About the legend of Henry Ford and the middle class
Andy Kessler has a great op-ed in today’s Wall Street Journal explaining why President Obama’s policies regarding government handouts and tax rates on wealthy investors are wrong-headed. It’s worth reading in its entirety. But along the way, he dispenses with a popular myth about Henry Ford, wages and the middle class:
In his acceptance speech at the Democratic convention in Charlotte, N.C., this month, President Obama said, “We believe that when a CEO pays his auto workers enough to buy the cars that they build, the whole company does better.” …
This myth — that you can just give money to the middle class and good things happen — is widely shared and is at the basis of a lot of government policy. And it is why the recovery is stuck between lack and luster.
Let’s go back. Henry Ford is popularly credited with inventing the middle class by doubling his workers’ salaries to $5 per day in 1914. A multiplier for the economy, right? Wrong.
The year before, Ford revolutionized manufacturing with the moving assembly line, slashing automobile build times to just 90 minutes from 14 hours. That’s productivity. It allowed Ford to reduce the price over time of his Model T to $290 from $950. Demand took off because it was far cheaper than the cars made by his 88 competitors.
By 1927, 15 million Model Ts were sold to people (most of whom did not work for Ford) and businesses that retired their horses and used these new automobiles productively to lower their own costs, fueling a boom. Raising wages was a byproduct, not a cause. From Ford Motor’s corporate website about the wage increase: “While Henry’s primary objective was to reduce worker attrition — labor turnover from monotonous assembly line work was high — newspapers from all over the world reported the story as an extraordinary gesture of goodwill.”
As they say, read the whole thing. (Here is the page from Ford’s website to which he refers.)
Btw, one of Kessler’s other points is about the folly that food stamps represent a kind of economic stimulus. You’ll have to read his piece to see his treatment of that notion, but it brought to my mind a statement by state Sen. Charlie Bethel, R-Dalton, during the debate about state unemployment benefits in this year’s legislative session. Taking on the argument that unemployment checks boost economic growth, Bethel noted his town’s extraordinarily high number of people on unemployment and said, “If it were true that unemployment checks stimulated local economies, we’d be doing great in Northwest Georgia. We’ve cashed a lot.”
– By Kyle Wingfield
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339 comments Add your comment
JDW
September 19th, 2012
3:19 pm
@Kyle…”"So why not outlaw stock trading? Just a one-time sale, to people who will do…what exactly with it, I don’t know. But I’m sure they’ll spend a lot of money to get it!”"
I don’t think we should outlaw it, simply stop subsidizing it. Profits from trading existing equities should be taxed at least as much as income from labor.
Investments made directly into companies should be tax advantaged if not tax free.
Now if your next arugment is going to be that you need a market to sell those direct invesments into why yes but you need a rational market…not one where Facebook IPO’s at $42 and quickly plunges to $22.
Wouldn’t everyone have been better off if Facebook investors had gotten say $15 to $18 a share tax free and the price increased to $22? Guess who the only group that loses is….Wall Street bankers who specialize in IPO’s…their fees just took a hit.
Thulsa Doom
September 19th, 2012
3:20 pm
“Nope. They are fleeing Montgomery to get away from the black people. Just ask them. They will tell you the same.”
Yep. That is true. They are fleeing the crime and the crime in the city is overwhelmingly perpetrated by the blacks. Its a very uncomfortable truth to talk about but it is a truth nonetheless. Is it any wonder the whites are fleeing this kind of environment?
“I went to public schools here. They are not gang infested.”
I did too. JD in fact and before that Georgia Washington and Dozier elementary. My sister happens to be a teacher there and mom and Dad live down the street from Lee high school. Lee was so gang infested and the inability of the principal and teachers to control the problem was so bad that Lee ended up firing about half the staff last year. Its out of control and for you to deny that is kinda breathtaking.Ignoring the problem doesn’t make it go away.
