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
They BOTH suck
September 19th, 2012
5:36 pm
TD
Again, “liberals do not understand”…….
I’m not that worthy and will seek out your wisdom
WWonka
September 19th, 2012
5:36 pm
Kyle, you asked: Interested: Then why don’t we give everyone $50,000 worth of food stamps to use every year? We’d have the greatest economy in history!
What a ridiculous question to ask !
Do you eat $ 4,166.66 worth of groceries a month Kyle ?
Thulsa Doom
September 19th, 2012
5:37 pm
Gravy Train,
By trickle down do you mean all that extra money being printed that has stocks surging because of all the money flowing into them? And consequently all the fatcats on wall st. making all that coin because of this money printing and the ensuing rise in stock prices? I’m glad to see you and I agree on Obama’s trickle down economics.
Kyle Wingfield
September 19th, 2012
5:38 pm
WWonka: I think you missed the point.
Thulsa Doom
September 19th, 2012
5:39 pm
they both suck,
I don’t consider you a full blown liberal. Therefore I arbitrarily removed you from the “liberals don’t understand” grouping. Doomy can do that ya know.
They BOTH suck
September 19th, 2012
5:41 pm
TD
just messing with you
Have a good one. Out for a jog.
Thulsa Doom
September 19th, 2012
5:42 pm
Do you eat $ 4,166.66 worth of groceries a month Kyle ? wwonka
wwonka,
Then we’ll just give them 10k in food stamps for the year and then give them 40k in newly created housing voucher stamps and money spending stamps that work just similar to a food stamp card and from there we will watch the economy just take off. The principle is the same.
WWonka
September 19th, 2012
5:56 pm
Kyle, I know you missed the point !
Food stamps used by people that are less fortunate during these hard economic times, do stimulated the economy ! There are no “Ifs & buts” about it. There is no need to argue this fact by asking a ridiculous question that has nothing to do with the fact at hand !
WWonka
September 19th, 2012
5:59 pm
Then we’ll just give them 10k in food stamps for the year and then give them 40k in newly created housing voucher stamps and money spending stamps that work just similar to a food stamp card and from there we will watch the economy just take off. The principle is the same.
Thulsa Doom,
Who do you mean by “THEM” ? ! ?
getalife
September 19th, 2012
6:00 pm
The romney campaign is collapsing.
gop jumping ship.
Worse than mccain and palin and using the same failed redistribution lie.
Just desperately slinging poo.
Will ryan go rogue.
Same ole failed gop crap like 08
getalife
September 19th, 2012
6:03 pm
You can’t collapse our economy then insult half of America and call them names.
What is wrong with the right?
Inarticulate? No ignorance and way out of touch with the American people.
Linda
September 19th, 2012
6:06 pm
They@5:16, It was probably me. A degree in science is a degree in science. I did not spend 4 years in economics classes.
It does not take a degree in science to understand photosynthesis or weather or the politics of carbon trading.
MarkV
September 19th, 2012
6:12 pm
It is no wonder that Kyle urges us to read Kessler’s article, rather than presenting his own version of the arguments, because Kessler’s article is not what Kyle purports it to be – a well-reasoned analysis – but just a bunch of unproven claims not supported by anything else than Kessler’s opinion and lots of strawmen.
As this one related to food stamps: “Sure, it makes sense that the less well-off will spend whatever they are given, but unfortunately, not on the things to spur a hiring binge.”
No matter that nobody has claimed that that issuing food stamps would “spur a hiring binge.”
Another stupidity of the same kind is the one Kyle likes so much, the statement by state Sen. Charlie Bethel, R-Dalton, “If it were true that unemployment checks stimulated local economies, we’d be doing great in Northwest Georgia. We’ve cashed a lot.” Again, nobody claims that unemployment checks are THE answer to the problem of economy.
Probably the worst part of Kessler’s article is when he pooh-poohs the analysis of the multipliers of dollar spent, which showed food stamps having the highest multiplier, which Kessler calls “economic malpractice.” Naturally, he does not present anything that would really disprove that analysis, only the aforementioned stupidity that food stamps have not spurred a hiring binge.
JDW
September 19th, 2012
6:19 pm
@Thulsa…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. ”
I am recognizing all that but simply saying that in today’s environment “short term gambling” should not be subsidized. I think it aught to look something like this…
Profit on securities held for less than 1 year should be taxed and 150% of income rates, if held for 1 to less than 5 years profits should be taxed and 100% of income tax rates and profits held for 5 or more years should be at 15% flat. Then we would have shifted the emphasis from short term gambling to long term investing. BTW carried interest bye bye…those are just regular investing profits.
