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
Mary Elizabeth
September 19th, 2012
4:14 pm
“America’s middle class has gotten clobbered for 40 plus years.”
—————————————————————-
I agree, and here is why that has happened to the middle and lower classes, in my opinion:
For the past four decades, many of the super rich have begun to believe that practically all of their money belongs to them, alone, and they resent “the government” taking their money for the purpose of “redistributing” it to the less fortunate. Those are the thoughts of people with limited imaginations and limited compassion, imo, even though they may know how to accrue wealth. Moreover, they have used propaganda to sway others of less wealth to hold that same attitude, imo. They do not see, or care to see, that the entire financial framework, within which our society operates, has been skewed to their benefit to begin with (perhaps going back as far as the days of Henry Ford). Is is right for some to make hundreds of millions of dollars running a corporation, and others who work for them to make only $12.70 an hour? One expects that the CEO will make more than the laborer, but is that proportion of difference right, balanced fairly, and equitable to all? I do not think that it is. And, then, these CEOs, and many others of the super rich, want to tax even more these laborers, deny them medical insurance if they are laid off (through having Obamacare to fall back upon), privatize their Social Security and Medicare, so that the money of the super rich does not end up being “redistributed” to serve the common good. All of these policies would be simply inhumane to inflict upon anyone making that little of an income to begin with, while trying to raise a family in today’s world, in proportion to what the very wealthy give themselves. Those who possess imagination enough to see beyond their own particular situations, and who can see what others may face, and who do not try to depict others in caricatured negative images (the poor) can see what has been happening. At least, that is what I believe has been happening in our nation for the past 40 plus years to the detriment of the middle and working classes.
Gimme Gimme Gimme
September 19th, 2012
4:14 pm
Please be kind to the Lib’s. When you watch MSNBC and listen to Keith Olbermann you can’t help but be confused.
Bruno
September 19th, 2012
4:15 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?
Linda, I will agree that some of the economic ideas advanced by the Libs today are beyond laughable. Looks like Kyle and Doom have been doing a good job shooting darts into their hyperinflated arguments. Particularly laughable today is the idea that invested money is somehow “sitting on the sidelines”. That along with the assertion that the best way to stimulate the economy is to give everyone food stamps. The way that food stamp money multiplies is simply astonishing.
Bruno
September 19th, 2012
4:16 pm
I agree, and here is why that has happened to the middle and lower classes, in my opinion:
You may agree, ME, but unfortunately the facts and stats don’t. We’re all better off now than 40 years ago, from the richest to the poorest.
Michael H. Smith
September 19th, 2012
4:17 pm
Hey getalife what party is responsible for passing the earned income tax credit that gives poor people( you know the 47% you whine about) who don’t earn enough money to pay federal income tax a government check?
Gimme Gimme Gimme
September 19th, 2012
4:17 pm
Mary Elizabeth-
What a blinkered view of things. Once again someone ignores the fact the middle class tried to live like millionaires through Credit Cards and Equity Loans.
There are many causes for the demise but you choose to look at one slice of the pie and the smallest piece at that.
Michael H. Smith
September 19th, 2012
4:18 pm
Good evening to all.
Gimme Gimme Gimme
September 19th, 2012
4:19 pm
Michael H. Smith-
Welcome to the jungle.
Linda
September 19th, 2012
4:20 pm
adnil@4:06, YOU were the one who copied MY original thoughts & material.
They BOTH suck
September 19th, 2012
4:23 pm
Linda
If you do not mind me asking, how many degrees do you have?
Thulsa Doom
September 19th, 2012
4:27 pm
“LOL. Yeah. Those minorities sure are dumb aren’t they.”
Nope. I never said that. You did. Educational attainment is lower amongst minorities. That’s just a fact of life that we all know. And the red states- particularly the ones in the south have a higher % of minorities.
“And they only have them in the South !!!!”
The southern states have a higher % of blacks then say Wisconsin or Connecticut. Surely you know that.
“Lord knows they have had the same opportunities as whites in the South from the beginning.”
Nope. For centuries blacks had practically no opportunities in America. No one denies that. But nowadays if you have a black kid and a white kid from the same economic status the black kid has more doors open to him via affirmative action.
“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.”
Resorting to insults doesn’t bolster your argument cheesy.
Linda
September 19th, 2012
4:31 pm
Bruno@4:15, It’s also quiet clear that many of the Democrats/liberals on this blog today did not read the Kessler article. I don’t think they’re even interested in economics, except the propaganda they hear on the likes of MSNBC.
I thought Kessler’s idea of I-Economics vs G-Economics was brilliant. I hope Romney/Ryan use it on the trail.
