Sunday, October 7, 2012

A Very Confused Obama and His Obsession with Labor

Below is a new clip with audio from Barack Obama telling us what is right with the economy and what is wrong. He hails workers but doesn't mention the capital that is required to support workers. In Obama's mind it is all about workers. (I think he really believes this.) The factories, machines, computers, software programs are some how all a given in Obama's mind.

In the clip, he does talk about trickle down economics, but does not differentiate between crony capitalism (capitalism in cahoots with government), which we are seeing more and more of, and free market capitalism that is being hindered by government in an accelerating fashion (for the advantage of the cronies). In all it's a very confused effort by Obama.

Indeed, at one point to support his labor theory of a growing economy, he promotes the myth that Henry Ford paid his workers enough so that they could buy the cars they made. Obama is hoisting this up with the implication that it is the workers again who are the key to production, while completely ignoring the capital in the form of auto equipment that is needed to manufacture automobiles. What are auto workers supposed to do, make cars with their bare hands? It's labor and capital that are both required to advance an economy, and Obama's focus on labor is very dangerous, since it implies that we can just chip away at and tax capital without harm.

As for Obama's specific claim that Ford paid workers so they could afford to buy cars, that's just a myth. It just doesn't work that way, if you think about it for a moment. Wages are set by supply and demand.

At Forbes, Tim Worstall explained what really went down with Ford pay:
There’s an argument you see around sometimes about Henry Ford’s decision to pay his workers those famed $5 a day wages. It was that he realised that he should pay his workers sufficiently large sums to that they could afford the products they were making. In this manner he could expand the market for his products. 
It should be obvious that this story doesn’t work: Boeing would most certainly be in trouble if they had to pay their workers sufficient to afford a new jetliner...
So, if creating that blue collar middle class that could afford the cars wasn’t why Ford brought in his $5 a day wages, what was the reason?
Actually, it was the turnover of his staff. 
At the time, workers could count on about $2.25 per day, for which they worked nine-hour shifts. It was pretty good money in those days, but the toll was too much for many to bear. Ford’s turnover rate was very high. In 1913, Ford hired more than 52,000 men to keep a workforce of only 14,000. New workers required a costly break-in period, making matters worse for the company. Also, some men simply walked away from the line to quit and look for a job elsewhere. Then the line stopped and production of cars halted. The increased cost and delayed production kept Ford from selling his cars at the low price he wanted. Drastic measures were necessary if he was to keep up this production. 
That level of turnover is hugely expensive: not just the downtime of the production line but obviously also the training costs: even the search costs to find them. It can indeed be cheaper to pay workers more but to reduce the turnover of them and those associated training costs. Which is exactly what Ford did...The reason for the pay rise was not as some of our contemporaries seem to think it was. It was nothing at all to do with creating a workforce that could afford to buy the products. It was to cut the turnover and training time of the labor force.


  1. It should also be noted that by raising the wage, he increase demand for the jobs he was offering enabling him to be more selective in who he hired thus enabling hime to select only those he felt were the best for those positions.

  2. A great read is the Wild Wheel by Garet Garrett on this very Ford miracle. The video is 99% wrong, I think one of the graphics was correct about the founding colony/states. Trickle down would refer to liquids or rain water, which happens only with accumulation (savings of liquid). Obama and Romney are both tools, are people really this ignorant? my free liberty minded blog is at

  3. I fear that the Marxian view of the world is so ingrained in the culture that we will never rid ourselves of it. We are doomed to wreck the economy and begin again before the worker/capital dichotomy is placed in the dustbin where it belongs.

    The world never was defined by bourgeois exploiting workers. It was and always is the story of people/workers/entrepreneurial autonomy versus stultifying, oppressive and statist totalitarian bureaucracies which eventually crush all innovation, adaptation and economic viability.

    There is no way out of this mess as long as both parties view the world as Marx did. It is time to unwind; not substitute leadership with only a few degrees of difference.

  4. What free market? At what point in our recent history were we not subjected to countless rules on private behavior in business and elsewhere?

    Our hope is bankruptcy, and the peaceful rising of enough people who reject the use of force, in all its forms. I am getting so sick of obeying. Like everyone else, I do it to avoid prison. But the benefits of obeying seem to be slowly losing their luster to me. I don't know what disobedience I may engage in, if any. All I know is that life is getting increasingly tougher for me as the state grows off its lies, and we shrink. If I had my own cell, perhaps prison is not all that worse to what life in this country has become.

    Seniors have no idea what is about to hit them either. The AARP is powerful, but it cannot change economic reality. The seniors want higher taxes to support their welfare programs. They are insensitive to the plights of young people laboring in shitty jobs, or unable to find work. Where will taxes come from if the labor force continues to shrink? We should be firing politicians and eliminating their positions. I have the whole Federal Government in mind. We don't need one damn part of it.

  5. The fallacy in the buying back the product idea is that there is no time frame that can be specified.

    Should the worker be able to buy a new car every year? Every month? Every two-and-a-half years?