“Doesn’t look like you’re using it if you’re blogging all day. ”
Nope, haven’t since the late 90’s but since then I have raised a bunch of venture capital and run a couple of companies.
“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”
If you own 51% of a class you have control of the rights of that class. However if you bought that 51% in the aftermarket your investment was not directly in the company. Your future value is tied to the value of that class of stock but you have not invested directly in the company. As for the bit about the CEO…ever hear of a poison pill…ownership of a class gets you only the rights of that class.
JDW
September 19th, 2012
6:20 pm
oops not and 150% but at 150%
BADA BING
September 19th, 2012
6:23 pm
Claiming that Food Stamps stimulate the economy is about like me saying that I am going to buy a truckload of watermelons at $1 each, and sell them for 50 cents. My business plan? I am going to make it up in volume.
JDW
September 19th, 2012
6:30 pm
@BADA BING…”Claiming that Food Stamps stimulate the economy is about like me saying that I am going to buy a truckload of watermelons at $1 each, and sell them for 50 cents. My business plan? I am going to make it up in volume”
Actually from a macro economic perspective it’s like buying watermelons for $1 and selling them for around $9…but don’t let facts get in the way of a good rant on the “moochers”
These Lying Eyes!!!
September 19th, 2012
6:33 pm
OK….Righties out there ( Kyle, This includes you too)
Can any of you tell us anything…I mean ANYTHING in the history of mankind that has been sucessfully built from the top down??????
JDW
September 19th, 2012
6:34 pm
@Thulsa..if you are asking why the 150% on profits of less than a year…it is because 75%+ of daily volume is machine trading…that volatility is hurting real investors not helping…it amounts to skimming.
JDW
September 19th, 2012
6:35 pm
@Lying…”I mean ANYTHING in the history of mankind that has been sucessfully built from the top down”
Only thing I can think of is Dolly Parton…
BADA BING
September 19th, 2012
6:39 pm
If you rob Peter, to pay Paul, you are certainly not going to get any flak from Paul.
They BOTH suck
September 19th, 2012
6:40 pm
kayaker
No offense, but there isn’t much of anything that Obama or his administration is going to do that will be acceptable to you. Be honest.
Not saying you do not have any valid points when you post or have the right to speak your mind, but Obama could fart, whistle or high five Bill Clinton and you would fly off the handle.
They BOTH suck
September 19th, 2012
6:42 pm
Excuse me.
Wrong blog. My apologies.
Thulsa Doom
September 19th, 2012
6:47 pm
JDW
“I am recognizing all that but simply saying that in today’s environment “short term gambling” should not be subsidized.”
So in your opinion a prudent investment decisionis nothing more than gambling. For a guy that has a Series 7 you just lost a serious amount of credibility with that statement.
“Profit on securities held for less than 1 year should be taxed and 150% of income rates, if held for 1 to less than 5 years profits should be taxed and 100% of income tax rates and profits held for 5 or more years should be at 15% flat.”
JDW,
I’m going to say it one more time. Go back to the IRS tables all the way back to the 1920s and look and see what happens to federal tax receipts when we raise capital gains taxes above 30% and higher. We don’t need our opinions on this. We just need the historical facts regarding what happens to treasury receipts when capital gains tax rates are high.
“Then we would have shifted the emphasis from short term gambling to long term investing.”
No it wouldn’t. That’s just an opinion you came up with and its backed up by nothing that I can see.
Nope, haven’t since the late 90’s but since then I have raised a bunch of venture capital and run a couple of companies.
Well then how do you have an active series 7 if you don’t even use it? I gave mine up back in the 90s but am in the process of getting it back.
If you own 51% of a class you have control of the rights of that However if you bought that 51% in the aftermarket your investment was not directly in the company. Your future value is tied to the value of that class of stock but you have not invested directly in the company. As for the bit about the CEO…ever hear of a poison pill…ownership of a class gets you only the rights of that class.
Nope. You’re now just deflecting. If someone owns the majority of the common shares of a company they pretty much own that company and can rule the day. Its real ownership. For example if the Walton’s still own the majority of Walmart common stock then they own the majority of the company. Its as simple as that and going into deflections about the different classes of stock isn’t going to change that. There’s not anyone that disputes that. As for a poison pill that is completely and wholly irrelevant to the conversation at hand. I can’t imagine why you even brought that up.
JDW,
I understand your basic premise which is that you view short term investing as nothing more than gambling. For the sake of argument though lets say you’re right. So what? That “gambling” provides tax revenue and if you raise the capital gains tax rate to the obscene levels that you speak of then you destroy the incentive of that short term “gambling”. And you destroy the massive amount of tax revenues that it generates. History has shown that if we were to make the capital gains tax 100 or 150% as you advocate that enormous amounts of tax revenues would simply disappear. Why you choose to ignore this most basic historical reality is nothing short of shocking.
