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January 26, 2004 CONNECTIONS....I've come across several snippets of economic
data/analysis recently that provide a surprisingly connected view of
what's going on in the economy these days. This might get a little long
— apologies in advance — but here are four data points to ponder:
These anecdotes all point to the thing that bothers me the most about the direction of our economy: there are too many trends that are squeezing the wages of traditional working-class and middle-class workers. During the past 30 years workers in the bottom half of the distribution have seen their hourly wages increase only 10%, and among male wage earners during the same period the median income has barely budged at all. The problem isn't economic growth per se — per capita GDP has grown about 60% during this period — but rather that virtually all that additional wealth has gone to the already well off. Those in the middle and at the bottom aren't getting any better off despite economic growth, and as a result, instead of a growing middle class that's optimistic about its future, we have a middle class that's slowly but steadily stagnating and increasingly worried about its survival. The typical conservative response to this is a collective shrug: things really aren't that bad, are they, in this age of Nintendos and big screen TVs for all? And there's some truth to this: living standards are still high for most people and there are no mobs with pitchforks roaming the streets in American cities. But what about tomorrow? The sign of of a healthy economy is not so much that living standards are high for the middle class, but that they are getting higher — that people believe their children will be better off than they are. But as income inequality increases and income mobility decreases that's increasingly not the case, and the question at hand is whether we ever plan on doing anything about it. How long does the middle class have to stagnate in the midst of ever more stratospheric wealth for the rich before even conservatives finally admit that we have a problem? The problem is not just one of social justice, either. One of the counterintuitive facets of the U.S. economy that various pundits and researchers keep independently "discovering" — usually with a tone of dismayed wonder — is that nearly all economic indicators in the past half century have been stronger under Democrats than Republicans. The data is hardly conclusive, but it is suggestive, and it shows that economic growth, stock market growth, budget deficits, unemployment, and inflation all tend to be better under Democrats. But why? Given the fact that the economic policies of the two parties have been so inconsistent over the years, is there anything that can account for this? I think there is, and it's simple: Democrats care about middle class job growth. They always have. Conversely, at various periods Republicans have concerned themselves not directly with jobs but instead with inflation, or with balanced budgets, or most recently with obsessive tax cuts. But there's no evidence that tax cuts increase economic growth — at least not at the levels that we have in the United States. Ditto for balanced budgets and low inflation. But robust middle class employment is a different matter: if you take direct aim at that you're almost guaranteed that the economy is going to do well as a result. How could it not? If you have a large, growing, well-paid middle class that's spending ever larger sums of money without going into ruinous debt, the economy will be humming along almost by definition. Call it trickle-up economics. So even if you don't think that economic equality is any concern of the government, you should still be concerned about our ever more squeezed middle class. They are the engine of economic growth, and if we continue to pursue policies that ignore them the entire economy will pay the price. We need to start paying attention before it's too late. Posted by Kevin Drum at January 26, 2004 10:45 AM | TrackBackComments
Well said, Kevin. I was just conversing about this over lunch, as a matter of fact. Kevin, you are on fire. Though even under Clinton the trend towards low-wage jobs was reversed to any great extent. Posted by: Boronx at January 26, 2004 11:02 AM | PERMALINKThank you for this helpful grouping of trends. One thing that puts a chill in my bones is when I read your "The
typical conservative response to this is a collective shrug: things
really aren't that bad, are they, in this age of Nintendos and big
screen TVs for all?", all I could think is: how many of those TVs and
Nintendos are bought using credit cards already teeming with debt?
