Why did trickle up economics work in Brazil?

[Al68]

What your table does not show are the gross income values. If I deduct the payments for my five-million-dollar Lear Jet, that deduction is not seen as income.

That is false. Those tables show total gross income before deductions, and effective tax rates.

If you're referring to rich people getting a free ride on a company jet, yeah that may slip though the cracks, but would not be a significant factor as far as those CBO numbers go.

The only thing about those tables that is debatable, IMO, is the methodology of who they attribute taxes to. Those tables assume, for example, that corporate income taxes are paid by the owners of the capital (stockholders), not consumers in the form of higher prices. And that the entire payroll tax is borne by the employee, instead of half-and-half with employer, as is often cited.

But their methodology is fully disclosed, so even that is not an issue, unless part of their data is taken out of context and misrepresented.

 

[mheslep]

From the CBO reference above in definitions:

Measuring Income
This analysis focuses on households’ adjusted pretax comprehensive income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals, as noted above), employees’ contributions to 401(k) retirement plans, and the value of income received in-kind from various sources (such as employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps).

 

[mheslep]

Increasing productivity per worker should tend to reduce the number of jobs, not increase them.

Only if the price of effected goods is inelastic, and even then only temporarily as old jobs are replaced with more new ones:

If the demand for a product or service is price inelastic—that is, if a given percentage decrease in price results in a lower percentage increase in the quantity demanded—then rapid productivity improvement can result in workers having to leave the industry. The reason is that industry output, even if it has risen moderately, can now be produced with fewer workers. This eventually became true for grain farming, but not generally for computers, where the demand has been more price elastic. The relative price declines produced such a big increase in quantity demanded that industry employment has actually increased. But even in the case of grain farming, the falling food prices associated with the productivity improvement led automatically to increases in real income elsewhere. These increases eventually resulted in increased demand for other goods and services, leading to expansion of demand, employment, and output outside of agriculture.

http://www.econlib.org/library/Enc/Productivity.html
Examples besides agriculture include the mass production of the automobile replacing the horse and buggy (creating millions of jobs), telecommunications, etc

 

[rcgldr]

Increasing productivity per worker increases the number of jobs, not decrease them.

If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate.

Companies will not hire new workers unless they anticipate a demand for new or more products, mostly consumer products in the case of the USA, and that requires that prices for existing products decline, or that consumer's income increases in order for the consumers to be able to buy the new products (assuming that increasing consumer debt isn't the source of new product demand).

Outsourcing of jobs to a foreign country does not mean the USA loses said jobs.

If it occurs on a large enough scale (all jobs in the extreme), then the long term effect is to raise the standard of living in the foreign country, and decrease the standard of living for those directly affected by the outsourcing of jobs.

Leads to cheaper products and services

Product pricing is mostly a case of supply and demand, not the cost of labor to make the product. In situations where start up cost is prohibitive, competition is limited or non-existant, so there's no price pressure on those products.

Yet despite machines replacing humans in various jobs for over a century now, we haven't seen the economy permanently lose jobs with no new jobs created.

The number of blue collar jobs in the USA has drastically diminshed over time because of automation. Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

The top 5% gaining a larger share of total income for the USA is likely because we have seen so much wealth creation over the past thirty years. There are a lot more wealthy and high-earning people now than before.

It's the top 5%. The increase in number of people in the top 5% would correspond to the increase in total population, not an increase in percentage of high income people (that would be a different statistic). The relatively large gain by the top 5% is a reflection of USA economic policies, and part of the wealthy class has a lot of influence on economic policies via lobbyists and campaign donations.

 

[WhoWee]

What your table does not show are the gross income values. If I deduct the payments for my five-million-dollar Lear Jet, that deduction is not seen as income. Poor people don't typically have tax shelters and exotic deductions, so you are comparing apples to oranges. Surely you must know this. Part of the trick to running any business is to maximize personal benefits in such a way that they are deductable. A Lear Jet would be an example of a personal benefit.

Are we overlooking the fact that the cash payments for use of the jet, or the purchase of the jet (lease or bank financing), flow back into the economy?

As for poor people needing tax deductions(?) - aren't poor people on the receiving end of tax money?