Where my sister teaches the 5th graders there come from an environment so dysfunctional that many of them know all about anal, oral, and just about any other kind of sex. Lot of social problems and pathologies with those kids due to their dysfunctional environment.
We are sending my 2 nieces to private school. If you think we are going to subject our kids to that sort of environment and the sort of anti-social behavior and violence that goes on in Montgomery public schools every day than you are off your rocker.
Del
September 19th, 2012
3:25 pm
“Yes, it has been extremely successful . . . for Obama . . . if you understand his plan.”
cc, I become more and more convinced that Obama’s plan, which is the identical plan that the hard-left inside and outside of government have is to push the majority of Americans into total dependence on the federal government. The evidence is obvious even in Obama’s own statements out in public. When he says, “People at the top need to pay their fair share” and when “we have to make certain that everyone has a fair shot”, he’s boldly revealing his otherwise hidden agenda.
@@
September 19th, 2012
3:26 pm
Pssst, Kyle…let me see if I’ve got this right
When demand is up, production is up. The more one can produce, the more workers they can employ long term resulting in disposable income to buy those things in demand.
(ISH)
JDW
September 19th, 2012
3:28 pm
@Thulsa…I don’t have time to completely educate you so I will focus on these bits….
“If that were true then any advancement in technology or productivity gains at the micro level such as your example would lead to more unemployment and contraction.”
It does, unless the economy creates opportunity for those displaced, which has often happened in past but does not seem to keeping pace for the last 10+ years.
“That may be true in a very short term example such as your micro example but in the long term and on the macroeconomic level the consumer is much better off and his resources are freed up to make other purchases. And the employer’s resources are also freed up to expand or invest elsewhere. ”
Really…then explain to me how the long term macro result of driving productivity and cost decreases by shifting manufacturing has benefited the US. Sure the consumer has benefited via cost decreases but what has happened for the last 30 years is their jobs have been cannibalized. One of the key problems we have now is that our economy is not mutating fast enough to replace the jobs lost by increased productivity and offshoring.
Fact is we are living the real life contradiction to your theory.
Rightwing Troll
September 19th, 2012
3:29 pm
“Interested: Then why don’t we give everyone $50,000 worth of food stamps to use every year?”
Apparently we do just that very thing… we give $50,0000.00/yr worth of food stamps to 47% of everyone. (according to wingnuts anyway…)
I demand to see Cheesy Grits Birth Certificate- Long Form Please
September 19th, 2012
3:32 pm
@ Thulsa
Like I said. Montgomery is still very segregated and stuck in the 60’s
Yep. That is true. They are fleeing the crime and the crime in the city is overwhelmingly perpetrated by the blacks. Its a very uncomfortable truth to talk about but it is a truth nonetheless. Is it any wonder the whites are fleeing this kind of environment?
And no that isn’t it. Thats just the perverted way you see the world.
Is there alot of crime in the black community. Yes. But most of that is black on black crime.
Ive lived here most of my life and have never not felt safe.
I understand though that for people like you black people are “scary”
I see where your politics come from now too.
I’m actually ashamed. I went to Georgia Washington too. ( There weren’t gangs there either )
I’m ashamed to have gone to the same school as you. You are the problem.
Don't Tread
September 19th, 2012
3:32 pm
And we wonder why 47% don’t pay income tax…
Bruno
September 19th, 2012
3:33 pm
B, ask Hillbilly D, he is one of a tiny few besides me with the honesty to readily acknowledge that he was better off in the 1970s than he is now.
In what way?? Houses, cars, consumer products, travel, etc, are all far more affordable to the average American now than in the 1970s.
Who cannot afford health insurance like they used to take for granted.
Yet, according to this graph, the percentage of uninsured Americans has remained essentially the same from 1987 through 2008.
http://en.wikipedia.org/wiki/File:U.S._Uninsured_and_Uninsured_Rate_%281987_to_2008%29.JPG
Linda
September 19th, 2012
3:34 pm
Has anyone else noticed that all the Democrats/liberals have no clue about economics & that all the Republicans/conservatives have a clear understanding of economics? Does that mean that everyone who passes Econ 101 becomes Republicans/conservatives? Does that mean that if Econ 101 was a required course to graduate from college, we could get rid of almost all Democrats/liberals & never have to worry about the economy ever again?