Something in the back of my mind tells me that the numbers are
worrisome. And the Republican (and Democrat, for that matter) cowing
down to big credit card companies in the past few years (H.R. 975) only
makes me worry more about the middle class's solvency. The conservative project -- that of returning us to a society based on inherited class position -- can't succeed with a thriving middle class. If they want to keep power, they need to destroy America as we know it. From their point of view, all of this news is good. Posted by: Rich Puchalsky at January 26, 2004 11:11 AM | PERMALINK"nearly all economic indicators in the past half century have been stronger under Democrats than Republicans ... But why?" Isn't it obvious? Democrats inherit good times from Republicans, screw them up, and are voted out of office when their screwups cause the economy to turn bad. Republicans then come into office when the economy is turning bad and have to fix the screwed up economy. I mean, this is clearly what happened with Clinton and Bush -- Clinton inherited a good economy from Bush I ... stuck around long enough to screw it up (by allowing the high-tech bubble, which should have been popped in say, '98). Then Clinton/Gore lost the election, and Bush II inherited a recession from them. So Bush II has had to spend his entire term so far repairing the damage done by Clinton/Gore. Posted by: Al at January 26, 2004 11:24 AM | PERMALINKThe big worry in this situation to me is how unstable it all seems in the end. Think about this situation. As kevin points out, the dramatic recent trend has been towards lower paying jobs all around. Manufacturing is leaving. Walmart is growing. Etc. But what is the thing that has been the driving force in the economy the last 3 years? Consumer spending. It has been consumer spending that has kept the American economy from falling apart, despite a precipitous drop in business spending. Now here's the worrisome part; how can consumer spending remain constant, or even in fact grow, if both the amount of jobs and the pay-level of jobs has declined (to say nothing about health care costs soaring)? There is only 1 way to do this; expansion of credit. People go more deeply into debt so they can keep buying things. In the last 3 years, htis has been practical because of the incredibly low interest rates and the associated expansion of the housing market; people's houses were worth more and their mortages were costing less. Therefore, it has been possible to expand the amount held in credit/debt without it dramatically hurting people's ability to spend. Problem is, this is a temporary circumstance. Consumers cannot increase debt to maintain this economy forever, and even if the "Recovery" begins to create jobs at some point, it seems like they'll mostly be lower-paying service jobs. This cycle cannot go on forever; at some point, interest rates are going to rise. It's inevitable. Without a backbone of higher-paying jobs to fall back on, the next rise in interest rates will do some severe damage to the credit-based economy we're looking at now. I would go as far as to say that all we need for another recession is a risse in interest rates; at some point consumer spending has to drop, it cannot keep growing as jobs and payrolls decrease. The numbers just don't add up. Posted by: Balta at January 26, 2004 11:25 AM | PERMALINKI think the upper middle class is doing fine and in fact continues to get handout after handout, while the lower middle class is getting screwed. From Jonathan Cohn:
One problem is that with the decline of manufacturing, it's really hard for blue-collar folks to get ahead. Our education system is really out of step with the new economic reality for these people: instead of providing them with tangible, marketable skills, we set them up to fail by forcing them to learn Shakespeare, while a secondary market of 2-year and tech schools has arisen to pick up the pieces. I'm mystified as to why this isn't being dealt with by education reformers, but I guess it has a lot to do with the false notion that everyone ought to hone the narrow range of skills that our current secondary school curriculum promotes. Posted by: praktike at January 26, 2004 11:25 AM | PERMALINK It's a tragedy that most people in this country think that unions are irrelevant and unnecessary. The veterans of the great union battles that got us our 40 hour work weeks and better wages are either dead or retired, and nobody remembers that people actually fought and died for these goals. What's it going to take for people to wake up, band together, and fight for themselves? Another Great Depression? Well, if that's what we need, I suppose the policies of the Commander-in-Chimp are well on their way to taking us there. His whole administration could easily be from the 1890's; two oilmen running the show, Interior Secretary owned by mining and logging, and A Treasury Secretary who's a railroad baron for God's sake. There is at least a growing fear and resentment in the middle class
over health care, and I hope that can become a wedge issue in the next
election. Hopefully people will see through the Medicare dodge and
realize that these lying sacks of shit don't give a damn about their
problems. Al, you're the worst conservative commenter ever. Clinton inherited a good economy from Bush I ... stuck around long enough to screw it up (by allowing the high-tech bubble, which should have been popped in say, '98). Then Clinton/Gore lost the election, and Bush II inherited a recession from them. So Bush II has had to spend his entire term so far repairing the damage done by Clinton/Gore. Poppycock. Where to start? 1. It is not the government's role to intervene in the stock market. A coherent conservative, and not an ill-informed hack, would understand this. 2. A coherent conservative would also understand how critical deficit control, which led to lower interest rates and boosted market confidence, was to the Clinton boom. 3. Gore did not lose the election because of anything having to do with the economy, which was perceived to still be booming at the time of the election. 4. How, exactly, has Bush repaired any kind of "damage"? The stock market is nearly as overvalued now as it was in the Dow 36,000 days, and again, the government should not interfere in the stock market anyway. Moreover, the unfunded liability problems have been greatly exarcebated by Bush's wild borrow-and-spend policies. I could go on, but this is just too easy. Posted by: praktike at January 26, 2004 11:33 AM | PERMALINKhttp://www.calpundit.com/archives/003130.html#93404 This was an attempt at satire, yes? Nobody can be that, um, cognitively challenged. Posted by: maha at January 26, 2004 11:37 AM | PERMALINKWell said praktike. Debunking Al the Amazing Republican Parrot is just too easy. Clinton inherited a good economy from Bush? Uh huh. It was so good that angry voters unseated him because of it. Oh, and Carter inherited a wonderful economy in 1977 from 8 years of Republican rule. Of course Clinton's economic boom was favored by factors outside his