JDW
September 19th, 2012
6:48 pm
@Thulsa…Kyle too…
http://business.time.com/2012/09/19/jack-bogle-speaks-on-how-to-fix-wall-street/?iid=biz-main-lede
Just came accross this and it is very relevant to our early conversation…Jack Bogle founded Vanguard.
Lil' Barry Bailout - Vote American
September 19th, 2012
6:49 pm
Mary Elizabeth: For the past four decades, many of the super rich have begun to believe that practically all of their money belongs to them
———–
Wow.
The greedy, envious, loser mentality is strong in that one.
If that’s the kind of mental retardation you and your ilk tought the children, it’s no wonder this country is so effed
Lil' Barry Bailout - Vote American
September 19th, 2012
6:50 pm
Mary Elizabeth: For the past four decades, many of the super rich have begun to believe that practically all of their money belongs to them
———–
Wow.
The greedy, envious, loser mentality is strong in that one.
If that’s the kind of mental retardation you and your ilk tought the children, it’s no wonder this country is so effed.
Lil' Barry Bailout - Vote American
September 19th, 2012
6:50 pm
Pardon the double post!
Thulsa Doom
September 19th, 2012
6:52 pm
“@Thulsa..if you are asking why the 150% on profits of less than a year…it is because 75%+ of daily volume is machine trading…that volatility is hurting real investors not helping…it amounts to skimming.”
JDW,
I’m well aware of that and perhaps that should be looked into by the authorities. However skimming is a separate issue. You don’t destroy the markets and the substantial tax revenues that are derived from trading just because some program traders are skimming using sophisticated programs and being physically closer to the exchange then anyone else.
JDW
September 19th, 2012
6:53 pm
@Thulsa…”History has shown that if we were to make the capital gains tax 100 or 150% as you advocate that enormous amounts of tax revenues would simply disappear. ”
Read the link, I was right the first time you just don’t reallu understand. Now as to the above statement…if that were true it would be impossible to have both cap gains rates and govt revenue at historical lows at the same time….
WHERE THEY ARE TODAY
Lil' Barry Bailout - Vote American
September 19th, 2012
6:53 pm
Which country will do better in the long run…the country that saves and invest, reducing consumption somewhat, or the country that spends all of its income?
Hillbilly D
September 19th, 2012
6:55 pm
The main thing I get out of reading these blogs everyday is that I live on a different planet than most everybody else.
Lil' Barry Bailout - Vote American
September 19th, 2012
7:02 pm
These Lying Eyes!!!: Can any of you tell us anything…I mean ANYTHING in the history of mankind that has been sucessfully built from the top down??????
——–
Not sure what you mean by “top down”…seems to me Apple is at the top and is pretty good at building things…is that what you meant?
Now maybe YOU can tell US how raising taxes on a business helps the grow and create jobs.
mike
September 19th, 2012
7:04 pm
I have to hand it to you conservative right wingers. You don’t give up.
http://www.realclearpolitics.com/epolls/2012/president/2012_elections_electoral_college_map.html
No matter how hopeless the situation is.
I invite you to open the link above and review it carefully. Notice that President Barack Obama has 247 electoral college votes and only needs 270 to win.
If my math is correct, that only leaves 23 electoral college votes to win.
Now, if you add Virginia, where President Barack Obama has a 3 point lead, then he has 260 electoral college votes. Just 10 shy of the 270 needed to be elected.
Now, if you add Ohio, where President Barack Obama has a 4.2 point lead, then he has 278 electoral college votes. Enough to be elected.
So, it really doesn’t matter what Florida and all of the rest of the so-called “swing” states do, President Barack Obama will still be elected.
RGB
September 19th, 2012
7:05 pm
Nancy Pelosi thinks that increasing the number of abortions stimulates the economy, which is the justification she used to support increased funding earlier in The Inept One’s presidency.
The fact is, liberal politicians and their followers haven’t a clue. Neither Ba-rock nor Plugs has spent time in the private sector, and these bashers of capitalism have only disdain for people who have.
The liberati are swiftly killing the goose that lays their golden eggs. They’ll squeal like pigs when their “funding” is cut off.
Thulsa Doom
September 19th, 2012
7:11 pm
JDW,
I gotta go but before I do I’ll let you know that I read the link. Keep in mind that this is one man’s opinion in that link. And it seems to me your entire argument is based upon one link from one man. Also in reading that link the gentleman barely touched on capital gains taxes and I didn’t see where he advocated 100-150% taxes on capital gains. I might be amenable to doing away with the carried interest that benefits hedge fund managers if it allows them to claim all their earnings as capital gains taxes instead of paying normal income tax rates like everyone else.