BTW, is there a particular sitcom on TV from which Democrats/liberals get their economic talking points?
JDW
September 19th, 2012
3:36 pm
@Thulsa…”A basic principle of economics is that we are all better off in the long term with free trade. There will be short term losers in the way of people who lose jobs but the overall benefit to consumers offsets these losses.”
LOL…problem is that the “all” in your Theory are citizens of the world. There is no doubt that the people of India and China have benefited greatly of late…problem we have is the US is currently and could very likely long term be one of your “short term losers”
What you need to understand is that in free trade like business the winners are those that produce and sell. That’s what we need to subsidize.
I demand to see Cheesy Grits Birth Certificate- Long Form Please
September 19th, 2012
3:39 pm
We are sending my 2 nieces to private school.
Good for you but you cant shelter them forever.
Its better for kids to mingle and not separate.
They become more well rounded.
Heck they might even learn about a culture other than their own.
Imagine that.
Bruno
September 19th, 2012
3:39 pm
Who cannot afford to put their kids in college like they used to take for granted.
Again, Jam, the stats don’t support your assertions. According to this table, the percentage of college graduates in the US in 1970 was 11%. In 2000, that number rose to 25.8%.
As to the affordability of college, I agree with you that college costs have outpaced inflation in a shameful way. Too many Lib profs getting rich at the expense of the students.
http://answers.google.com/answers/threadview/id/92404.html
adniL
September 19th, 2012
3:40 pm
Has anyone else noticed that all the Republicans/Conservatives have no clue about economics & that all the Democrats/Liberals have a clear understanding of economics? Does that mean that everyone who passes Econ 101 becomes Republicans/Conservatives? Does that mean that if Econ 101 was a required course to graduate from college, we could get rid of almost all Republicans/Conservatives & never have to worry about the economy ever again?
BTW, is there a particular sitcom on TV from which Republicans/Conservatives get their economic talking points?
I demand to see Cheesy Grits Birth Certificate- Long Form Please
September 19th, 2012
3:40 pm
Has anyone else noticed that all the Democrats/liberals have no clue about economics & that all the Republicans/conservatives have a clear understanding of economics?
I dont see that at all. In fact if you look at the blue states they have a much higher percentage of college graduates.
Look at the red states. Education level is much lower and % of college grads is much lower.
Hardly a coincidence.
Thulsa Doom
September 19th, 2012
3:42 pm
“I don’t think we should outlaw it, simply stop subsidizing it. Profits from trading existing equities should be taxed at least as much as income from labor.”
Clearly you haven’t looked at historical IRS tax tables and noted the correlation between high capital gains taxes and lower govt revenue receipts. You can see this going all the way back to the 1920s. If you taxes investments capital gains investments at 39% then monied investors will simply park their funds in tax free munis and govt securities. The after tax return is simply not enough to compensate them in terms of risk/reward. We know this from history and we know this cause its just common sense.
“Investments made directly into companies should be tax advantaged if not tax free.”
If you buy stock in Walmart or you buy corporate bonds aren’t you making an investment directly into the company outside of a small transaction cost?
“Now if your next arugment is going to be that you need a market to sell those direct invesments into why yes but you need a rational market…not one where Facebook IPO’s at $42 and quickly plunges to $22.”
How do you define a “rational market” and who defines and decides what constitutes a “rational market”? And you advocate this why??? Because of one inappropriately priced IPO? Seriously?
“Wouldn’t everyone have been better off if Facebook investors had gotten say $15 to $18 a share tax free and the price increased to $22? Guess who the only group that loses is….Wall Street bankers who specialize in IPO’s…their fees just took a hit.”
