The Grand Illusion
As human beings, we’re quick to react to sudden and immediate dangers, from the mythical snapping twig that suggests an approaching predator to sirens or an ominous-looking individual. Often, we react too quickly and at times totally incorrectly. But we react… to those kinds of dangers. We also react to perceived threats on our “rights,” not so quickly, but at times even more violently.
What we don’t react well to, and slowly, and usually less than perfectly, are to those changes in our world that have turned perceived “good things” into indicators of dangers. And the recent Department of Justice “victory” over Apple and the major publishers on ebook pricing is just one recent example of this. Now… I’m not exactly an Apple fan. I own no Apple products whatsoever, and I think that the I-Phone and its clones are harbingers of disaster [although in the interest of full disclosure, I will note that my wife does own a single IPad and that I am indeed an author whose income depends very much on the health of the book market.]. As I noted much earlier, the DOJ case against Apple and the publishers was based on the case that Amazon’s dominance of the ebook market [over 90% at the time] was essentially irrelevant because Amazon was charging lower prices than those Apple and the publishers were charging under the “agency model.” And the letter of the anti-trust laws supported DOJ, as did the courts.
The problem/danger here is the failure of Congress, the Judiciary, and the American people to recognize that “lower prices” aren’t always better, and in fact, they can be a symptom of great danger. Lower prices are great, assuming that your income is stable or increasing. But are lower prices so good if they cause the actual standard of living of the majority of Americans to decline? Certainly, homebuilders and construction workers might well argue that the oversupply and cheap prices of existing housing was anything but good for them or the economy. What is important is the relationship between wages and prices, not just how low prices are. If prices are down twenty percent, but your income is cut in half, you lose… maybe everything. This tends to be overlooked in today’s economy and consumer culture.
And what is the relevance to law and the Apple decision? Simply this – old style monopoly was the restriction of trade to raise prices and increase corporate profits. Under the old-style [and current definition] of monopoly, lower prices are not a danger but a good thing. The problem is that today we have a new kind of monopolist, as embodied in Amazon and Walmart. These “new” monopolists use low prices to gain a dominant market share, and once they have that share, they use their power to force their suppliers to provide goods and services at lower prices, outsourcing overseas, doing whatever it takes. This means those suppliers must cut their costs to stay in business, and that means lower wages. It also means that manufacturing here in the United States either automates or outsources to lower wage areas. In the end, the new monopolist still has large-scale profits which are not so high in percentage terms, but so much larger in scale that the percentage decline is acceptable. This kind of “new” monopoly has taken over especially in consumer goods and retail industries, but it’s also appearing, if more slowly, in everything from finance to automaking…and, at the same time, Americans keep scrambling for bargains… without realizing exactly what the long-term cost of those “low prices” happens to be.
Happy shopping!
As I sit here looking at the list of school supplies for four children from grades 4 to 9, I can’t help but feel that my wallet will not stomach anything but cheaper prices right now. Even knowing that long term it may be ‘better’ to have slightly higher prices. I understand and agree with the intellectual point you make. But it is difficult for anyone who lives paycheck to paycheck to agree in any other fashion. Mostly because slightly higher prices now would mean that I wouldn’t be able to afford to pay my bills right now. Never mind that nebulous ‘later’.
My children’s school supply list is everything from special backpacks that are see through, (We wouldn’t want anyone sneaking guns or knives or drugs to school) to flash drives. Two reams of printer paper each, the usual pens and pencils, tissues, dry erase markers, etc. The list seems to get longer each year as I am required to provide more of the teacher’s supplies, and the administrative staff’s supplies. And there’s a quaint little note that promises more supplies will be required later/throughout the school year.
Additionally we have to find ways for four children who require computers and online access to do their homework. I suspect someday, in the not too distant future, to be required to have a tablet for my child.
It’s cheaper for the school to demand parents provide more and more supplies that get used for administration and electronic media, then to fight the system. To fight the system for more money, or less administration. So while I spend my hard earned money and look at my bank account balance, I know that more expensive supplies would hurt me. What about individuals who are even poorer than I am, more expensive supplies could be the straw that breaks the camel’s back.
For those people, ‘later’ doesn’t matter at all.
What you’ve described is exactly what happens when the law looks at immediate cheap prices as good, rather than as a symptom of monopolistic behavior that forces wage levels comparatively lower everywhere.
If wages can be forced down, shouldn’t they? Anyone who can be automated or outsourced has let themselves become obsolete, failed to upgrade their skills to something for which the market will still compete.
They failed to do the one thing that humans are _supposed_ to be best at (adapt), and should either step up and take responsibility for changing that, or should suffer the consequences – preferably without whining or expecting others to pay for their shortcomings.
A better argument would be that a nation heading toward just designers and laborers is not robust; someone ought to be locally producing most of what the designers design, for completeness. There’s a balance somewhere for a global market, with enough interdependence to incentivize cooperation, but not so much as to leave any one nation or region at the dubious mercy of others.
I’m thinking that most economic problems boil down to greed. But not all greed is equal, and I think the desire of a purchaser for maximum value and the desire of a producer or investor for maximum _long-term_ profit are among the least toxic, because they encourage efficiency. Other greed (higher wages and benefits, pursuit of short-term profit to the neglect of long-term consequences) seems somehow to be less effective in encouraging efficiency. If someone wants higher wages and benefits, they should pursue a skill that offers greater rewards, but how many do that before their current job becomes obsolete? The self-employed do, because they have to; but those who work for others are prone to act as if they don’t have to until it’s too late.
I’d say that’s a bit simplistic, at least regarding Higher wages and benefits.
The job I do does have a cap end on pay, which I understand and am okay with, but that said, I would still request a raise vs leaving. My job is valuable, needed, and to be perfectly honest, while I’m not irreplaceable it is impractical to do so. Between learning, natural aptitude and experience I’m worth four or five new hires.
On the surface your argument makes perfect sense. I’m paid a lot more than someone new to the position, so on paper it can look like I’m less efficient. Until you take into account the level of work I can accomplish compared to the person with minimal training learning the job from scratch, then it becomes another story entirely.
My situation isn’t unique. But many people fall victim to the short term at the expense of long term in the name of trying to be “efficient”.
I completely agree with the “new monopoly” sentiments. In forcing prices lower, we are seeing more and more of our production and services moving to regions where they aren’t forced to care about things like labor laws and fair working wages, where impoverished children are assembling our electronics (looking at you, Apple). This correlates to your “rewards” post, in that greedy bastards at the top are getting better and better at lining their pockets without paying their fair share into the “community chest” as it were.
In response to some of the other comments:
R. Hamilton, wages are being forced down not only because the skills of those workers are obsolete, but because workers in our economic climate have nowhere to turn but to large labor providers. The social mindset of being able to utilize your skills in an entrepreneurial manner has been educated and regulated out of our culture. A large labor pool of skilled workers with nowhere to turn is exactly what new monopolists want, and it’s what they are getting.
In regards to automation: I’m an automation engineer, and for brevity’s sake I’ll only comment that automation has turned into a potentially destructive practice as ambitious management has extended its use well beyond its cost efficiency. People are definitely ignoring the long term consequences of their short term profit maximization schemes.