Efficient Market Hypothesis, eh?
The proponents of this hypothesis posit that all participants to the market are perfectly rational and that they all have enough pertinent information about what is going on as to be able to reach reasonable business decisions.
Now consider this: ‘ten percent of the egg producers being wiped out results in a up to 85% hike in retail prices’.
Quite reasonably, don’t you think?
As for efficiency… maybe for the owners of the surviving ‘egg producers’…
Archives for category: Frames of mind
Sometimes yes.
For instance in an economy where cash is readily available some employers might be tempted to split the compensation they give to their employees in two parts. An upfront one – which gets to be reported to the IRS – and a behind the counter one, that is settled directly between the employer and the employee. If a minimum wage is enforced the state knows for sure how much will be the taxable part.
Or in a situation when enough of the employers get together, form a cartel and start lowering the wages so much that the ordinary people end up dying of hunger.
Otherwise…
In fact there are many opinions about how this concept imposes undue constraints upon the economy. Some say it discourages job creation, others say it makes it a lot harder to start a new business and so on…
While all these opinions have their merits, just as the concept itself has its own, I think the situation is a little bit more complicated than this.
For starters I’m going to introduce the concept of ‘priming’.
“Priming refers to the incidental activation of knowledge structures, such as trait concepts and stereotypes, by the current situational context. Many studies have shown that the recent use of a trait construct or stereotype, even in an earlier or unrelated situation, carries over for a time to exert an unintended, passive influence on the interpretation of behavior.”
In other words an established mind set influences both the way we see a certain situation and the decisions we make in certain circumstances.
Minimum wages do exactly that. It both sets our minds in a certain way and establishes a certain set of circumstances.
First of all it tells us that it’s OK to compensate labor as little as possible and then settles an ‘acceptable’ minimum.
I see some of you fretting: “And what’s wrong with paying as little as possible? Are you nuts? I have a bottom line to worry about here!”
Precisely. You should take into consideration the whole picture – the bottom line – instead of short-sightedly aiming your efforts towards short term cost cutting.
Henry Ford taught us a very valuable lesson more than a hundred years ago.
By paying each of the workers more you might end up lowering your aggregate labor costs on the medium time frame.
But there’s more. What Ford did created the conditions for a mentality change. Receiving more money prompted workers to start planning ahead. On $2.25 a day Ford’s workers could afford to work for 3 days a week and spend the rest drinking. On 5 bucks a day they realized they could raise a family. Things changed dramatically. They stopped skipping work and this is how the famous American working middle class was introduced to the world.
The advent of minimum wages turned back the wheels of history. Blue collar employees were returned to the condition of working beasts whose work is no longer evaluated on an individual basis but compensated according to some opaque calculations made by government bureaucrats.
The companies no longer compete among themselves for the best available talent; they just hire anonymous ‘industrial operators’ from a pool of undistinguished semiskilled, disheartened laborers.
The entire economy suffers, from lack of solvable demand and an increasing apathy that doesn’t bode well for the future.
Also, demography doesn’t help any.
I keep hearing that individuals should improve their skills if they want to live better and that mature people who see working for McDonald’s as a life-time career cannot ever expect a ‘decent’ life style since McDonald’s jobs are for students trying to earn some pocket money.
Well… things have changed a little since people who tell this story have been in college.
In those times families had three or four children and about half the jobs were in manufacturing. That meant that the father was the bread winner, mother stayed at home and the students manned the burger joints.
Nowadays most manufacturing jobs have been exported to China, father and mother are both working, part time, in the unglamorous part of the service sector and no longer venture to have more than one or two children.
That’s why McDonald’s has become a lifetime career. For lack of eligible students, first and foremost. Thirty years ago blue collar workers could afford to send their children to college and the students went to McDonald to work for pocket money. Nowadays blue collar workers no longer afford to make many children and don’t have the money to send them to college.
Increasing minimum wage won’t change much. It would only convince the people at the bottom of the society that there is no way out and the CEO’s that there is no need to make any fundamental change in the way they manage the ‘work-force’.
Until employers will start considering their employees as partners instead of adversaries things will remain just as they are now. Or get even worse.
PS. How come so many of us constantly forget that most of the clients – after all they are the ones who keep the economy afloat – are employees?
Deflation ‘for dummies’.
That’s one way to look at it.
Sometimes it might indeed resemble a punishment but please remember the many times when common sense prevented us from making huge mistakes that might have ruined our lives.
Government officials throwing self serving smoke screens.
Everything here is true except for the last sentence.
As long as CEO’s, the rich and the corporations don’t understand this simple economic principle no amount of legislation will achieve much, except for further de-balancing the economy.
In fact minimum wage encourages employers to pay as low as possible instead of letting them pay so low as to see their working force disappearing in the dark.
The fact is that by setting this minimum wage the government suggests to the employers that: ‘it’s OK for you to try to pay as low as possible but you cannot over do it and we’ll tell you where to stop.’ That’s why the employers no longer compete among themselves to get the best available workforce – which, if well managed, produces excellent long term results. The competition on the labor market has been ‘degraded’ to ‘who is able to have the lowest labor costs’ only this policy sometimes generates good enough results on the short term but never fails to lead to disastrous results on longer term. The work force is demoralized, no longer cares to improve its qualifications and aggregate consumption goes down for lack of solvable demand.
This concentration on costs instead on overall efficiency is malignant. Offering employees a living wage and decent working conditions vastly improves efficiency and, ultimately, bottom line results. Henry Ford had understood that more than 100 years ago. How come we have already forgotten?
The Story of Henry Ford’s $5 a Day Wages: It’s Not What You Think:
So.