Its a free market. If you didn’t buy Facebook stock then what the hell do you care or why does anyone who didn’t invest in it care? And how is “everyone” better off if Facebook’s IPO was priced better? Is Kyle or myself or you personally going to be richer or poorer if we didn’t invest in facebook if it was priced more “appropriately” in your opinion?
I demand to see Cheesy Grits Birth Certificate- Long Form Please
September 19th, 2012
3:42 pm
BTW, is there a particular sitcom on TV from which Republicans/Conservatives get their economic talking points?
I thinks its called Sean Hannity.
It goes like this. Give all the money to the rich. They are the only ones to be trusted with means.
Then all these jobs and money will “trickle down” over us commoners.
Ive been hearing that crap my whole life. Still haven’t felt the first trickle.
I
getalife
September 19th, 2012
3:42 pm
Wow, the cons are talking about the middle class instead of carrying water for the wealthy that disdain you people.
Change.
Yes, lets focus on the middle class and cut welfare for the wealthy that does not need it.
Thulsa Doom
September 19th, 2012
3:45 pm
“Look at the red states. Education level is much lower and % of college grads is much lower.”
Cheesy grits,
Red states such as the Southern states also have higher minority populations which drags down education levels and percentages of college grads.
JamVet
September 19th, 2012
3:45 pm
…are all far more affordable to the average American now than in the 1970s.
B, the very first brand new car I bought in 1979 was a Chevrolet sedan off of the showroom floor at a dealership in Niagara Falls, NY. It cost me $4500. Gas was about fifty cents a gallon, if I recall correctly.
Now a brand new Chevrolet sedan costs….? Five times that much? Or more? And gas has gone up by a factor of 8.
Have most Americans seen a wage increase of 500% – 800% since 1979?
Has anyone else noticed that all the Democrats/liberals have no clue about economics & that all the Republicans/conservatives have a clear understanding of economics?
All Democrats? All Republicans?
You write like a petulant sixth grader, Linda.
Seriously…
Thulsa Doom
September 19th, 2012
3:48 pm
cheesy grits,
I want my nieces to be exposed to other races and cultures and to be in mixed environments for the same reasons- it makes them more well rounded and it exposes them to people that they are going to have to work with and associate with the rest of their lives. Every school I went to was racially mixed and I wish it were that way across America. But what I am saying is that now several of those Montgomery schools are dangerous due to the gang and violence problem and of course whites are going to flee school systems like that.
Jefferson
September 19th, 2012
3:49 pm
$1.00 spent from a paycheck probably only costs maybe $1.01 inclusively to distribute to the employee on average, if that, much. I don’t have the data for either one (but would be curious to see) I would bet that $1.00 in food stamps costs about $1.15 inclusively to distribute. So the net cost to produce $1.00 in GDP would likely be much higher through government programs. I realize that I am just guessing, but it would be interesting to see if there is any data on this.
JamVet
September 19th, 2012
3:50 pm
Right, because gawd knows that books, insurance, equipment, operating expenses across a wide variety of costs have not gone up at American universities, B. Just the salaries of liberal professors!
Michael H. Smith
September 19th, 2012
3:51 pm
Kyle let’s just cut through the chase here and recite what these leftwing OBAMA REDISTRIBUTION socialists truly believe, as Karl Marx said it in his simple mantra; which is the cornerstone and foundation of Marxism that none of these liberals socialist can disavow:
“From each according to their ability to each according to their need”
getalife
September 19th, 2012
3:51 pm
mitt speaking with his people proved their disdain for you people.
Stand up and stop bowing down for them.
What is wrong with you Linda?
Finn McCool (The System isn't Broken; It's Fixed)
September 19th, 2012
3:51 pm
But let’s not kid ourselves that *on net*, accounting for where that money came from and all of its possible alternative uses, food stamps are the most efficient and productive use of that money
Kyle, who is arguing this? I don’t think anyone is kidding themselves on this point. Your original post refutes that there is ANY economic benefits from welfare/food stamps. We are pointing out that that isn’t true. We aren’t saying “it’s the only form of economic benefit.”
