The Mexican Pizza Riddle

Discussions on the Economics of Poverty

Part 5. Contrasting Views

    Wonders of the Internet:
    "The Mexican Pizza Riddle" and the "Re: What Thurow Thinks, What Krugman Thinks" post below.
    What will reconcile them?
    Must it be only ideology?
    Or is there an economic theory?
    Re: What Thurow Thinks, What Krugman Thinks

    The downward spiral of the price/wage ratio means lower priced goods. The poor in other countries receive a higher wage than they ever received before, and the 87% of Americans who are NOT union members are able to purchase goods without paying unfair union labor rates. After all, if everyone were a union worker, then there would be no advantage to higher union wages; all would be equally poor.

    Since it is inherently unfair for the union workers to exploit the consumers by overcharging for services that others would gladly render for less, thus driving up prices artificially to heights far above what they would reach without labor's extortion of the businesses where they are merely hourly workers and easily replaceable, there is nothing positive about their position in this distribution network. In fact, union labor is inherently evil to the economy of any country.

    It is interesting that union labor has become so expensive and litigious that companies are actually leaving to escape the labor net. This is a new operative in the economy, and it spells the rapid end of unions, unless they can gain control of the Democratic Party and force the country to not allow export of union jobs.

    I always find it so interesting that union people expect me not to buy a product where they are on strike, but will go to McDonald's and buy hamburgers from non-union minimum wage laborers, because it is cheaper. They don't mind using their union dollars to unfairly exploit non-union people.

    If they were true to themselves, they'd never buy anything where 100% of the employees were not union members. Of course, their goods would cost them 3-4 times as much that way. And that's what we are paying because they force our prices up.

Robert Vienneau
    You ought to realize many of these posters make up their "facts." Unions are very weak in the U.S. right now and have been for years. There is a culture of solidarity in countries where unions are strong that encourages union workers to buy union.

    And the "Mexican Pizza Riddle" has made up facts too. If the price of a pizza in the U.S. was solely the wages making it, the price would not cover the cost of the ingredients such as tomato. All U.S. pizzarias would quickly go broke.

Eyler Coates
    The point of the discussion was not the price of pizza, but the comparison between wages and prices generally, using the pizza as an easily understood example. It has nothing whatever to do with whether the price of a pizza represents the wage used to produce it, except to say that WHATEVER THE WAGE, the amount of labor going into producing the pizza is roughly the same in both the U.S. and Mexico. Certainly the U.S. pizza maker is not three times more productive than the Mexican. The elements of the comparison are the level of wages as compared to the level of prices in each country.
Jonah Thomas
    It looks to me like one central issue that wasn't being addressed is the use of resources. Suppose that rich mexican capitalists get gigantic profits by squeezing cheap labor. Provided that they spend those profits quickly, the economy as a whole should do just about as well. You'd get consumption by rich capitalists instead of poor laborers. Lots of olympic-size swimming pools and mansions using the concrete production. Geese raised for pate de foi gras. If a prosperous middle class resulted in an active set of airlines, a filthy-rich upper class might instead use many private jets and perhaps a small ultra-ritzy airline. Etc. The use of resources would be shifted, but the actual development might be about the same.

    But suppose that the rich capitalists simply don't spend as much. They can't possibly eat as much pate as the poor might eat carnitas. They might not fly as much, total. They can use only so many swimming pools and mansions. And if they're content to be rich at a reasonable level, they might simply not consume nearly so much as better-paid workers would.

    In a sense, what doesn't get consumed is wasted. Land that lies fallow doesn't produce, and it will lie fallow unless there's a market. Unemployed people don't produce (unless they come up with some sort of self-employment, for which they need a market). Capital equipment which is never ordered is not produced and is not used.

    So the question is, what Mexican resources are being wasted? If the resources are being used at their full capacity, then nothing can be done. (Except to come up with new technology to get more use of the same resources). Mexico might simply not have the good farmland, oilfields, mineral resources, etc., they'd need to be more prosperous. People might get less for their work because there's less to get.

    If resources are being wasted, then any way that gets those resources into production will increase prosperity -- for somebody.

    If the Mexican businessmen can consume all they can imagine wanting, they don't have an incentive to come up with new business. This is Waste By Lack Of Imagination. It's certainly been known to happen.

    If the Mexican businessmen see ways to produce more but lack the capital to invest, this is Waste By Lack Of Capital. That's happened too.

    If the Mexican businessmen see ways to produce more but lack a market, that's Waste By Lack Of Markets. This is very common. It can be argued that there's nothing wrong with it. If nobody who has money wants the product enough to pay for it, then it shouldn't be produced. Surely none of us agree with the labor theory of value, that says things should be worth something when a lot of work has gone into them regardless of whether anyone wants them. We'd likewise disagree with the resource theory of value which says that things should be worth something because of the resources used, regardless whether anyone wants them.

    It's obvious that if Mexican workers had more money, they'd buy more. And they'd buy different things than Mexican capitalists. Maybe that would result in fewer resources being wasted. Regardless of the waste, though, it would result in fewer resources available for the rich -- to the extent that resources are found rather than created. More sidewalks and building foundations for the workers is likely to mean more sand and limestone and fuel used -- and so less sand and limestone and fuel available for swimming pools and mansions. The rich can walk on the same sidewalks everyone else does, but their swimming pools cost more. More land used to raise beans and pigs for the poor means resources constrained for geese -- and more expensive pate. More workers in factories means maids and chauffeurs cost more. The rich would have to consume a smaller fraction of the total. Where they might gain would be if first, they benefitted from the products intended for the poor. Second, they might benefit from mass effects. A nation that could afford more artists might produce better artists, and the rich would have the best. A nation with less unemployment might have fewer thieves, and the rich would benefit from less crime. Etc.

    The resource that's most obviously wasted in the Mexican economy is labor. Surely everyone would agree that there's a lot of waste there. And the Maquiladora thing reduces that waste -- by bringing in capital equipment and raw materials from outside and shipping the products out, they use labor that would otherwise be wasted.

    Would a Mexican economy based around paying workers to make things they'd buy for themselves be more productive? Likely, though I don't have any facts to say one way or another. If say a third of the workers produced things for all the laboring-class consumers, that would leave 2/3 of the workers free to do other things that they could be richly rewarded for. There would be more of everything to go around, including highly-motivated workers. But this assumes that there are plenty of unused resources being wasted now, beyond unemployed labor. How could we tell?

    A side-effect -- why produce for the Mexican laboring-class market when you can produce for the U.S. laboring-class market? Why put capital into Mexico where the government is unreliable when you can invest in the USA where the government is business-friendly? Why buy low-rainfall land in Mexico when you can buy fertile land in the USA? Why work in Mexico when you can work in the USA? The Mexican experience may be distorted by the presence of the USA. Maybe nothing can work simply because for every solution there's a better alternative next door.


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