@ESM,
@Sergei:
My argument was made based on logic. You don’t need empirical evidence for logic. My assumptions could be wrong, of course. For example, there could be an externality due to exploiting workers who don’t know how to negotiate a fair market wage or, in the case of illegal immigration into a country with a strong social safety net, the imposition of most of the cost of labor on society as a whole.
Could you provide a link to your source? It almost sounds like the punchline to a joke that the French would be more productive than the Germans. By the way, defining productivity as GDP output per hour worked is exactly the problem I identified with cutting off the low productive tail of the distribution.
i seem to recall studies showed raising the cost of labor resulted in higher productivity and higher output, to the point that nations with higher unemployment might have the same per capita output and growth as nations with lower unemployment.
not that in either case higher levels of employment would have meant that much higher output
@ESM,
ESM, link? It is no study but pure and raw stats. Just go the eurostat website and draw two time-serious. Btw France is not the only one. Netherlands, I think, has the highest minimum wage in euro and its productivity, again I think, is even higher than France or comparable.
On cutting the low productive tail I agree. That is what Germany has been doing for decades and esp after the Hartz reforms, that is creating a low productive tail in the economy by squeezing economy-wide bargaining power of labour. Why do you need a washing machine if a great chunk of population is forced by the state to work for food?
Paul Davidson once told me that he though all govt workers should be via JG/ELR, so govt would only be hiring off the bottom…
@ESM,
Warren: “Paul Davidson once told me that he though all govt workers should be via JG/ELR, so govt would only be hiring off the bottom…
Seems like a really dumb idea for a country that is the world leader and aspires to retain that status. We are already hiring off the bottom of the barrel wrt elected officials.
understood.
and if we are already hiring off the bottom no reason to pay more than the elr/jg wage…
then there’s the approach to term limits- have all congressman declared welfare recipients- then they’re gone in 2 years…
good points thanks
Currently insurance costs to small business is about $8000-$12000 per year per employee, including employee contributions. The insurance rates to the business are per employee, and not as a percentage of the employee’s income.
According to the Patient Protection and Affordable Care Act, it will
Nor does it make any sense for health care to be a marginal cost of production
@WARREN MOSLER,
As long as health care is mandatory it will be a marginal cost of production regardless how it is funded.
Govt needs to write the check, not business, as per my health care proposal on this website.
unless working makes you need more health care- that is, if it were a real cost of production- it shouldn’t be a marginal cost of production
@Warren Mosler,
Govt could write the check. But directly or indirectly it need to tax enough in order to regulate aggregate demand and keep inflation in check. So one way or another it still seems to me health care will be a marginal cost of production
@WARREN MOSLER,
“no comment on my universal health care proposal ;(”
I’ll comment on it. It’s excellent!!!
Beats ACA hands-down. Easier. Consumes fewer resources. Far less confusing.
thanks!
@Clonal Antibody,
“and let the employees get the insurance on the federally subsidized market, and pay the employees for that premium.”
In a stable market. If the market can’t be stabilized, then it will be anywhere between “Do ya want the damn job or not” and “We pay 100% of health care premiums”. And then we STILL have health care corps madly scrambling to improve profit, whilst offering a mind-numbing array of products that are designed around that objective.
It’s enough to make you ill!!
As an owner of a couple of businesses, I think the only changes in medical care delivery that would be sure to boost business performance, although not sales, would be those that relieve employers of the dubious responsibility for employee’s healthcare. In this regard the best proposal I’ve seen comes from the author of this blog!
As much as I appreciate how small businesses can resemble families in positive ways, I feel that employers should not have power or responsibility over aspects of employees’ lives that are not business related.
@Alan Rhodes,
Bingo. Let Gov’t take care of health care and let voters take care of Gov’t.
And this situation:
http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.motherjones.com%2Fpolitics%2F2012%2F06%2Finteractive-chart-super-pac-election-money&h=2AQGmG8i7
needs to become an excellent example of how NOT to take care of the Gov’t.
Note that Colbert gets his licks in too!
the same Colbert that ridicules politicians who he believes contribute to higher deficits?