or Republican control: huge advances in technology and corresponding
leaps in productivity, for a start. But he nurtured it with FISCAL
DISCIPLINE. Ever heard of it? How about SURPLUS? No, I guess not, given
that you worship at the Altar of Shrub. Regarding the household survey, as Brad Delong has pointed out, there's a discontinuity in the figures which produces an overly-large change in the # employed. This often isn't pointed out by people who prefer the household survey. According to Elise Gould, who corrected for the discontinuity, the household survey says there's been an increase since 1/01 of just 260,000 jobs. http://www.epinet.org/content.cfm/briefingpapers_bp148 Interestingly, according to a recent Wall Street Journal story, the membership in the National Association of Realtors has increased from the 700,000s to the 900,000s over the same period, in the ballpark of Gould's figure. Realtors are independent, they aren't employees, so an increase in people working as realtors wouldn't show up in the Establishment survey of businesses. It would only show up in the household survey. Realtors only get paid commission, and don't get benefits. It's quick and easy to become a realtor, and Real Estate agencies don't have any reason to limit their recruiting of new agents - they're essentially free. So it should be no surprise that employment in real estate has risen while it has been falling or stagnant in other industries that aren't purely commission-based. I'm not sure if real estate accounts for the increase in household survey employment, but I find it very interesting that the increase in NAR membership and the adjusted increase in household-survey employment are so close in magnitude. Posted by: Jon H at January 26, 2004 11:47 AM | PERMALINKBoth etj and Rich Puchalsky have made my points (darn them!), but I'll echo them. I won't post it again, but on another recent thread I posted Walter Karp's 1981 analysis of GOP philosophy (which, as I see it, is pretty much unchanged since '81) - namely, that instead of truly believing that all men are created equal, the movers behind GOP policy want to treat Americans as "mere social and economic functions" in which the rich get richer (providing "economic growth" and "investment") and the poor stay poor (because it is their function to provide menial services). Thus, we get rosy-scenario pictures that say, Hey, even the poor have Nintendos and big-screen TVs. But as etj points out, in quite a few cases those Nintendos and TVs were paid for with plastic and won't be paid off for twenty years (if ever). And if hard times come in any form at all, that debt will be charged off or included in a bankruptcy. And as Rich points out, the Wal-Martization of our economy is actually good news to the True Believers. They'll never say so publicly because they have to continue to seek votes by gulling us with "good economic news" when the Dow Jones exceeds 10,000 - but this is what they want. Don't ever believe otherwise. Posted by: Silence Dogood at January 26, 2004 11:48 AM | PERMALINKHere's the WSJ article about realtors. Subscription is probably required: http://online.wsj.com/article/0,,SB107455937915205905-search,00.html?collection=autowire%2F30day&vql_string=realtors%3Cin%3E%28article%2Dbody%29 Posted by: Jon H at January 26, 2004 11:52 AM | PERMALINKRecently, in separate conversations, I've heard young adults (mid-20's) note that they won't have the lives their parents had, or be able to give their children what their parents gave them. As with the supermarket workers, there's a constant drive to create new lower-tier categories of workers with minimum wages, fewer benefits, with even greater use of part-time workers. Speaking of the supermarket strike, I heard an interestingly-sourced rumor that the chains are preparing to close the SOCAL chains and reopen them under their corporate parent's names with no unions. I've long suspected that this is a union-busting cartel at work. Posted by: Aeolus at January 26, 2004 11:52 AM | PERMALINKThis color TV stuff is so stupid. TVs are cheap compared to monthly expenses like food, housing and healthcare. A fairly decent 19" color TV can be had (at Wal-mart no less) for less than $150. If you keep it for five years, that's like $2.50 a month. Health insurance.... now what does THAT cost for a five year period? About the conservative "shrug". This is not a normative judgment
(necessarily), but I've come to think that conservatives and liberals