And I do understand program trading better than you think and perhaps better than you do. I’ve stated perhaps the authorities need to look into doing away with skimming which does nothing more than give an advantage to sophisticated program traders who do nothing more than take advantage of physical proximity to the floor and powerful computers and algorythms.So yeah I do understand it very well.
Last I’m going to say this for the 3rd or 4th and final time. To hell with your opinion, my opinion, and the opinion of the gentleman in your link. Go to the historical tax tables and take a look at the capital gains tax rates going back to the 1920s and government revenues from capital gains taxes throughout history. The correlation is unmistakable. The higher the rates- especially above 30 or 40 %, the less govt tax revenue we take in. Its not an opinion. Its an historical fact. And if you don’t understand the devastating effect that a 100-150% capital gains tax rate would have on our govt tax revenues then you understand absolutely nothing.
I gotta get going but if you do anything at least take the time to understand the historical reality of what your 100-150% tax rate would do to federal tax receipts.
RW-(the original)
September 19th, 2012
7:14 pm
Planet Hillbilly? Do they decide elections based on polls like apparently some people here think they do?
Thulsa Doom
September 19th, 2012
7:16 pm
if that were true it would be impossible to have both cap gains rates and govt revenue at historical lows at the same time….
Tax receipts are low because of the absymal economy we are in. Did you not know how weak our economy is? Where have you been the last few years. And you think that govt revenue would be higher if we stuck a 150% new tax on capital gains? Yeah. I’m sure that would drive people straight into the markets huh?
Real Athens
September 19th, 2012
7:20 pm
“The main thing I get out of reading these blogs everyday is that I live on a different planet than most everybody else” … here on this blog.
mike
September 19th, 2012
7:26 pm
Oh! did I deflate everyone’s hopes and dreams? I’m so sorry!
Maybe in 2024, your luck will change.
Hopes and Dreams and Change. Where have I heard that before?
Truth Squad
September 19th, 2012
7:27 pm
The truth is:Romney is losing.
Reading from the comments it is easy to see why the Republican Party is headed for minority status.It takes a certain kind of personality type to want to be in league with people who are so contemptuous of people who are not like them.
Shame on y’all for trying to turn the Henry Ford story into some modern Republican Party allegory.
Real Athens
September 19th, 2012
7:28 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.” … in Home Economics.
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
September 19th, 2012
7:31 pm
If Romney’s campaign is in “disarray,” then obozo’s must be flat out dysfunctional.
Oh wait… never mind.
ld
September 19th, 2012
7:39 pm
Long and short of it is that Henry Ford, like all the rest of the employer class, acts in their own best interest — sometimes benefitting the employees, usually not — but NEVER with benefitting the employees as an equal or priority motivation.
Romney is “employer class” and has NEVER, to my knowledge, acted for the benefit of employees to the detriment of the moneyed investor employer class — and you can be fracking sure he never will.
mike
September 19th, 2012
7:52 pm
I almost forgot to comment on Kyle’s post.
It is certainly true that some schlub working at at factory job making more than minimum wage is overpaid.
In fact, why he even has a job is open for discussion. Can there be any doubt in Republispeak world, that that job should have been sent to China years ago?
It just makes sense, doesn’t it? Why pay some slob $7.25 an hour when you get a Chinaman in a sweatshop for $200 a month?
These Americans! They’re spoiled! If they hadn’t made Bad Choices, they wouldn’t be in the predicament they find themselves in now.
JDW
September 19th, 2012
8:02 pm
@Thulsa…”I’m sure that would drive people straight into the markets huh?”
See thats the part you aren’t getting…I want them out of the short term markets and spending their time and energy on something productive. Say helping build new companies or inventing something.
Right now we are wasting significant brain power learning new ways to game the system by program trading etc… They need to go to work for a living and add something to society.
Hillbilly D
September 19th, 2012
8:02 pm
RW
Just the polls that are taken the first Tuesday in November, in even numbered years.
Lil' Barry Bailout - Vote American
September 19th, 2012
8:03 pm
If they’re worth more than $7.25 an hour, why aren’t they getting it?
I know why, but I’m guessing your answer will be quite entertaining and well worth waiting for.
JDW
September 19th, 2012
8:05 pm
@Thulsa…”Tax receipts are low because of the absymal economy we are in. Did you not know how weak our economy is? ”
OK its hard to let this pass…abysmal economy…hummmm I wonder did capital markets run amok have anything to do with that…why yes…YES INDEED
mike
September 19th, 2012
8:08 pm
“If they’re worth more than $7.25 an hour, why aren’t they getting it?” -Lil Barry
Because a Chinaman will do the same job for $200/month.
Since you know why, I would love to hear it. This has to be good.