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Discussions on the Economics of Poverty
The Initial Posting That Started It All
Subject The Mexican Pizza Riddle
From "Eyler Coates, Sr." eyler.coates@worldnet.att.net
Organization AT&T WorldNet Services
Date Tue, 04 Mar 1997 05:20:26 -0800
Newsgroups alt.politics.economics,sci.econ,talk.politics.theory,talk.politics.misc
Message-ID 331C219A.5606@worldnet.att.net
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This is a description of what has been called "The Mexican Pizza
Riddle." I am proposing it and the theories resulting from it as a
partial explanation of Third World poverty as well as a partial
explanation for our own prosperity in the USA.
THE MEXICAN PIZZA
I lived in Mexico for a year back in the '80's, and while there,
I was able to buy a medium-size pizza for about $3. The same pizza in
the U.S. cost about $6. In Mexico, the pizza maker who produces a $3
pizza makes about $1 per hour of less. In America, the pizza maker who
produces a $6 pizza makes about $6 per hour. In other words, the Mexican
pizza worker earns about ONE-THIRD the cost of the pizza, whereas the
American pizza worker earns the FULL cost of the pizza. This
differential between wages and prices seemed to prevail throughout the
Mexican economy. Therefore, the Mexican worker/consumer has one third the
buying power of the American worker/consumer. Another good reason for
calling Mexico a "THIRD" World country! But consumers must earn money
in order to buy the products of industry, and the Mexican worker
apparently is not earning enough to support a flourishing economy.
I had a huge (living room 20' x 20') ocean front furnished apt.
with balcony, maid and utilities for about $230 per month. Terrific,
yes? Especially if you can make your income in the U.S. (which I did
through investments) and spend it in Mexico. Si, senor. Quiero! But
unfortunately for the Mexican, he had to earn his income in Mexico. If
he were a "rich" capitalist like me, he would be OK. But if he worked
for a living, he earned the equivalent of maybe $1 per hour where in the
States he might earn $6. So, even though prices in Mexico were often
one-half what they are in the U.S., the cost of living for the Mexican
COMPARED TO HIS WAGE EARNINGS, WAS THREE TIMES WHAT IT IS IN THE U.S.!!
MEXICAN PIZZANOMIC THEORY
A nation's prosperity requires a vast and active productive
capacity, and this can happen only when there is a vast and active number
of consumers who want the products of industry and have the cash in hand
to buy them. If the worker/consumer is paid only enough to buy beans and
rice to live on, there will be great demand for bean and rice production,
but for little else. If the worker is not paid a good wage, there can be
no prosperity.
We are not talking about the value of the money. We are talking
about the AMOUNT of wages relative to the cost of things. In their
attempts to lower costs, it seems that producers are forever wishing to
lower wages to the point where the wage earners cannot buy the products
of industry. Wage earners, on the other hand, are forever trying to
RAISE wages to the point where they can buy more. The minimum wage
incorporates that struggle into a government regulation.
The American worker has THREE TIMES the buying power of the
Mexican. That means he is better able to buy the products of American
industry, which translates into prosperity for all, and enormous wealth
for the capitalists. The Mexican, on the other hand, has insufficient
wages to support a great economy. There are wealthy Mexicans, of course,
but they maintain their wealth by extracting high profits. But if they
paid their workers higher wages relative to prices, not only would their
workers live better, but they themselves would be rolling in pesos.
The point is, this relationship between wages and prices varies.
It is THREE TIMES HIGHER in the U.S. than it is in Mexico, and that, I
say, is the explanation for a prosperous U.S. and a poverty-stricken
Mexico. It is just the same as saying the U.S. worker is paid (at least)
three times more than the Mexican worker for the same kind of work,
prices remaining the same.
CONSEQUENCES
If the wealthy persons in Mexico would allow their fellow
Mexicans to earn enough money to buy the products of industry, they
themselves would be many times wealthier than they are, and their whole
nation would experience enormous prosperity. But their self-centered
greed that sees itself as owing NOTHING to their fellow man, actually
reduces their own prosperity.
What I am doing is comparing our wage scales vis-a-vis prices to
Mexico's wage scales vis-a-vis prices. I am suggesting that herein lies
the explanation of why we are the world's greatest economic power with
one of the world's highest standards of living, and why Mexico is a third
world country with much of the population in poverty. I am saying that
perhaps the main reason why we got where we are was because of unions
demanding higher wages and because of the minimum wage itself. I'm
talking about the central dynamic of the whole free enterprise system.
Producers in this country want to lower their labor costs by
shifting jobs to Mexico or overseas, then bring the products back to this
country and sell them to our consumers at regular prices, thus making
huge profits. But if ALL the jobs are shifted to low wage areas, where
will consumers get the money to buy the products? No one seems to be
thinking of that.
Therefore, the attempt to move jobs to lower wage areas can only
be profitable because it takes advantage of a temporary displacement. As
long as manufacturers can make the products with low wages and sell them
to consumers still making high wages, there are profits to be made. But
the shift is depleting the supply of consumers with high wages. When all
jobs are shifted to low wages, there will be no one to buy the products.
This is not a matter of regulating the price of labor. It is a matter of
regulating the RELATIONSHIP between the price of labor and the price of
goods. Ours is the most powerful economy IN THE HISTORY OF THE WORLD.
AND IT HAS GOTTEN THAT WAY AND STAYED THAT WAY BECAUSE OF THE MINIMUM
WAGE, among other reasons. For years now, some people have been warning
us that America is just about to go broke because of the very policies
that have brought it prosperity: union wages and the minimum wage. If we
listen to these people, we will actually undo the forces that have
resulted in our great prosperity.
CONCLUSION
It is said that there is no concern by wealthy Mexicans for the
vast majority of Mexicans living in poverty. But it is worse than that.
I have attempted to demonstrate that the wealthy are keeping the poor
down, but with a fairer division of the pie, not only would the vast
majority of workers live more prosperously, but THE RICH THEMSELVES WOULD
BE EVEN RICHER BEYOND THEIR WILDEST DREAMS!!!! Their greed denies their
people, their nation, and EVEN THEMSELVES a greater prosperity. All of
this because that blind greed compels them to exploit their fellow
countrymen, and they are convinced that the only way to riches for
themselves is to exploit others. But that spirit exists here in
America, too, and is straining at the bonds to practice the same kind of
exploitation in here. Given these facts, the benefits of any economic
activity in Mexico encouraged by this country will do little to benefit
the poorer Mexicans and only go into the pockets of their oppressors.
I present the Mexican situation as an example of what is a
"natural" tendency of an economy and what it can do to a nation's
prosperity. Unassisted, the Mexican economy is where things would
naturally tend to be. It, I contend, is the "natural" state of free
enterprise. Mexico has never been anything else. Free enterprise will
rest at that minimal level forever if no intervening force jolts it to
life by narrowing the gap between wages and prices. I'm not sure if
there has ever been in the history of the world a nation that has gone
BACKWARD from prosperity to what Mexico is, but I think that if we remove
the mechanisms that drove us up from that and that keep us where we are,
we just might establish an historical example.
Eyler Coates
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