are as far apart as men and women, psychologically. Health insurance.... now what does THAT cost for a five year period? Off the top of my head, 15 G's. Ted - Clinton DID inherit a good economy from Bush I. If you don't understand this, there's no real arguming with that level of ignorance. Praktike - 1. Government SHOULD have made sure that the hi-tech bubble was burst. Greenspan made a halfhearted attempt with his "irrational exuberance" comment, but then gave up. That he and Rubin didn't do anything further is much to their detriment. 2. The deficit's relationship with longterm interest rates is a Rubin myth. If Rubin's supposed relationship were true, we'd have much higher rates now that the deficit is so high. (The reason that the realtionship isn't correct is that the deficit is such a small part of the overall market for debt.) 3. Not true. Part of Gore's problem was that the economy wasn't booming any more. 4. The stock market hasn't recovered to its high; to the extent is has recovered, it is because the fundementals are better... The bubble is gone, and the market's footing is now more stable than '99, '00. Posted by: Al at January 26, 2004 11:58 AM | PERMALINKBy the way, don't you just love it when the consersative says about low wage families that can't afford health insurance, "Well, they shouldn't have had kids. They had bad judgment. They didn't PLAN AHEAD"! Posted by: Marky at January 26, 2004 11:59 AM | PERMALINKNotice Kevin fails to mention the 15% flat payroll tax we apply to labor, up from 2% since the inception of social security. Nor does Kevin mention that labor and capital is responsible for covering the cost of a total government that consumes nearly 50% of the economy. Most of these costs on labor originated in programs that Kevin supports. How odd that he failed to mention them. There is good evidence that these large costs, incurred from Kevin's policies, may be creating the pressure to import cheaper labor and further drive down wages. Kevin's government costs may also encourage the underground cash labor market, where an underground workers gets an immediate 15% tax cut over the legitimate workers that Kevin claims to support. Anybody who claims that Pelosi style labor policies actually help workers, or help the environment, should look a litter harder. More than likely, the Pelosi wing of the party creates far more poverty than it removes. Posted by: Matt Young at January 26, 2004 12:03 PM | PERMALINKMarky, there was a study a few months back, in which some cognitive psychologists (iirc) looked at a bunch of studies in which behaviorial characteristics were related to political outlook, and it concluded something along the lines that "liberals" have a greater tolerance for ambiguity and empathy and "conservatives" have a greater interest in bright line clarity. i'm sure you could find it (it was, of course, heavily attacked in the conservative press) with a little googling. Back to the household survey for a moment: the BLS itself, for a variety of reasons (explored in some detail by prof delong) prefers the payroll survey and always has. Nonetheless, it does seem reasonable that the household survey may be a leading indicator for the payroll survey, and we may yet see some job growth this year (although not anywhere near commensurate with what bush predicted with the 2003 tax cut). As for the broader middle class point that Kevin is making, it is valid, but i think one issue not to be ignored is the disintermediation role of the internet: by offering customers direct access to the lowest pricing wherever they are, the internet accentuates the bifurcating trends that the current crop of republicans (although, of course, not adam smith himself!) prefer. PS. Al, really, how many times do we have to urge you to not post about something about which you know nothing? Posted by: howard at January 26, 2004 12:04 PM | PERMALINKGood article. I intend this not as an argument against your position but more of thinking aloud type response. I have a question about measuring growth. One of the things that is typical in our capitalist society is that high-technology luxuries (and things which used to be considered luxuries) get cheaper and cheaper. This means that even with wage growth, useful purchasing power increases. The current 'Cost of Living' indexes don't seem to reflect this at all, yet it may provide an excellent explanation for why the often forecasted middle class revolt never seems to happen in the United States. Take a former luxury item like a microwave. Once they were expensive luxury items. 15 years ago they were priced to be available to the middle class. Now you can pick up a non-awful one for 30 bucks. This happens when the capitalist system is working well (which is not to argue that it is always working well). Why is it that this kind of access is never reflected in economic figures? It seems like a big deal. Why can't we capture it? RE: Big TVs. I've been avoiding buying a new TV for 15 years because I hate replacing things, and because I was sure that it would be a major expense. I took a look at TVs while I was shopping for computer equipment at Frys. Sheesh, I can dramatically increase the size of my TV (to a quite respectable 29") for less than $300. Posted by: Sebastian Holsclaw at January 26, 2004 12:04 PM | PERMALINKI'm just reminded of Albania and their national Ponzi scheme of a few years ago. The wealth of a nation extracted by means of a get-rich fantasy masquerading as responsible capitialism. Enron also comes to mind. Things get weird when people start ignoring the basic facts about economics and let the Pied Piper lead them into fantasyland. Record deficits, record-breaking personal bankruptcies, record-breaking housing prices...where will it end? Posted by: Tim B. at January 26, 2004 12:05 PM | PERMALINKNate writes: "This color TV stuff is so stupid. TVs are cheap compared to monthly expenses like food, housing and healthcare." Because there's not much incentive for producers to cut the cost of necessities, while there's lots of incentive to cut the cost of non-necessities. Also, people will accept lower quality in something that isn't a necessity, in exchange for a lower price, while for a necessity, lowering quality produces a significant drop in standard of living, so is less likely to be acceptable. (ie, it's easier to accept a cheap DVD player that'll break soon and
have a poor picture, to save $100, than it is to accept an apartment
next to a noisy elevated train track which would save $100/month rent