I demand to see Cheesy Grits Birth Certificate- Long Form Please
September 19th, 2012
3:53 pm
Red states such as the Southern states also have higher minority populations which drags down education levels and percentages of college grads.
True colors revealed.
LOL. Yeah. Those minorities sure are dumb aren’t they.
And they only have them in the South !!!!
Lord knows they have had the same opportunities as whites in the South from the beginning.
Lets just say we see the world in VERY VERY VERY different ways.
At the end of the day you have to be you.
Thats punishment enough i guess.
George P. Burdell
September 19th, 2012
3:53 pm
Jamvet,
the data I have only shows up to 2010 for wages and inflation but since 1993 wages have gone up 80.15% while inflation has gone up 51.9%. A similar result is found going back to 1967 when you add SS taxes and Medicare taxes as part of compensation. I’m sure there have been recent periods where you would find the relationship has gotten worse, but over any measure of time, it has improved for all workers, at least the ones that are able to find jobs.
I demand to see Cheesy Grits Birth Certificate- Long Form Please
September 19th, 2012
3:56 pm
Kyle let’s just cut through the chase here and recite what these leftwing OBAMA REDISTRIBUTION socialists truly believe
Ive been hearing that Socialist crap since Clinton was elected.
It just a buzzword they know will get you lemmings all hot and bothered.
Nothing else.
Michael H. Smith
September 19th, 2012
3:58 pm
What is wrong with you getalife? You and your ilk have been stooping and bowing down to government dependence for years, when is your bunch going to stand up and take on responsibility for your own destiny rather than have government assign you a fate in life?
getalife
September 19th, 2012
3:58 pm
We should cut the redistribution to wealthy and corporations that don’t need any help.
This mindless waste of taxpayer money must end now if you care about the debt..
Linda
September 19th, 2012
3:58 pm
adnil@3:40, Democrats/liberals could have passed Econ 101 if they weren’t plagerists.
Can’t come up with your own thoughts/material?
Karl Marx
September 19th, 2012
3:59 pm
Interesting that Henry Ford’s wage policies seem to be creeping into the politico blog scene. It will be fun watching what this get spun and twisted into. Mr. Ford didn’t just significantly raise salaries once he did it a few times and he didn’t do it for just one reason. He knew that his workers would not necessarily spend money on his cars. The might but a new appliance, go on vacation, or go out to a movie and then those people might by a Ford. He also wanted to attract the best and create a stable work force which fed his bottom line. Even Toyota owes a great deal to Henry Ford because without Henry Ford’s writing Taiichi Ohno might have not have designed the Toyota Manufacturing System. Anyway here is the rule if you really want to fix the problem. It is really simple.
The Private sector provides the revenue for the Public sector.
If you don’t have a vibrant, growing private sector then you can’t have a well funded public sector for very long.
Michael H. Smith
September 19th, 2012
3:59 pm
Ive been hearing that Socialist crap since Clinton was elected.
It just a buzzword they know will get you lemmings all hot and bothered.
Nothing else.
And you cannot deny a word of that crap without LYING.
Bruno
September 19th, 2012
4:00 pm
Who cannot afford to go to Europe/NYC/wherever like they used to take for granted.
I can’t find a simple chart to demonstrate the affordability of travel, but from personal experience, I know that travel is much more frequent now than 40 years ago. Heck, we couldn’t even afford a long distance call back then let alone a trip to Florida or Europe.
No matter how you slice it or dice it, the average schmo lives far better today than 40 years ago.
They BOTH suck
September 19th, 2012
4:01 pm
George P
Are those nominal or real wages? Since one can’t run from inflation when purchasing something, you also must take into account wages adjusted for inflation, which are “real wages”.
Thanks for the clarification.
getalife
September 19th, 2012
4:01 pm
Michael H. Smith,
We recovered half of the jobs you lost and we will recover them all in his second term.
It takes jobs so Americans can get back to work.
Focus on the middle class not the wealthy con.
