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I’m not an economist, and the following argument is qualitative- “cost of capital” essentially means the cost of things (as opposed to, the cost of services/lab

I’m not an economist, and the following argument is qualitative- “cost of capital” essentially means the cost of things (as opposed to, the cost of services/labor.) Perhaps, indeed, when the cost of things goes up, this will lead to an increase in wages- but humans also require and purchase things, so this will drag their effective earning (their purchasing power) back down, even if their nominal wage has increased. Which leaves peoples’ motivation to be truckers (and the fortunes of the middle class) in roughly the same boat regardless of the cost of capital.

jhayward 8y ago
No, cost of capital is not synonymous with "cost of things". It's how much you have to pay to use someone's money for a while. There are all kinds of other costs that go in to the cost of goods. Big trucking companies borrow money and buy semi trucks. They get them straight from the manufacturer complete with 4-5 years worth of all maintenance and warranty. They run them for that time, spending nothing else other than fuel, tires, driver pay, and insurance cost, and then sell them at the end of the 4-5 year period. The cost of using the truck is essentially the difference between the purchase price-selling price, plus the interest cost of the borrowed money. If that interest rate is low, let's say it's zero: they can buy 1,000 trucks and let them sit idle and not lose much money because they just turn around and sell them as almost new, and don't have to pay interest. If the interest cost is high, they need to keep the trucks working to bring in revenue to cover the depreciation + interest cost. Lower and middle-class people don't use debt anywhere near the extent that capital-intensive businesses do. Higher interest rates do not affect their bottom line as much. So if the cost of capital goes up, there is pressure on that capital to produce, which makes it more beneficial to spend money on labor to create revenue. Labor gets a bigger slice of the revenue pie because it is more valuable compared to capital. Even better, a dollar spent by a consumer is far more beneficial to the economy than a dollar spent by a corporation, because such a high proportion of corporate spending ends up back in the pockets of plutocrats and plutocratic corps. A dollar spent by a consumer tends to go back in the local economy at the grocery store, gas station, mechanic's shop, child care, etc. That same dollar gets spent again and again in the local economy as it passes along.

jhayward 8y ago

No, cost of capital is not synonymous with "cost of things". It's how much you have to pay to use someone's money for a while. There are all kinds of other costs that go in to the cost of goods. Big trucking companies borrow money and buy semi trucks. They get them straight from the manufacturer complete with 4-5 years worth of all maintenance and warranty. They run them for that time, spending nothing else other than fuel, tires, driver pay, and insurance cost, and then sell them at the end of the 4-5 year period. The cost of using the truck is essentially the difference between the purchase price-selling price, plus the interest cost of the borrowed money. If that interest rate is low, let's say it's zero: they can buy 1,000 trucks and let them sit idle and not lose much money because they just turn around and sell them as almost new, and don't have to pay interest. If the interest cost is high, they need to keep the trucks working to bring in revenue to cover the depreciation + interest cost. Lower and middle-class people don't use debt anywhere near the extent that capital-intensive businesses do. Higher interest rates do not affect their bottom line as much. So if the cost of capital goes up, there is pressure on that capital to produce, which makes it more beneficial to spend money on labor to create revenue. Labor gets a bigger slice of the revenue pie because it is more valuable compared to capital. Even better, a dollar spent by a consumer is far more beneficial to the economy than a dollar spent by a corporation, because such a high proportion of corporate spending ends up back in the pockets of plutocrats and plutocratic corps. A dollar spent by a consumer tends to go back in the local economy at the grocery store, gas station, mechanic's shop, child care, etc. That same dollar gets spent again and again in the local economy as it passes along.