@Warren Mosler,
It WOULD help if he and Stewart were “in paradigm”.
does anyone have figures on how much debt is discharged in medically-driven bankruptcies in the US every year? seems to me that defaulted debt is also a source of demand leakage (as the default falls to the bottom line and equity so impaired must be rebuilt). i know this is a very significant source of household defaults percentagewise, but in terms relative to the economy i’m not sure.
no but good point
Agree. But don’t you think business has better things to spend their money on. Obamacare does nothing real to control cost. It will actually add to the problem–more money in the pot that will be drained. I’d rather spend money on a new employees or equipment than on medical insurance.
Although the law shows a 500 billion cut from medicare, congress will never let that happen. The same people who voted for obamacare are the same ones, more or less, who vote every year to reverse the sustainable growth rate cuts.
all this becomes a substantial real problem at full employment when labor is properly returned to its natural state of being scarce.
at that point anyone involved in ‘unnecessary’ activity is costing us real useful output.
@WARREN MOSLER,
In the short run, the more cost the better since in contributes to the deficit. When labor is scarce again, it would help to give MDs a bit of immunity (maybe change the law to reflect gross malpractice, rather than simply malpractice), otherwise no ones’s going to be able to stop them from doing a lot of tests (why should they with their practices on the line). Also give consumers a stake–I like your plan actually. But, the folks in DC who want some sort of nationalized healthcare never seem to be interested in those type of ideas.
@vincent,
vincent:
But, the folks in DC who want some sort of nationalized healthcare never seem to be interested in those type of ideas,”
Is Medicare for all “nationalized” healthcare in you view. It is not in mine. Govt sets prices and foots the bill. The rest is privately provided and administered. Unlike, say, the UK, at least as I understand the system.
Providers are not forced to take the assignment and charge additionally if they can attract clients willing to pay the extra cost. Thus, the importance of breaking the artificial scarcity by qualifying more personnel.
Tom,
You may not understand the UK system then.
In the UK every single front line doctor (our General Practitioners or GPs) is part of a private business run for profit.
Always has been.
Those are paid for by the state, get subsidised loans for capital projects from the state and operate according to a set of increasingly weak rules and regulations.
The Pharmacists are all private businesses as well. Their payment comes the NHS per prescription – which has a fixed price per item.
Dentists are all private businesses who again receive a payment from the NHS. The form of that has changed over the years from a simple piece work system to a ‘care plan’ payment.
Even the buildings within the hospitals are often privately owned and leased back to the Hospital Trusts.
About the only classic public institutions are the NHS trusts that run the Hospitals and much of the back room administration tasks that allow patients to move between doctors, keep records, etc.
And that is currently being privatised by the back door. (The existing PCTS are being dismantled and the admin responsibilities pushed to the GPs who will then have to back that task off to administration specialists via outsourcing).
we could have two kinds of doctors
those who enter into public private partnerships with govt that you can’t sue
and those who stay strictly private that can be sued.
the prices would be different and you could take your pick…
@vincent,
Thanks, for the clarification. I didn’t know much about the UK system and was taken in by the propaganda.
Obamacare is another nightmare welfare program. Another nail in America’s fiscal coffin. Disastrous.
@JBH,
“Obamacare is another nightmare welfare program.”
You mean on top of defense spending, too big too fail, agro subsidies, etc?
“Another nail in America’s fiscal coffin”
Didn’t realize we were already dead. Are you saying the associated taxes and penalties should be increased…?
@JBH,
always like to see that kind of detailed and hard-hitting analysis. what i come here for.
fiscal coffin? still haven’t read the 7dif on this website or any other of the mandatory readings? get with the program, mate!
@JBH, If the mandate is a tax then let the federal government pay it and adjust the tax rate structure to account for it? That way those at the lower end pay nothing and corps avoid it entirely. And it makes it universal for anyone who files a tax return. No need to rush into the tax rate structure thingy. Just put it on the to do list for now. But if you file a tax return, you get the medical coverage. Bingo universal coverage.
@jonf, Oh, forgot this. It makes corps more competitive. ( I really worry about that one you know.)
Massachusetts has one the lowest unemployment rates and the identical health insurance plan called Romneycare.
Small business in Massachusetts is booooooming!
Check Mate
makes my point, actually, and lay off the cheap shots, which I deleted
Injury and disease are disutilities. Dealing with them is not appropriate for the market because the relationship between success and profit is inverse. The better the care, the less need for it.