A not careful enough mother ‘blackmails’ a hot meal (normally reserved for the first class but she payed for it) out of a rather reluctant stewardess for her autistic daughter and a somewhat rigid pilot – but who acted completely within the limits of pertinent regulations) – lands the plane in the middle of the flight and has the family deplaned. All in the name of ‘safety for the rest of the passengers’ – who didn’t felt threatened, at any moment.
So what’s the big deal?
The mother should have brought along some food for her child or made sure in advance that she could order food inflight and nothing would have happened.
The stewardess could have taken it as an emergency instead of harshly judging the mother of an unfortunate child.
Or the pilot could have acted a little more considerately towards the very passengers whose safety he was so preoccupied about and continued the flight – if we are to take at face value the situation described in the article at no moment any of the passengers had been in any real danger. (The ‘obtrusive’ mother could have been ‘charged’ at the destination as well if the pilot really felt that she had to be given a lesson.)
What I’m trying to suggest here is that a lot of the unpleasant consequences experienced by the ‘innocent bystanders – a planeload of people loosing at least an hour of their lives, if not more, and UA footing the bill for a lot of additional fuel – could have easily been avoided if at least one of the three people involved – mother, pilot or the stewardess – would have acted just a little differently.
But the picture is even more complicated than that. To understand what I mean click on the picture above and jump to the comments section. It’s amazing how people who have not been there are so easily willing to pass definitive judgement about what had happened so far away from them and to apportion precise amounts of blame to the parties involved. It doesn’t matter which side they choose, I’m just amazed at their willingness to judge so easily a rather delicate situation, based exclusively on a sketchy report published by a reporter who wasn’t even there when the incident took place.
Exactly this fact, that modern people tend to jump, head on, to conclusion even without having access to a lot of the pertinent details does not bode well for our future.
Following ‘procedures’ – and giving up thinking with our own heads – is indeed easier but it somehow demotes us from the status of wise (sapiens) humans to that of disciplined (impulsive) apes.
And no, ‘disciplined’ is not that far away from ‘impulsive’. You see, ‘procedures’ are structured instructions devised, by some instance who doesn’t have much trust in those who get to apply the instructions, to be followed exactly in those circumstances when the judgement of the operators has been found unreliable by the those who came up with the idea of procedures in the first place.
In their turn, the operators – realizing that no matter what they’ll do their judgement will be second guessed – no longer take their time to carefully consider the situations and determine what procedure would be appropriate . They just apply the first pertinent procedure that comes to their mind and hope for the best. This way they unload faster the psychological burden felt by anyone who is compelled to make a controversial decision – hence both the impulsiveness and the desire to conform to the rules. The fact that the spectators have no qualms to pass judgement based on the scantiest information only adds to the pressure felt by the people who are liable to be judged. Besides the need to solve the current situation and the angst about the outcome now the ‘performers’ have to deal with what, and how intense, the public reaction will be. Knowing that most of the time the public is less than sympathetic doesn’t help things.
And if we add the fact that the public seems to favor ‘decisive’ action versus more ‘inclusive’ measures (which are perceived as ‘wishy washy’) we start to understand why the contemporary world has become way more polarized than it used to be.
Who loses?
At first glance ‘the innocent bystanders’ – those who happened to be caught close enough to the action as to be directly affected by the interaction between the active parties.
But if we distance ourselves a little bit and take a closer look at the whole business we might arrive to a different conclusion.
Contemporary world has become so complex and is moving so rapidly that each of us is simultaneously involved in many situations, playing various roles. In some of them we are the active participants, in others we are just caught in the middle – as ‘innocent bystanders’ – and we learn about a lot more others from the media – as ‘distant but abetting spectators’, as in this case.
And it’s in front of the telly that we contribute the most to what’s going on.
This sounds strange, isn’t it?
When are ‘actively participating’ we don’t have much time to reflect about what is going on – so we act according to the prevailing social norms. In fact according to ‘the procedures’.
The whole thing usually starts when we innocently suffer the consequences of others behaving ‘abruptly’: we convince ourselves about the need to take our lives into our own hands and to never again allow others to prevail over us.
We usually exercise this new found resolve as spectators – our most common situation nowadays – only in that instance we are far from the actual action and not directly affected nor command much information about the whole thing so we consider the situation in a detached manner and without having enough information about the matter.
Even more, here, ‘in front of the telly’, instances are succeeding so fast that we don’t have time to at least consider each of them carefully. Hence our rather abrupt calls. After all why bother to analyze them in any depth? We don’t intimately know the persons involved nor do we have comprehensive information about each case…
This is how we set the stage for future abruptness. By allowing ourselves to pass fast – and rather inconsiderate – judgments about everything we effectively condition ourselves to a ‘black and white’ attitude towards the world. Small wonder then that we act so ‘decisively’ when we are involved as ‘active participants’ and even smaller that we have to suffer the consequences of the so much abruptness that is going on around us.
Don’t blame ‘procedures’ for that. In fact they are almost natural.
Reflexes, both those that are ingrained in us and those we learn during our life time are nothing else but Mother Nature’s way of doing things easier for us but none the less ‘procedures’.
Cultural norms are also ‘procedures’ only they have been adopted before the concept was coined and the term itself invented.
Only we can do something about this. It’s us who suffer the consequences so we need to take time and consider a lot more carefully before passing judgement. Or, even better, pass the ‘opportunity’, specially so if we don’t really need to.
Finally someone who got it right!
Children are born to us, their parents, and government is populated with regular people, just like you and me. Even more so, in a democracy they are supposed to do as we, the voters/tax payers, tell them to.
Just as parents bear the ultimate responsibility for the upbringing their children receive so we, the people, bear the ultimate responsibility for the way we are treated by our governments.
And just as responsible parents teach their children how to drink, how to drive and how to keep these two things wide apart, it is our responsibility to constantly teach our politicians how to behave.
nicichiarasa 