Thulsa Doom
September 19th, 2012
4:31 pm
Bruno and JamVet,
From what I’ve seen the rising cost of education is due primarily to govt subsidizing education so much. The more you subsidize something the more you drive up the cost. Over 600 colleges and universities now have rock climbing walls amongst other amenities. Tuition is rising not because education is any more expensive but because colleges knowing that tuition is being subsidized are putting money into more and more amenities to compete for and attract those students.
adniL
September 19th, 2012
4:32 pm
@Linda 4:20 YOU were the one that used NO orginal thoughts or material. But then you never do. Just sweeping unfounded and unsupportable BS. If you want to make an argument make it but don’t insult anyones intelligence with CRAPPY hyperbole that a first grader can pick apart.
Kyle Wingfield
September 19th, 2012
4:37 pm
adniL: Why the new name?
JDW
September 19th, 2012
4:40 pm
@Thulsa…”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?”
My God you really don’t have a clue do you?
NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO
If you buy stock in Walmart you are purchasing an asset from another third party. Whomever sells you the stock gets the money and the broker gets the transaction fee Walmart gets NOTHING. Same deal on a bond purchased in the open market.
The ONLY time the company gets the money is in an IPO, Secondary Stock Issue or initial Bond Issue.
Linda
September 19th, 2012
4:41 pm
They@4:23, Nth. That’s what I have. Nth degrees. What I have more of than degrees is unlimited common sense.
What I don’t have is food in my new refrigerator. Got to go.
Have a nice evening!
JamVet
September 19th, 2012
4:42 pm
…socialists truly believe, as Karl Marx said…
Will some tell MHS that McCarthyism died a horrific and shameful death sixty years ago?
Thank you.
JamVet
September 19th, 2012
4:44 pm
We’re all better off now than 40 years ago, from the richest to the poorest.
In terms of inflation adjusted incomes, no, not much. If at all.
The minimum wage is worth LESS now than it was in 1968…
cc
September 19th, 2012
4:44 pm
Del@3:25 pm:
“push the majority of Americans into total dependence on the federal government”
I believe that is only a small part of a much bigger picture!
They BOTH suck
September 19th, 2012
4:45 pm
It was science the other day, so I guess you meant a BS in Economics…………
Or literal BS?
They BOTH suck
September 19th, 2012
4:46 pm
cc
Tell us the entire picture. I am sure you have the unbiased and inside scoop
Do tell.
Thulsa Doom
September 19th, 2012
4:46 pm
“In what way?? Houses, cars, consumer products, travel, etc, are all far more affordable to the average American now than in the 1970s.”
I know that in 3 measures life is much better. Flying is substantially cheaper than it was in the 70s. After deregulation the cost of flying dropped like a rock. My bro is flying in from Indy for $78 a ticket one way. That’s unreal. Consumer goods are substantially cheaper. And then the cost of phone service. Please. Everyone knows that phone rates are unbelievably cheap relative to back in the 70s or even the 80s. I remember in college in 86 or so before the telecomm dereg act passed that my buddy in Montgomery would call his girlfriend 88 miles away in B’ham. An instate long distance phone call costed 33 cents a minute which back in 85 was a good chunk of change. People forget how good we got it today compared to 30 years ago. Costs of things such as air travel, phone service, consumer goods have plummeted with correspondingly high increases in quality and technology improvements like the internet, cell phone service, etc.
They BOTH suck
September 19th, 2012
4:47 pm
Linda
Maybe it is both…………… Never know.
These Lying Eyes!!!
September 19th, 2012
4:49 pm
Wait a minute…. I keep seeing Kyle and the Crew refer to Obama as having increased Food stamps…..I am sorry but the increase in food stamps was caused by the pulling back of the economy. By all accounts ( even Kyle’s) this began in late 2007…. How about we stop trying to hang this one on the PUTUS and make it what it is…The result of a shrinking economy and a growing poplulation. The problem of cost and the reality of the need is legit, but for once stop trying to pin this one on Obama……..
Bruno
September 19th, 2012
4:53 pm
Tuition is rising not because education is any more expensive but because colleges knowing that tuition is being subsidized are putting money into more and more amenities to compete for and attract those students.
I’ve read the same, Doom, primarily among private colleges. As a result, many students have become spoiled and demand numerous amenities. But, having said that, college profs as a group are making a pretty penny. Especially considering their generous vacation schedules.
Which doesn’t take away from my original point to JamVet–We’re all living far better than 40 years ago, poor and rich alike.
Thulsa Doom
September 19th, 2012
4:57 pm
“If you buy stock in Walmart you are purchasing an asset from another third party. Whomever sells you the stock gets the money and the broker gets the transaction fee Walmart gets NOTHING. Same deal on a bond purchased in the open market.”
What is your point sir? You are purchasing part of the company itself. The broker makes a small transaction fee. So what.
