Taking Another Look at the Connections Between Hip and Thigh Bones

Those of you who have been reading this blog for a while may recall that I have often talked about my "Hip Bone's Connected to the Thigh Bone" theory of how everything is interconnected*. As we hunker down for the national trauma of the upcoming election, I think it's useful to go back and talk about hip bones, thigh bones, and the way we keep shooting ourselves in our economic and sociopolitical feet. Here's an example of what I mean**:

Consumers want low prices. Workers want high (or at least, living) wages. Businesses want high profits. In order to keep profits high and prices low, businesses can do one of two things: keep prices artificially low and count on sales volume to compensate for lower per-sale prices; or reduce their costs of operation and production.

How do businesses reduce costs?

They can seek new, cheaper sources of raw materials, upgrade machinery to newer and more efficient models, or reduce labor costs through automation or by exporting jobs to places with lower labor costs (usually overseas).

So ...

If we connect the bones, we see that one of the ways businesses reduce their costs and keep prices relatively low is by minimizing their labor costs.

However ...

People without jobs have no income with which to buy the cheaper goods, anyhow.

Which means that ...

Business profits go down because unemployed people can't buy their products, creating and maintaining a vicious economic circle.

If you look at it from the other direction, if businesses pay high wages they must, in order to maintain desired levels of profitability, raise their profitability in other ways, usually by increasing prices ... which eats up the higher wages the workers earn, which defeats the purpose of giving them the raise in the first place.

The hip bone's connected to the thigh bone.

I don't have the answers to this conundrum, but I think I do understand one Big Idea: politicians are masters at wishing away the interconnectedness of problems. They spout pat answers to complicated problems that address, at best, a single aspect of the interconnected mess: build a wall, slash taxes, cut government spending to the bone, deport immigrants***, repeal Obamacare, etc. We will never solve the nation's problems until and unless we start looking at how the parts of the whole fit together and address the causes, rather than the symptoms of problems. One of the best starts would be a comprehensive revision of our immigration policies, perhaps along the lines I have already suggested. Another would be a thorough, intellectually, morally, and economically honest review and reform of our health care system****.

Or we can just go on screaming at each other from our respective echo chambers, which is what our political discussions amount to today.

Have a good day. Think systematically. More thoughts tomorrow.

Bilbo

* Two places to go back and look are here (November 16th, 2007) and here (May 1, 2008).

** Disclaimer: you can take everything I know about economics, put it into your navel, and still have room for a herd of elephants and a brass band. I don't consider economics to be a science in itself, but an application of herd psychology.

*** Most discussion of deportation advocates deporting "immigrants" ... not "illegal" immigrants, just "immigrants." This is stupid, and works against one of the great advantages of the US - our willingness and ability to absorb tens of millions of immigrants over time, add them to the workforce, and make them productive members of society.

**** Don't hold your breath.