but result in sleep disruptions and a lowered quality of life.) "This means that even with wage growth, useful purchasing power increases." This should read "This means that even with zero wage growth..." My comment makes absolutely no sense as originally written. [Nasty glare to ward off comments about the average number of times my comments make sense anyway. ;) ] Posted by: Sebastian Holsclaw at January 26, 2004 12:07 PM | PERMALINKHealth insurance.... now what does THAT cost for a five year period? first-rate PPO for a single guy in good health is ~$350/mo. From what I hear a family of 3 pays at least $600. Pure Libertarianism: "all the liberty you can afford, and not one drop more!" I swear I'm turning more & more cobble-stone stacking revolutionary every day under this administration. Posted by: Troy at January 26, 2004 12:08 PM | PERMALINKHealth insurance.... now what does THAT cost for a five year period? Actually it would be $42,000 over five years for a family of 4 according to a self-employed poster on a thread here a while ago ($700/month or $8,400/year). As a self-employed Canadian currently supporting a family of four this truly boggles me. I do pretty well but don't even pay $8,400 a year ($C) in income taxes! Yukoner Posted by: Yukoner at January 26, 2004 12:08 PM | PERMALINKpeople will accept lower quality in something that isn't a necessity, in exchange for a lower price, while for a necessity, lowering quality produces a significant drop in standard of living, so is less likely to be acceptable. yes, this is why I think property tax reform is the keystone to all economic arguments. Land is scarce in desirable areas. We need to take this pressure off by figuring out how to develop more desirable places to live. And I don't mean on fucking Mars, either. Posted by: Troy at January 26, 2004 12:09 PM | PERMALINKMarky here is some info about conservative characteristics http://www.berkeley.edu/news/media/releases/2003/07/22_politics.shtml ... Fear and aggression "From our perspective, these psychological factors are capable of contributing to the adoption of conservative ideological contents, either independently or in combination," the researchers wrote in an article, "Political Conservatism as Motivated Social Cognition," recently published in the American Psychological Association's Psychological Bulletin. ... Posted by: ____league at January 26, 2004 12:10 PM | PERMALINKAl, you are pure comic gold. Your comment at 11:24 had me in tears; starting with "isn't it obvious?" - brilliantly done. Yes, praise Jeebus for sending Dubya down to make life better for the working poor. Guffaw. Please never stop posting. Posted by: ryan b at January 26, 2004 12:11 PM | PERMALINKNot true. Part of Gore's problem was that the economy wasn't booming any more. what planet were you on? my economy was rocking in 2000. Posted by: ChrisL at January 26, 2004 12:11 PM | PERMALINKI have to agree with Al. Jimmy Carter was the greatest president of the 20th century. Of course he had to straighten out the delitarious effects of the Nixon-Ford years but he did and should therefore get credit for anything that happened during Reagan's memorable terms. Posted by: LowLife at January 26, 2004 12:11 PM | PERMALINKAl, couldn't help yourself, could you: had to expose your ignorance further. 1. The economy that Clinton inherited from Bush, while in the very early stages of recovery from recession, had a structural deficit of scary proportions, and so be definition can't possibly be called "good." 2. No, government should not be in the business of "bursting" bubbles. How does government know what a "bubble" is? You call yourself a conservative? That said, there was something that Greenspan could have done (increase margin requirements), but beyond that, there is nothing that Rubin could have done, and it's not clear that had Greenspan increased margin requirements, that per se would have burst the bubble. 3. The deficit's relationship with long-term interest rates is not a "Rubin myth." How ill-informed can you possibly be? Every serious economist in the world understands that supply-and-demand is the basis of a market economy. As the government's demands for funding increase, the large but still not unlimited supply of capital in the world adjust by getting a higher price for its dollars. This couldn't possibly be more basic to the world of economics, and anyone who doesn't believe this is simply in denial. The reason that we don't have higher interest rates now is very simple: Japanese and Chinese bankers are willing to fund our deficit as an export strategy. Someday, they will lose interest or run out of capital. Meanwhile, Japanese and Chinese bankers now, to an alarming degree, control our economic future. 4. You're simply wrong about Gore. 5. Your discussion of stock prices is as ill-informed as the rest of your comments. In fact, there was a specific stock market bubble in the late '90s in favor of tech stocks; most other stocks traded at reasonable PE ratios. Today, all stocks are trading at high PE ratios (just this past Saturday, Barron's ran an article about a screen they had run, searching for stocks with PEs below 10 that met certain other critera, and there were hardly any). I do believe that you spelled your name correctly, however. Posted by: howard at January 26, 2004 12:12 PM | PERMALINKSebastian writes: "Why is it that this kind of access is never reflected in economic figures? It seems like a big deal. " It's not a big deal. You can live without a microwave or a color TV. That's why they get cheaper. Because people can easily say "no, thanks", companies need to improve the perceived value of their product to make the sale. Necessities, on the other hand, don't seem to get cheaper over time. Posted by: Jon H at January 26, 2004 12:12 PM | PERMALINKThis means that even with wage growth, useful purchasing power increases. Housing. Disposable income HAS to be shrinking. So what if what it is disposed on is a product of Capitalist Free-Market Efficiency. Posted by: Troy at January 26, 2004 12:15 PM | PERMALINKSebastian, in response to your question.... One of the hardest things in the world for economists to measure is product quality improvement, and you're correct to wonder about it (forget TVs - think about how much computing power you can buy cheaply today). The place where the government tries to capture this product improvement is in inflation statistics. When the agency (I think it's the BLS) responsible for inflation stats has a few moments to catch its breath, it specifically sets out to measure quality improvement and take that into account (if i had more time, i'd root around and try to find some links for you). This is why no single economic stat - not GDP, not the payroll