“The ONLY time the company gets the money is in an IPO, Secondary Stock Issue or initial Bond Issue.”
We all know that JDW. You’re not enlightening anybody-especially somebody who had a series 7 license and sold securities for 7 years. Again. What is your point? If your only point is that my purchase of Walmart stock doesn’t mean Walmart gets any more investment funds then so what. I don’t care about that. I care about the appreciation I will hopefully get off their shares and the wealth it will create for me which I will then hopefully put into an IPO of another company, a small business, or a secondary offering.
Bruno
September 19th, 2012
4:59 pm
In terms of inflation adjusted incomes, no, not much. If at all.
Again, Jam, raw income data is a relatively meaningless stat. If everyone is living better in terms of housing, travel. consumer products, etc., then I view that as a plus, not a negative as you seem to do. Obviously the gap between the top and bottom is greater, but as long as those at the bottom are living fairly well, then I’m not that concerned.
Li'l Aynie
September 19th, 2012
5:01 pm
Don’t ya’ll forget: the top tax rate was 91% when Ford was working his magic.
High taxes spur creativity. If Ford had been able to collect biliions from his efforts he probably would have stashed his trove in overseas tax havens and retired to the South of France. Since he netted only a few hundred thousand a year, he kept working to perfect assembly-line methods.
Gravy Train
September 19th, 2012
5:02 pm
Kyle, quit hiding. Tell us the solution to the problems of plutocrats and “brain drain” within your ranks. Are you going to sit by and watch the base of your party die off without fresh recruits? You’re only going to be able to fool people for so long and with Willard alienating more portions of our population each week now, that time is growing shorter. How many defeats will it take?
Thulsa Doom
September 19th, 2012
5:05 pm
Bruno,
I was a little kid in the 70s. But I know that in terms of material wealth, food and restaurant choices, clothing, travel, consumer goods, phone service, etc that we have vastly more in the way of choices and goods at an affordable price that we did in the 70s. Now our purchasing power has greatly been diminished recently with QE1, 2, and 3. Did you see the latest report a week or 2 ago that real incomes have diminished almost 10% just since O took office? Its all that money being printed which is devaluing our currency and nothing more than a hidden tax on the economy- a tax that hurts the poor more than anyone. That is the irony of what the liberals do not understand about what is happening under O.
Linda
September 19th, 2012
5:06 pm
adnil@4:32, Take an Advil.
It is a fact that economics is in no way the forte of Democrats/liberals. The bizarre comments on this blog today prove it beyond a reasonable doubt.
It is also a fact that math is not included in their forte. Borrowing & spending our way into prosperity has not worked & has caused our credit rating to be downgraded TWICE.
If my comments insult you, then don’t read them. At least MY comments are not peppered with personal insults & cuss words as are yours.
Go pick on someone else.
They BOTH suck
September 19th, 2012
5:09 pm
Yeah TD, I just don’t understand
I need smart folks like you to get me by.
How I made it this far is beyond me, but I will keep seeking our your wisdom
JDW
September 19th, 2012
5:10 pm
@Thulsa…
The point is that the aftermarket does not drive corporate or job growth but mainly Financial sector and personal profits. There is no reason for it to receive preferential l tax treatment.
Now as the Series 7…pssssstttt I have one too….you ought to know better than this…
“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?”
Because again, no you aren’t. You are investing in a security purchased from a third party that you hope will go up. That security does have some rights conveyed by the issuing company but you have not invested directly in the company.
They BOTH suck
September 19th, 2012
5:11 pm
seeking out………
excuse me
I’m not worthy………….
Linda
September 19th, 2012
5:12 pm
They@4:45, A degree in Economics might be in arts at one university or in science at another. Mine is a Bachelor of Science.
Darwin
September 19th, 2012
5:14 pm
But the Keynesian approach to Lockheed Martin is ok, right?
They BOTH suck
September 19th, 2012
5:16 pm
Linda
Got you. I thought I read a post the other night where you were referencing your degree and knowledge in relation to climate change. Not sure how an economics degree, unless you minored in something else would give you that sort of scientific knowledge on the topic in question.
Apparently it wasn’t you.
Allow me to extend an apology for my mistake
Gravy Train
September 19th, 2012
5:17 pm
I find it more alarming that some people are still stuck in Vietnam era politics and economic theory. Key word there is THEORY. That means it has never been proven as fact. Facts often elude the ditto-heads. They have no use for facts or fact checks. They only want their egos stroked and their fears and hatreds fanned. I have yet to meet a ditto-head that could mask their bigotry or xenophobia. People like Willard sell them down the river and they come back for more. They are too busy living in some fairy tale to notice what’s really going on. The super rich are getting richer while the middle class keeps sliding towards poverty. It’s too bad we all don’t have millionaire parents to bankroll our lives. That is somehow our fault too, according to the ditto-heads and their handlers.
cc
September 19th, 2012
5:19 pm
I was shocked (shocked, I tell you!) to hear Hussein say that he favored a “redistribution of wealth”. Was that ever a surprise to me! I’m sure no one else suspected that, either. In other news, the AG (Withholder) has cleared himself of any wrongdoing and announced his findings to the world . . .