“Health care” isn’t just a euphemism; it’s an effort to set up a constant, recurring income stream by delivering care to healthy people, based on a promise of prevention that can’t be met.
“Health care” is a protection racket, not unlike “crime prevention,” which has generated law enforcement bloat and the ever-increasing diminishment of individual rights. Both are flavors of human husbandry, the exploitation of people by their own kind to their detriment.
good point, and connects to Galbraith’s themes of using marketing power to create anxieties to sell into
I@Monica Smith, Well said Monica!
@Monica Smith,
Exactly.
In a recent NYT article a (honest) doctor stated that if one is feeling well then one is probably in good health. No need for expensive and invasive check-ups in those cases; and they likely form the overwhelming majority of the population.
Useless check-ups will also bring extra health-harming anxiety for those unfortunate individuals who succumb to “medical” propaganda and duly comply, thus earning the new, frightening label of “patient.”
@Jose,
Nonsense. Many people are overweight or have hypertension, high blood sugar, and other signals of serious diseases developing that give no warming and go largely unnoticed. It is simple and inexpensive to check body mass index, BP and measure blood sugar, and on a fairly regular basis. A simple checklist can also pinpoint areas of prevention such as diet and exercise.
@Tom Hickey,
I guess you didn’t pay much attention to what I wrote. I mentioned risky, “expensive and invasive check-ups”, such as mammograms, prostate exminations, colonoscopies, PSA tests, etc. Not the simple, riskless and quite necessary tests that you cite.
May I then infer that you agree with what I said?
@Tom Hickey,
Jose, I am in general agreement about invasive testing. I think we need to pay attention to research and expert opinion on this, and also inform patients of the research findings and risk/reward ratio relative to their case, rather than issuing blanket recommendations.
What I have found in my rather limited exposure is that doctors are now explaining this more fully, although sometimes one has to pursue the details with questions. I qualify the physicians I deal with on their attitude toward invasive testing. Many physicians may be taking the CYA approach, however, and that needs to be addressed. Technology is great, but not overuse. Better controls need to be in place, not so much to “save money” as to provide more effective, more efficient, and safer care. People are way more important than money in the larger scheme of things.
Back to the original thread: Mosler is entirely correct in his assessment of job creation and the effects of Obamacare. Employers do not create jobs, consumers do! Businesses ONLY hire when demand is expected to increase and reduce headcount when demand falls. Employment is the result of demand.
I will venture to submit the following:
In the current economic environment, Obamacare expenses will be paid for by the employee. Pressure to keep consumer prices low and competitive will force employers to reduce net pay to cover the benefit. Pay raises will be deferred, hiring will be at a lower wage rate and even wage reduction may occur. Basically the government has forced employees to purchase healthcare with their own money in a very kludgy manner.
@chris,
Agree. It’s a marginal cost and business will try to pass that on instead of compressing profit margin. Difficult to raise prices in this environment, so the obvious route is to keep employee compensation at the same level by reducing wages as cost of benefits rises. That has already been happening for decades. Look at the date. Employee compensation in aggregate is pretty much unchanged, while wages have been stagnant while health care costs have risen sharply.
@chris,
Employment is the result of demand.
Employment is the result of investment
@MamMoTh,
circular flow— investment/credit > production > income/credit > demand/saving > consumption > investment/credit > …..
The question is really not chicken or egg, but rather when the circular flow slows down or is interrupted, why.
@Tom Hickey,
I always find it amusing when people try and argue that their linearisation of a circular process is the ‘correct’ one.
By definition they are all valid. The difference is that each one leads to different insights into the nature of the circular flow.
@MamMoTh,
Investment IS demand
Investment is a type of spending………which is demand
@Greg,
but demand is not investing
@Greg,
Mammoth
“but demand is not investing”
Sure it is. When I choose to go spend my money at a store Im investing in them. I may only be getting a product in return, I may not try and own stock in the company, but I am making an investment with them. As more and more people make those investments they are able to hire more people, in fact its ONLY by more people making those types of investments (which the company calls “sales”) that the company needs to hire more people. making the other types of investment dont even matter if the first type of investment isnt happening.
you are defining investment your own way which you’re allowed to do but it does make communication problematic
@Greg,
Warren
Is it not true that investment IS spending? One does not invest without spending. Spending is demand so investment adds to demand does it not. Thats all Im saying
Investment isnt saving so if its not saving it must be spending
Yes, investment spending is spending that counts as aggregate demand.