survey, not the household survey, not income distribution tables, not
the inflation rate - can be examined by itself if we want to get an
accurate gauge. Going off of what Sebastian Holdsclaw - I wonder how services like EBay will increase the middle/lower classes' access to higher technology. I've heard people refer to the used car market as one of the most important income redistribution tools in the country - you get far more utility for your dollar with a used car than you do with a new car, so less affluent people can access goods of similar quality for much lower prices. I wonder if online stores like EBay, Craigslist, will have the same effect on electronics (and other consumer goods). You can buy fine used TVs, computers, video game systems, couches, cars, anything really, for significantly lower prices - most of my apartment is furnished with used stuff that was probably purchased new by people with more income than me. Posted by: Stone at January 26, 2004 12:19 PM | PERMALINKOne point that hasn't been raised yet (I think) in this discussion of the "middle class" is that the creation and maintenance of a broad middle class requires the active involvement or intervention by government in the market and social systems. Perhaps this is so obvious a point that it is accepted and internalized by all. Yukoner Posted by: Yukoner at January 26, 2004 12:21 PM | PERMALINKOne other point - how does government spending on welfare, medicare, medicaid, SS, etc. compared w/ 1970? If the lower class has had stagnant wage growth but increased governmental support, is its situation now worse than then? Posted by: Al at January 26, 2004 12:21 PM | PERMALINKI offer the fact that (according to PBS's Wall Street Week with Fortune) stock market returns have averaged 12% per annum under Democratic presidents, only 2% under Republicans. Evidence that the central dogmas of Republican economics do not even benefit the ownership class that is so dedicated to them. Posted by: BobNJ at January 26, 2004 12:22 PM | PERMALINK"Jimmy Carter was the greatest president of the 20th century" Good Lord!!! This man suffers from a Jesus complex, most of his emotional energy is engaged in supressing his feelings of megalomania. ------- Regarding deficits: The relationship between long term interest rates is between the percentage of government spending and bond rates. Interest rates soared under Carter and Reagan when the government was taking a larger piece of the economy. Interest rates dropped under Clinton when government was shrinking. Interest rates will rise, soon, under Bush as he increases government spending. And, yes, Republicans spend like madmen, and Republicans cause interest rates to rise. Posted by: Matt Young at January 26, 2004 12:25 PM | PERMALINKnot the inflation rate - can be examined by itself if we want to get an accurate gauge. I think the most accurate gauge is to go out and try to live on a $15/hr job. _Nickled & Dimed_ comes to mind. Posted by: Troy at January 26, 2004 12:25 PM | PERMALINK"I think the most accurate gauge is to go out and try to live on a $15/hr job." I've lived on 6.15/hour. What's your point? Posted by: me oh my at January 26, 2004 12:29 PM | PERMALINKTroy, there's no question that living on $15/hr is very, very difficult. That doesn't change the fact that 30 years ago (inflation having been roughly 4-5x in the intervening 30 years), you could buy less quality for $3 than you can today buy for the inflation-adjusted $15. Posted by: howard at January 26, 2004 12:31 PM | PERMALINKThis game of conflicting numbers will continue with heated debates getting nowhere UNTIL the issue of externalities is dealt with in a rational manner As long as many of the major costs of our behavior are not factored into our calculations (bottom line so to speak) the calculations will show whatever the calculator desires which is always driven by the political agenda of the calculator`s philosophical "tribe" to counter the arguement (always raised by those unknowledgable about the hocus pocus of what passes for economic "theory") that we "can`t ever really know the true costs" I will just mention that we don`t need to know the true "costs", only the correct relationship (ratios) between the costs so that the trade off analyses used in decisions reflect true relationships as opposed to the politically correct ones used to justify the continued living in the 21st Century with 19th Century memes (mental models of reality) I don`t expect that this will be delt with of course, I just feel it necesssary to toss out this call for honesty & transparency in the debate so I can sleep at night; others should do likewise "Things that aren`t accounted for in the cost equations - especially catastrophic events, the value of our survival - don`t get dealt with." - Bill Joy on "market mechanisms" Posted by: daCascadian at January 26, 2004 12:31 PM | PERMALINKI do believe that you spelled your name correctly, however. howard, can I send you the laundry bill? i just soiled myself. Posted by: praktike at January 26, 2004 12:31 PM | PERMALINK"One other point - how does government spending on welfare, medicare, medicaid, SS, etc. compared w/ 1970?" Welfare reform under Clinton, and shrinking government has been the most effective poverty fighting machine since Eisenhower. There is a simple fact that the Kevin Drum's of this world forget. Poor people rely on the private sector far more than the rich. When government takes more of the private sector, the poor get poorer. Pelosi Dems play a dangerous game when they think they can tax the rich, grow government, and reduce poverty. They never succeed, thank God, because they would increase poverty. It is only the miracle of the rich, who when taxed, start paying attention to smaller, efficient government, that the poor get any help. And yes, Republicans always grow government more than Democrats, since LBJ anyway. Posted by: Matt Young at January 26, 2004 12:32 PM | PERMALINK"howard, can I send you the laundry bill? i just soiled myself."