Richard Nixon had a squeaky clean administration by comparison to the current regime . . .
They BOTH suck@4:46 pm:
You’re a bright fellow. I’m sure you can figure it out for yourself!
They BOTH suck
September 19th, 2012
5:21 pm
cc
Figured as much. Thanks for the expected reply
Darwin
September 19th, 2012
5:22 pm
“Romney vows to help the poor” Well, he’s not getting my vote now.
Darwin
September 19th, 2012
5:23 pm
Redistribution of wealth? OK, you pay your property taxes. Where does it go? Does some of it go the pay teachers? If you answered yes. Guess what, wealth was just redistributed.
JamVet
September 19th, 2012
5:24 pm
It is a fact, in my own made up sixth grade reality, that economics is in no way the forte of Democrats/liberals.
Gravy Train
September 19th, 2012
5:24 pm
According to Willard we have to cater to people like him because he is a “creator.” Still waiting for proof of something he “created” that benefits the American worker. In Willard’s version of America, the people like him are oppressed and the poor folks are living high on the hog. Willard obviously never tried to raise a family on the kind of wages he wants to pay. He actually has ditto-heads convinced that he built some great billion dollar enterprise all on his own. Too bad he leaves out the part where his daddy bank rolled his start ups. The fairy tale continues…
Thulsa Doom
September 19th, 2012
5:29 pm
“The point is that the aftermarket does not drive corporate or job growth but mainly Financial sector and personal profits. There is no reason for it to receive preferential l tax treatment.”
You have a point about the aftermarket. But what you are not recognizing is that stock or capital gains represent wealth creation. And creating wealth then allows us to invest and create more wealth, more jobs, companies, and opportunity. When you start taxing wealth at exorbitant rates you are then disencentivizing innovation, entrepreneurial risk, etc.
“Now as the Series 7…pssssstttt I have one too….you ought to know better than this…”
Doesn’t look like you’re using it if you’re blogging all day.
“Because again, no you aren’t. You are investing in a security purchased from a third party that you hope will go up. That security does have some rights conveyed by the issuing company but you have not invested directly in the company.’
So if a guy owns 51% of the shares of a company are you telling me that that man does not directly own the majority of that company and that he only has some rights conveyed to him by the issuing company? I’m sorry sir but that is downright laughable. You’re going to have a hard time convincing the CEO and the board that this man who owns 51% of the shares doesn’t really directly own a good part of the company and thus has no influence. You have completely lost it with that one.
Gravy Train
September 19th, 2012
5:32 pm
Yes, America, you too can be like Willard. That is if you can just “borrow money from your parents.” Then start your own corporation because “corporations are people.” If you don’t have millionaire parents to give you millions, too bad. Good luck trying to get a start up loan in this economy, the banks are sitting tight on their money that we bailed them out with. Of course there is a third option, just wait for your trickle to come down from the plutocrats. You know because that trickle has been flowing for 30 plus years now. Real talk folks.
Thulsa Doom
September 19th, 2012
5:33 pm
they both suck,
You being a smarty pants? You know I’m not that wise. Quite foolish in fact on many things. I just know and understand economics is all. All that tuition money spent on econ and finance degrees I better know something.
JamVet
September 19th, 2012
5:34 pm
Richard Nixon had a squeaky clean administration by comparison to the current regime . . .
Completely fallacious.
I surmise that you were still in diapers when all of the following went down:
VP Spiro Agnew resigned from office and was convicted in federal court on felony charges of income tax evasion.
Nixon’s infamous “hit lists”.
He fired special Watergate prosecutor Archibald Cox, and forced his Attorney General and Deputy Attorney General to resign when neither would do it for him.
He release edited transcripts of taped White House conversations.
Colson went to prison, as did Haldeman, Ehrlichman and Mitchell. I believe several others did as well.
Nixon resigned in utter disgrace and humiliation.
The Bush administration was dam near as bad.
But none of them hold a candle to the most criminally riddled administration in all of modern American history – Ronald Reagan’s.
And you can look it up!
Kyle Wingfield
September 19th, 2012
5:34 pm
No, Li’l Aynie, it wasn’t: In 1914, the year he increased wages, the top federal income tax rate was 7% — starting at (adjusted for inflation) $11.2 million. You didn’t owe any income tax unless you made more than $448,000 (again, adjusted for inflation).