But the question at hand is why some one invests/spends/thus adding to aggregate demand.
And the notion is that investment is motivated by the prospects of (ultimately) selling the output, aka, ‘sales prospects’.
the presumption is that if no one is buying anything and there are no prospects for further spending there won’t be much if any investment spending.
but if someone engages in investment spending even in that scenario, that will cause at least some one time employment to build whatever that guy wanted built.
@Greg,
Yes, investment is demand for capital goods and other spending for production in anticipation of sales. If US firms began spending the 2T they are sitting on the economy would recover. but they are not.
According to the theory, lowering the interest rate lowers the cost of borrowing and at low rates it is rational for firms to invest in capital goods in anticipation of the recovery. That’s one of the chief rationale’s for monetary policy.
But it isn’t happening and so the demand has to come from elsewhere — net exports, consumer credit, or government contribution — or just waiting for business to get enough confidence up to begin investing again.
In summary, the issue is demand-leakage as shown by the sectoral balances. One sector or a combo of sectors has to offset that leakage in order for the output gap to close and employment to return to a more normal condition.
Supply siders say to increase demand by improving business confidence and creating expectation, and enacting economic policy that is favorable to investing like less regulation, lower taxes on firms, and restraining labor bargaining power.
Demand siders say to stimulate demand by government as the only sector able to spend when it is unreasonable to expect the trade balance to shirt markedly and neither consumers nor producers want to spend because they prefer greater than normal liquidity and are increasing savings — which will go on as long as deleveraging.
investment is driven by sales prospects
@WARREN MOSLER,
I’d say investment is driven by worrying about sales prospects 😉
@MamMoTh,
“Employment is the result of investment”
You wanted to say UN-employment is the result of investment, right? 🙂
In an agricultural society there is no unemployment. Everybody is employed producing food
@Sergei,
In a purely agricultural society – if such a thing ever existed – there would probably be no money and so savings would necessarily equal investments. That would be the reason for full employment in such a society.
taxation is the cause of unemployment. see ‘the 7dif’ on this website
@Sergei,
@ Warren Mosler
I was just remembering the Paul Davidson quote (apud Warren Mosler, “Full Employment and Price Stability”):
“In…real economies that do not use money…there is never an important involuntary unemployment problem”
🙂
Everyone will agree that the cost of healthcare is a macroeconomic problem. Well there are two easy solutions. 1) Limit the number of people who receive it or 2) Limit the amount of money going to providers and the associated financial groups.
I don’t like the first solution and don’t think it leads to the best overall output anyway. The second solution is politically difficult unless our friend TINA comes about (There Is No Alternative). Having universal coverage makes TINA come about since the competition actually takes place at a macro level. Capital, when stuck with the constraint of having to provide healthcare will be forced to provide it on a more efficient basis. And you may ask why? Competition forces TINA. This explains why the US has such an inefficient system and other countries provide healthcare at a lower cost because they have TINA to be cost efficient.
@Sidchem,
Right, but what can happen is the development of a two-tier (have and have-not) or several tier system where the bottom receives care in name only.
That’s why a Medicare for all with a basic standard is needed. Of course, there can also be a private alternative, as in Germany, or even with Medicare in the US.
The question is whether education, health care, safety standards and the like are public goods. If they are agreed to be based on careful analysis, then it becomes the role of govt to create the most effective solution and then make optimize efficiency.
The most efficient solution is not necessarily the most effective in all cases, give agreed upon objectives as a democratic society. The most efficient solution in health care is the one Nature uses. Do we really want to go toward eliminationism in the case of humans? That’s what we have now.
@Tom Hickey,
I wouldn’t take such a dark view of the most efficient solution as being natures. If you have time take a look at The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care” by T.R. Reid and see the view from other countries that have used many systems to obtain universal care. The principle that he stresses is that the first thing to do is to insure everybody and then costs come down, I think it is because the cost cutting issue becomes a plus for Capital because TINA for increasing their returns.