Call it trickle-up economics. Wouldn't that be if you were ensuring jobs for people in the lower class? If you're ensuring middle class employment wouldn't that be trickle out? As wealth is being spread from the middle class out to both the rich and the poor? Just a random thought. Posted by: Nick at January 26, 2004 12:33 PM | PERMALINKI've lived on $6/hr too, in college. With 3 room-mates. With no car. My point is that it should be possible in this country for everyone working a single honest job to keep a roof overhead, reasonably convenient transportation (either mass-transit or a car), their children watched & educated, family healthcare provided. The basics of a free life. We're no longer an agrarian state with an open frontier free for the taking. I'd love for the Invisible Hand to tackle these issues, but apparently it's more concerned with taking over mideast oil at the moment. Posted by: Troy at January 26, 2004 12:35 PM | PERMALINKhoward writes: "30 years ago (inflation having been roughly 4-5x in the intervening 30 years), you could buy less quality for $3 than you can today buy for the inflation-adjusted $15" Yes and no. Furniture quality has certainly gone down, with today's
heavy reliance on crappy pressboard that falls apart if it gets damp.
Cheap, yes, but crappy - probably not strong enough to withstand a
single move to a new home. "I'd love for the Invisible Hand to tackle these issues, but apparently it's more concerned with taking over mideast oil at the moment." ... You're being funny, of course. But if the "Invisible Hand" were given 100% free reign, there would be no military, and thus no wars. Posted by: me oh my at January 26, 2004 12:39 PM | PERMALINKyou could buy less quality for $3 than you can today buy for the inflation-adjusted $15. part of the issue is that $15 is different depending on housing prices. California housing has evened out greatly over the past 4 years (bay area hyperinflation has slowed and all other areas have souffle'd up to match). What could be rented for $300/mo in the 1970's is on the market for $1500+ today. But we should excluded California from the discussion because immigration pressure has over-inflated the market, and living in comfortable California is not a god-given right. Posted by: Troy at January 26, 2004 12:39 PM | PERMALINKIf you don't like Wal-mart, use Costco, which has excellent labor relations and much higher wages. Posted by: Andrew Lazarus at January 26, 2004 12:40 PM | PERMALINKuse Costco Which is under fire from our Wall Street overlords for its give-aways to its peons. Peon. Trickle-down . . . indeed. Posted by: Troy at January 26, 2004 12:42 PM | PERMALINKAfter reading what Kevin wrote and most of the replies I almost forgot that US economy is booming. Stelzer's statement in #1 is wrong in a couple ways. The payroll survey is as likely to count the job added the outsourcing firm as the job lost, as establishments are chosen on a stratified probability basis (grouped by size, location and industry and then drawn randomly). In any case, the payroll survey (unlike the household survey) is benchmarked each year to state unemployment insurance data, so unless the company isn't paying UI taxes (in which case I'm sure someone from the state revenue office would be interested in talking to Stelzer's sources) the job gain will end up in the payroll data sooner or later. That payroll jobs are still down 2.4+ million three years since Bush took over is evidence that Stelzer's theory is bunk. Posted by: ts at January 26, 2004 12:48 PM | PERMALINKTroy >"...Trickle-down . . . indeed." uhhh...I think that really should be "Tinkle-down" as in "Pissed-down" on "There are three kinds of men: One thing that I learned from the LA Times today, it sure pays to be a labor leader! Over $269,000 while your members are on stike. Wow! Posted by: mark at January 26, 2004 01:00 PM | PERMALINKIf you don't like Wal-mart, use Costco, which has excellent labor relations and much higher wages. That's also why, despite the fact that Sam's Club has lower prices on a few things we buy regularly, and carries some things Costco doesn't that we'd like to buy regularly, my wife and I have recently stopped shopping at Sam's and started shopping at Costco. Posted by: cmdicely at January 26, 2004 01:02 PM | PERMALINK"After reading what Kevin wrote and most of the replies I almost forgot that US economy is booming." Piece in today's NYT predicted the Fed will keep interest rates low because of the "peculiar" nature of this recovery (I wanted to type "recovery" though). Was that comment tongue-in-cheek or for real? You're being funny, of course. But if the "Invisible Hand" were given 100% free reign, there would be no military, and thus no wars. Now that I've had my daily lesson in market