 

[mheslep]

https://www.physicsforums.com/showpost.php?p=3064424&postcount=38", it misses the point to say that "If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate" [highlights mine], since the production rate very often does not stay constant following productivity increases. Given the price elasticity found in, say, expanding markets (such as computers), an increase in productivity is followed by a drop in price, which is followed by an increase in demand, which is followed by an increase supply volume, requiring the same net labor as initially. All of this occurred with nice side benefit that more people were able to acquire widgets (such as computers) due to the increased productivity.

 

[Gokul43201]

Given the price elasticity found in, say, expanding markets (such as computers), an increase in productivity is followed by a drop in price, which is followed by an increase in demand, which is followed by an increase supply volume, requiring the same net labor as initially.

(emph mine) This is true only for the creation a unit elastic good or service. Generally, it is only luxury items that command a better than unit elasticity, while most basic goods like food, fuel, housing, etc. have typically lower than unity demand.

 

[Proton Soup]

https://www.physicsforums.com/showpost.php?p=3064424&postcount=38", it misses the point to say that "If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate" [highlights mine], since the production rate very often does not stay constant following productivity increases. Given the price elasticity found in, say, expanding markets (such as computers), an increase in productivity is followed by a drop in price, which is followed by an increase in demand, which is followed by an increase supply volume, requiring the same net labor as initially. All of this occurred with nice side benefit that more people were able to acquire widgets (such as computers) due to the increased productivity.

yeah. being more productive means having more wealth. it's really as simple as that.

 

[mheslep]

(emph mine) This is true only for the creation a unit elastic good or service. Generally, it is only luxury items that command a better than unit elasticity, while most basic goods like food, fuel, housing, etc. have typically lower than unity demand.

Yes exactly for basic goods like food, hence the long gone days of a mostly down-on-the-farm society. I disagree though with the 'only luxury' qualifier. A large share of the US economy consists of other than 'basic' goods production, to include computers and telecom (e.g. iPods, iPhones), and services such as entertainment, all of which have demonstrated marked dramatic volume increases due to elastic pricing. But in general any new market far short of saturation will likely see elastic pricing.

edit: scratch all that, as I'm essentially just restating, with less precision, my own reference up thread:

If the demand for a product or service is price inelastic—that is, if a given percentage decrease in price results in a lower percentage increase in the quantity demanded—then rapid productivity improvement can result in workers having to leave the industry. The reason is that industry output, even if it has risen moderately, can now be produced with fewer workers. This eventually became true for grain farming, but not generally for computers, where the demand has been more price elastic. The relative price declines produced such a big increase in quantity demanded that industry employment has actually increased. But even in the case of grain farming, the falling food prices associated with the productivity improvement led automatically to increases in real income elsewhere. These increases eventually resulted in increased demand for other goods and services, leading to expansion of demand, employment, and output outside of agriculture.

 

[CAC1001]

If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate.

If that was the case, then we'd see the unemployment rate spike with the constant innovation the economy experiences, which doesn't happen. You forget that while there is a decrease in the number of jobs needed for producing goods/services in certain industries, new jobs are constantly created to replace the old ones.

Companies will not hire new workers unless they anticipate a demand for new or more products, mostly consumer products in the case of the USA, and that requires that prices for existing products decline, or that consumer's income increases in order for the consumers to be able to buy the new products (assuming that increasing consumer debt isn't the source of new product demand).

If prices for existing products decline, that can be a signal that demand for a product may have decreased, not that demand is up. Or it could be a sign of a productivity increase. Depends on who is responding to who. If a new product comes out and doesn't sell well, and the price is cut in half, that's a sign of a lack of demand.

If it occurs on a large enough scale (all jobs in the extreme), then the long term effect is to raise the standard of living in the foreign country, and decrease the standard of living for those directly affected by the outsourcing of jobs.

Not when those affected by the outsourcing get new jobs to replace the outsourced ones.

Product pricing is mostly a case of supply and demand, not the cost of labor to make the product. In situations where start up cost is prohibitive, competition is limited or non-existant, so there's no price pressure on those products.

Product pricing definitely is influenced by supply/demand, but also by the cost to make the product.

The number of blue collar jobs in the USA has drastically diminshed over time because of automation. Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

If that was the case, then we'd have seen the unemployment rate constantly going up and incomes per capita stalled.

It's the top 5%. The increase in number of people in the top 5% would correspond to the increase in total population, not an increase in percentage of high income people (that would be a different statistic). The relatively large gain by the top 5% is a reflection of USA economic policies, and part of the wealthy class has a lot of influence on economic policies via lobbyists and campaign donations.