@Sidchem,
Sidchem, my point is that the first step is deciding on criteria for effectiveness, which means choosing goals. If the goal is universal health care, the question is what the most effective means to get to this goal are, based on the best information available. Once goal and basic path are decided upon, then efficiency of means becomes the issue.
Owing to market imperfections, leaving the issue solely or largely to market forces may be highly efficient but largely ineffective in reaching the goal if the objective is universal care. Coverage is only one way to care). There are few if any perfect markets, and health care is not one of them, with artificially imposed scarcity, a trend toward greater centralization and specialization, and wide income disparity affecting ability to pay, in a sector that is increasingly capital intensive due to technological innovation.
Market solutions may be well-suited to discretionary spending, but they are not necessarily well suited to vital necessities involving significantly imperfect markets and a high level of inequality.
I think that given that we are not starting from zero base that expanding existing coverage to more universal coverage is a step forward. However, there is no non-political obstacle in the way of going to fully universal through single payer, and there is already a model in place that works reasonably well. What this would mean,however, is that government would be the price setter, as it already is in the case of Medicare and Medicaid.
Anyone on Medicare gets the statements and knows what government actually pays. It is generally a fraction of what is billed. The difference is made up with the somewhat higher amount that private insurers pay and, of course, the self-insured are billed the full amount. This is a really dumb system and results in half of the personal bankruptcies in the US being medical. It also incentivizes medical tourism. Then there are those who don’t receive adequate care and underperform or even die as a result.
Medicare for all is not an insurance coverage solution. It involves government setting prices in terms of an analysis of costs with the private sector providing care. This is a huge incentive for the private sector to provide care most efficiently. What it does to the degree is managed appropriately from the side of govt is purge economic rent.
everyone except those who read and understand ‘the 7 dif’ on this website?
@WARREN MOSLER,
Warren don’t forget about the fallacy of composition and that ‘the 7 dif’ might not be mainstream thinking until the aliens arrive from some distant planet and set up schools. 🙂
“One thing Americans do buy with this extra spending is an administrative overhead load that is huge by international standards. The McKinsey Global Institute estimated that excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003). Brought forward, that 21 percent of excess spending on administration would amount to about $120 billion in 2006 and about $150 billion in 2008. It would have been more than enough to finance universal health insurance this year.”
It is a huge first step, fought with $150 million and counting from the “Insurance” industry,
@ Tom Hickey,
Thanks for participating in this discussion.
@MamMoTh and others:,Somewhere in the above conversation, your investment became just a plain ‘ol purchase – it was consumed!
What’s most bothersome about crediting investment as being responsible for employment, aside from being plain wrong, is the implication that business success (ergo employment) is contingent upon readily available funding. While some funding is often essential, no amount of investment can overcome rejection of a product or service in the marketplace ( ex. Solyndra). The opposite however, can not be said; plenty of companies, with strong product demand, have overcome their initial need for investment by first demonstrating market demand for their product/ service (ex. Home Depot).
Investing in a company without proven demand is not an investment, it’s speculation, or worse, gambling!
@Everyone, Sorry guys, the above comment was intended to be imbedded under #9 above.
@Chris,
Investment is just current spending that has been capitalised in accounting terms. And the action of doing that creates its own savings.
One man’s investment is another man’s write off. You can’t know which is which until some future accounting period.
Investment is an attempt to try and capture that part of current spending that may be useful tomorrow. But that’s quite difficult because it depends on knowing what people are doing tomorrow.
So ‘Investment’ is a nebulous concept much like ‘Inflation’. It depends precisely what the analysis context is.
@Neil Wilson, So, in the above context, is it not reasonable to assume the reader will define investment as cash or goods used to generate income and demand will be defined as sales?
What I’m taking away from all this is I should have defined the terms first.
Thanks for your input.
@Chris,
nothing can be worse than believing increased demand will create employment instead of just inflation
you think that higher sales in this current market will just drive up prices and not increase sales and employment?
@WARREN MOSLER,
Yep. Everybody will shut up shop and put their prices up. No capacity anywhere.
To suggest there is no capacity for quantity expansion at the moment takes a special set of blinkers.
like in 2008 when 8 million people quit their jobs all at once because they thought unemployment comp was a better deal
@WARREN MOSLER,
I’d expect anyone to do whatever he chooses to do to maximize his profits, including raising prices