Michael H. Smith
September 19th, 2012
4:02 pm
If you don’t have a vibrant, growing private sector then you can’t have a well funded public sector for very long.
Somehow between the socialist democrats and big spending republicans they have managed to keep it going for far too long on debt and a weak private sector economy. Soon we will become another Greece.
getalife
September 19th, 2012
4:05 pm
noonan is freaking out.
gop are turning on mitt.
President 52% in mitt’s home State off Michigan.
You cons are going down.
Michael H. Smith
September 19th, 2012
4:06 pm
getalife
No we have not recovered the jobs we’ve have lost since obama took office. Unemployment was below 8% when obama took over, after his stimulus that he said would keep unemployment below 8% it hasn’t gone back down below that number
obama has produced a NET JOB LOSS.
adniL
September 19th, 2012
4:06 pm
Linda@3:58, Republicans/Conservatives could have passed Econ 101 if they could think.
See the problem with Republicans/Conservatives is that they can’t come up with their own thoughts/material? Instead they resort to spouting utter nonsense most likely heard from Rush or Sean and attempt to claim intellectual superiority with such drivel.
getalife
September 19th, 2012
4:07 pm
Stop lying con.
getalife
September 19th, 2012
4:08 pm
gop blocked Veterans Jobs Program.
Support our troops cons.
Gimme Gimme Gimme
September 19th, 2012
4:09 pm
Finn – “Kyle, who is arguing this? I don’t think anyone is kidding themselves on this point. Your original post refutes that there is ANY economic benefits from welfare/food stamps. We are pointing out that that isn’t true. We aren’t saying “it’s the only form of economic benefit.”
Lift with your legs so you don’t hurt your back moving those goal posts. LOL
David R. Boag, DDS
September 19th, 2012
4:09 pm
Finn said,
Not necessarily. There is a good chance that $1 would have gone into the stock market or a savings account to be unproductive for generations.
Right, so we let the government have it because THEY know how to spend it better than you do! They always spend our money so efficiently!
HAHAHAHAHAHAHA!
Bruno
September 19th, 2012
4:11 pm
B, the very first brand new car I bought in 1979 was a Chevrolet sedan off of the showroom floor at a dealership in Niagara Falls, NY. It cost me $4500. Gas was about fifty cents a gallon, if I recall correctly.
Now a brand new Chevrolet sedan costs….? Five times that much? Or more? And gas has gone up by a factor of 8.
When comparing car costs, the front end purchase price is only part of the equation. Back in the day, it was an accomplishment to limp a car past 100,000 miles. I took my last 3 cars past 240,000 miles. In addition, cars require far less maintenance than in the 1960s or 1970s. Now it is normal to go 4000-5000 miles between oil changes, and nearly 100,000 miles before needing a tuneup.
As for the price of gas, that seems to only have been a problem since Obama took office……
Gimme Gimme Gimme
September 19th, 2012
4:11 pm
adnil – “Instead they resort to spouting utter nonsense most likely heard from Rush or Sean and attempt to claim intellectual superiority with such drivel.”
I would listen to them before I took my economic advice from Rev. Al
Lil' Barry Bailout - Vote American
September 19th, 2012
4:12 pm
If you think money being saved in a bank or invested isn’t benefiting the economy, then you’re probably a victim of public schooling and never learned even basic economics. It’s likely that such capital is doing more economic good than some parasite buying the #3 Value Meal.
Investment > Consumption.
Michael H. Smith
September 19th, 2012
4:13 pm
Oh and getalife, I don’t do “CLASS WARFARE”. And I don’t look for equal results, equal rights will do.
Linda
September 19th, 2012
4:13 pm
JamVet@3:34, I’m very proud of my Bachelor of Science degree in Economics from one of the largest universities in the SE USA.
Even sixth graders know that food stamps is a goofy means to stimulate the economy. They also know that paying for advertising with taxpayer dollars to promote the use of food stamps in SPANISH is kinda suspect.