It's a reflection of all the wealth created over the past few decades, which all of society gains from, via new products/services and job creation.

 

[MorganNick]

Brazil has become an economic powerhouse turning into one of the world’s hottest emerging markets.The world’s eighth biggest economy, Brazil has become the number one exporter of products such as coffee, sugar, poultry, beef, orange juice, ethanol and tobacco.Unscathed by the global financial crisis, Brazil remarkably finds itself on a better economic footing than before the international economic meltdown.Since 2003, almost 30 million Brazilians have joined the middle class with more than 20 million being lifted out of poverty.



http://www.wellgrowchinasourcing.com/"

 

[rcgldr]

If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate.

If that was the case, then we'd see the unemployment rate spike with the constant innovation the economy experiences, which doesn't happen.

Not a spike but with an increasingly larger percentage of retired workers, the percentage of workers versus total population in the USA has been declining for decades.

... Not when those affected by the outsourcing get new jobs to replace the outsourced ones.

That only occurs if there are new jobs to replace the outsourced jobs, and if the affected people can learn the skills required for the new jobs. As I mentioned before, the number of blue collar jobs in the USA has drastically diminshed over time because of automation (and also outsourcing). Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

The relatively large gain by the top 5% is a reflection of USA economic policies, and part of the wealthy class has a lot of influence on economic policies via lobbyists and campaign donations.

It's a reflection of all the wealth created over the past few decades, which all of society gains from, via new products/services and job creation.

Except that a large part of society didn't share in that gain, most of that gain in wealth ended up with the top 5%.

Getting back to the main topic, I'd like to find out more about what happened to help Brazil's enonomy do so well, and what, if anything, learned from that could be applied to other countries.

 

[CAC1001]

That only occurs if there are new jobs to replace the outsourced jobs, and if the affected people can learn the skills required for the new jobs.

This is usually the case.

As I mentioned before, the number of blue collar jobs in the USA has drastically diminshed over time because of automation (and also outsourcing). Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

Yes they were, or the unemployment rate would have permantely spiked as mass groups of workers became permanetely unemployed.

Except that a large part of society didn't share in that gain, most of that gain in wealth ended up with the top 5%.

...which was from the production of goods and services that the rest of society bought, which is what made those people wealthy in the first place. They also enhanced productivity, which led to new job creation. So yes, all of society got wealthier.

 

[mheslep]

Not a spike but with an increasingly larger percentage of retired workers, the percentage of workers versus total population in the USA has been declining for decades.

Aside from the recent recession, where are you getting that from?
http://www.google.com/publicdata?ds..._rate&tdim=true&dl=en&hl=en&q=us+unemployment

http://www.miseryindex.us/urbymonth.asp

 

[rcgldr]

Aside from the recent recession, where are you getting that from?

Unemployment doesn't include workers that have simply given up on trying to find jobs. My post was about the labor force versus the total population (mostly due to the number of retirees increasing). Try the Bureau of Labor Statistics if you want acccurate data. Labor force as a percentage of population has been decreasing since 2000. A chart from BLS showing the data, you can change the start and end dates:

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS12300000

On a side note, before 1974, only the largest single income of a working couple could be considered for a home loan. This was changed by a law in 1974 to allow both incomes to be considered. Soon after this change, the prices of houses increased well beyond the rate of inflation, the number of working mothers increaed dramatically, as well as the inflation rate. Prior to 1974, a single lower middle class income was sufficient to support a typcial family, own a home, 1 or 2 cars, and a color tv. This is no longer possible in many urban areas in the USA.

That only occurs if there are new jobs to replace the outsourced jobs, and if the affected people can learn the skills required for the new jobs.

This is usually the case.

Using the auto industry as an example, old workers were getting $28 per hour working on assembly lines. Despite increased productivity per worker, new workers earn about $14 per hour, 50% of the older wages. Very few of these people will be able to find $28 / hour jobs.

outsourcing jobs

USA supposedly gained 100,000 total jobs this month, less than the rate of population growth (about 150,000 new jobs per month are required to keep up with population increase in the USA). In the meantime the Chinese factories making iphones and similar products created about 300,000 jobs (this from CNN). So there is job growth, just not in the USA, at least in the case of manufacturing. Most of the job growth in the USA was related to low paying jobs in service and health care. In a consumer based economy, such as the USA, it's difficult to recover from the recession when a large perenctage of consumer goods are being manufactured outside the USA.

