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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 4, 2013 at 10:55 AM

Explaining the Obama market rally

A reader writes, under the heading: “Care to explain the reasons for the dramatic rise in the stock market indices since 1/01/13?:

Low federal minimum wage? Low minimum wage affects only a very, very small segment of all people employed in this country, and even smaller portion of the number of people casting votes for president in 2012.

Leftist’s goal is something close to equality of outcomes.  Not mathematical equality, but something closer to equality of outcomes.

Are you aware of any instances where machines are being yarded-out in order to make room for more employees? Higher minimum wage advocates are complaining about symptoms, paying no attention to causes of inequality.  The pickle that the (so-called) machinists are in vividly demonstrates what higher wage costs do; drive employment away.  The desire for higher profits on the part of shareholders is a given, and not easily satisfied.

The pickle that the City of Detroit is in can be attributed to a few things, higher employment costs being one of them, street gangs and unbelievable violent crime rates being others. “Rent-seeking” in Detroit was and probably still is rampant. Want to be elected in Detroit?  Promise a fat pension, then face no consequences when unable to deliver 30 years down the road.

The Pension Benefit Guarantee Corporation will not be required to help.

How do you like long dead liberal politicians now?

The assembly line, improved upon by Henry Ford, cut unit labor required to build an automobile by about 90%.

Cutting recruitment and training costs more than made up for increases in hourly labor rates. H. Ford was not a shining example of an altruist.

OK.  Whatever comes over the transom is material.

The Obama stock-market rally is among the best ever seen for a re-elected president. The Dow has been rising since late February 2009. Explaining it is not difficult: Plenty of cheap money from the Federal Reserve, record corporate profits, corporations using record cash to buy back shares, and wealthy people are doing very well.

It may not last. The Fed could pull back its QE. With China’s game of chicken against Japan, a miscalculation by a couple of pilots could start World War III. Stocks have been pulling back this week.

In any event, the stock market long ago detached from being a useful measure of the overall health of the economy. Nearly three people are chasing every job. Wages are stagnant. The typical American household makes less than it did in 1989. Inequality is as bad as during the Gilded Age.

The rest of the note is beyond my brain cells this morning. I don’t know what a “leftist” is today, the center having shifted so far to the right. Kshama Sawant, Bernie Sanders and who else? Most people concerned about our very real inequality crisis don’t demand “equality of outcomes.” They want equality of opportunity and the social compact — the America I grew up in.

As for the minimum wage, according to the Bureau of Labor Statistics, in 2012 about 3.6 million people worked at or below the federal minimum wage, 4.7 percent of hourly workers. This is not an inconsiderable amount.

But advocates for a higher wage are concerned about the general low-wage economy, where some 40 percent of Americans make $20,000 or less a year, where rungs of the ladder up are disappearing.

“Rent seeking” is done by the rich. It perpetuates and worsens inequality at the expense of the commons.

I discussed Detroit’s problems in this column, and why Seattle is not going to be “the next Detroit.”

If low wages ensured prosperity, why isn’t Mississippi (or South Carolina) the next Singapore?

Discussing Henry Ford is for another day.

You’re welcome.

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