[net.politics] Income taxes,labor costs, and the Economy

orb@whuxl.UUCP (SEVENER) (12/05/84)

> >My Negative Income tax buddy, Greg Kuperberg writes: 
> >From me (Tim Sevener):
> > Rebuttal 2)This great diversion of labor would be a surprise to the
> >            7.5% of the American population unemployed.  If government
> >            is employing everyone in sight, why do we have any unemployment?
> 
> There are three factors that increase the cost of labor:
> 
> 1)  The "labor tax" which we call income tax.
> 2)  Unions
> 3)  Government employment
> 
> The first two increase the unemployment rate, while the third decreases it.
> I think that the first two factors outweigh the third.
> ---
> 			Greg Kuperberg
 
How come unions are successful in getting wages that are supposedly higher
than the market would bear? Do you suppose it might have anything to do
with the monopoly power of companies which often control one-third of
their market?
Free market advocates have to begin dealing with reality: we do *not* have
the conditions necessary to meet the efficiency assumptions of a free
market.  Please remember that a key assumption for free-market efficiency
is that the market is composed of many small producers none of which
significantly affect the market.  This condition *is* met in certain sectors
of the economy, such as agriculture where thousands of independent farmers
make up the production side of the market.  But it is *not* met in such
industries as automobiles, steel, oil, etc. in which a few companies
control the domestic market.  Moreover, the portion of the economy which
is controlled by the largest 500 corporations has been remorselessly
increasing for the past hundred years.  It is now on the order of two thirds
of the whole economy.  Under conditions of oligopoly prices are constrained.
It is no surprise then, that in industries such as steel and autos that
one company is often a price leader, deciding what level of production and
pricing will maximize their profits.  That level is *not* the same as
the theoretical point where supply exactly matches demand. Instead it looks
like this:
        |  \      / Supply
        |   \    / 
        |   .\  / ___ where price is set under oligopoly
Price   |   . \/  ________________    where supply meets demand
        |   . /\
        |    /  \ Demand
        |   /    \
        |  /      \
        ____________________
          Quantity
 
By restricting production, firms with control of the market can increase 
their prices (hence their marginal revenues), while also producing less.
They will (theoretically) do this to the point where their marginal
revenues are maximized.  Farmers cannot do this themselves--so instead
the government does it for them by paying them *not* to grow crops
(therefore decreasing quantity, and increasing prices).  But companies
which control a substantial part of their market can do this.
By doing this they also reduce employment, because more labor would have
been employed at the quantity where supply meets demand.
Before advocating a free market, please consider the assumptions necessary
for it to achieve its vaunted efficiency.  Why are so many industries
controlled by only a few firms? Is it economies of scale? Sheer power?
Monopsony power of manufacturers over their suppliers?
What will you do about monopoly power? Ignore it? Close your eyes and
pretend it is only the "unions" who have any monopoly power?
 
tim sevener   whuxl!orb