 

[WhoWee]

Using the auto industry as an example, old workers were getting $28 per hour working on assembly lines. Despite increased productivity per worker, new workers earn about $14 per hour, 50% of the older wages. Very few of these people will be able to find $28 / hour jobs.

USA supposedly gained 100,000 total jobs this month, less than the rate of population growth. In the meantime the Chinese factories making iphones and similar products created 300,000 jobs. So there is job growth, just not in the USA, at least in the case of manufacturing. Most of the job growth in the USA was related to low paying jobs in service and health care.

What are the hourly wages of manufacturing workers in Brazil and China - are any of them $14 per hour?

 

[rcgldr]

What are the hourly wages of manufacturing workers in Brazil and China - are any of them $14 per hour?

Probably not, which was my point that outsourcing jobs tends to raise the standard of living in foreign countries, while lowering it in the USA.

 

[CAC1001]

Using the auto industry as an example, old workers were getting $28 per hour working on assembly lines. Despite increased productivity per worker, new workers earn about $14 per hour, 50% of the older wages. Very few of these people will be able to find $28 / hour jobs.

Assembly workers seeing cuts in wages doesn't mean their incomes have gone down. Remember that the auto companies have a crushing burden in terms of pensions, healthcare, and other things they must provide for workers. So auto workers could very well see wages decline, yet increased incomes.

USA supposedly gained 100,000 total jobs this month, less than the rate of population growth (about 150,000 new jobs per month are required to keep up with population increase in the USA). In the meantime the Chinese factories making iphones and similar products created about 300,000 jobs (this from CNN). So there is job growth, just not in the USA, at least in the case of manufacturing. Most of the job growth in the USA was related to low paying jobs in service and health care. In a consumer based economy, such as the USA, it's difficult to recover from the recession when a large perenctage of consumer goods are being manufactured outside the USA.

What are you basing that last part on? Also, I would say it would likely be more difficult for the economy to recover if a large amount of the consumer goods were manufactured stateside becaue then everything would cost more.

As it is, the USA manufactures more than any other nation (although China is catching up), and our manufacturing sector continues to grow, but manufacturing has been declining as a percentage of the economy over the years, because the rest of the economy has grown faster. Manufacturing employment has declined over the years as well, even though we manufacture more and more.

 

[CAC1001]

Probably not, which was my point that outsourcing jobs tends to raise the standard of living in foreign countries, while lowering it in the USA.

The standard of living has continued to increase in the USA for decades despite lots of outsourcing. What outsourcing does is to benefit both sides. If tech jobs get outsourced to say India, it raises the standard of living in India through the jobs and hence wealth created, meanwhile it raises the standard of living in the U.S. because of the cheaper products/services that this leads to.

 

[mheslep]

Unemployment doesn't include workers that have simply given up on trying to find jobs. My post was about the labor force versus the total population (mostly due to the number of retirees increasing). Try the Bureau of Labor Statistics if you want acccurate data. Labor force as a percentage of population has been decreasing since 2000. A chart from BLS showing the data, you can change the start and end dates:

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS12300000

Yes I'm familiar; I was challenging the original claim that the labor force percentage has been "declining for decades" which is clearly not the case.

(from '48)
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS12300000

 

[rcgldr]

I was challenging the original claim that the labor force percentage has been "declining for decades"

I was tired, should have written for the last decade, not for decades. Part of the change soon after 1974 was the increasing number of women in the work force. Part of the current trend is retiring baby boomers.

 

[WhoWee]

Yes I'm familiar; I was challenging the original claim that the labor force percentage has been "declining for decades" which is clearly not the case.

(from '48)
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS12300000

That is a very significant decline - might be worthy of it's own thread?

 

[Proton Soup]

That is a very significant decline - might be worthy of it's own thread?

it reminds me of another thread where the recent productivity of the market seemed to coincide with the computer revolution. PCs hit the scene about mid 80s i think.

 

[CAC1001]

it reminds me of another thread where the recent productivity of the market seemed to coincide with the computer revolution. PCs hit the scene about mid 80s i think.

Do you have a link to that thread (I'd be interested in reading it)?

 

[Proton Soup]

Do you have a link to that thread (I'd be interested in reading it)?

maybe it was just me. but something interesting happened mid-80's
https://www.physicsforums.com/showpost.php?p=1991167&postcount=54