mysticism, pass the bong please. I need to become one with my inner libertarian. Posted by: Another Bruce at January 26, 2004 01:05 PM | PERMALINK"It's not a big deal. You can live without a microwave or a color TV. That's why they get cheaper. Because people can easily say "no, thanks", companies need to improve the perceived value of their product to make the sale. Necessities, on the other hand, don't seem to get cheaper over time." There's another difference. Necessities, being necessities, attract lots of government attention and heavy regulation. The "optional" stuff sometimes gets ignored by the government, and posts amazing gains in quality and cost while no one's looking. Housing, heavily regulated, shows rising costs. Health care, heavily regulated, shows rising costs. Education, heavily regulated and government run, shows rising costs. Computers and software, practically unregulated, shows rapidly falling costs and rising performance. Other unregulated optional goods show the same pattern. It's time to set our policies with respect to the necessities of life to match the policies that allow the optional stuff to become cheaper and better. Then we'll have lower costs across the board, and we'll all be a hell of a lot better off. Posted by: Ken at January 26, 2004 01:05 PM | PERMALINKEncouraging words from Federal Reserve Chairman Alan Greenspan Posted by: MJ at January 26, 2004 01:05 PM | PERMALINKhttp://apnews.excite.com/article/20040126/D80ANMQG0.html Posted by: MJ at January 26, 2004 01:06 PM | PERMALINKA conserative response to this sort of thing that you do not mention is to start ranting about immigration policy. It certainly seems obvious that restricting immigration would help people on the bottom portion of the wage distribution. Expecting the US economy to provide a good job for every unskilled person in the world who moves here seems a bit unrealistic. But of course Calpundit's post has more to do with scoring political points than actually doing anything for low wage workers in the US. Posted by: James B. Shearer at January 26, 2004 01:09 PM | PERMALINKWhat would happen if the government allowed a 100% corporate tax credit on health care expenses for any employee making less than $XX,XXX a year? Posted by: Question at January 26, 2004 01:14 PM | PERMALINK"What would happen if the government allowed a 100% corporate tax credit on health care expenses for any employee making less than $XX,XXX a year?" Just a guess: Health care expenses would rise, quality of benefits would not change, or would fall. Posted by: Jon H at January 26, 2004 01:16 PM | PERMALINKJames B. Shearer writes: "Expecting the US economy to provide a good job for every unskilled person in the world who moves here seems a bit unrealistic." The US economy can't even provide a good job for every *skilled* person who was *born* here. Posted by: Jon H at January 26, 2004 01:18 PM | PERMALINK"It certainly seems obvious that restricting immigration would help people on the bottom portion of the wage distribution." Why? Many of our industries were founded by immigrants. Many of the
Jewish immigrants in the late 1800's who ran Nickelodeons in New York
moved on West and founded a little industry known as Hollywood. More
recently, many Silicon Valley businesses have been founded by
immigrants, and immigrant and guest worker labor formed a large backbone
of its workforce. In fact, the current immigration restrictions have
had a bad effect up there as there aren't enough engineers to fill many
of the skilled positions. "But of course Calpundit's post has more to do with scoring political points than actually doing anything for low wage workers in the US." Yes, this has been noticed, and I wonder at his motivation. Certainly, he knows that a blog response can easily cite statistics that show lefitst Democrats are as much, if not more, at fault than Republicans for the problems of labor. Perhaps Kevin is playing the shill, or perhaps Kevin simply wants to draw the leftist lunatics out of their shell where they can be hammered. But, it still remains, since government spending is the most
controllable ill that befalls labor, then Republicans, who always spend
the most, must be to blame the most. Ken writes: "Computers and software, practically unregulated, shows rapidly falling costs and rising performance. Other unregulated optional goods show the same pattern." Name three that show the same pattern but which aren't piggybacking off of computers and Moore's law. It really doesn't have much to do with regulation. Military arms and technology are *very* highly regulated, but have also shown rapidly falling costs and rising performance. Posted by: Jon H at January 26, 2004 01:22 PM | PERMALINKTed writes: "In fact, the current immigration restrictions have had a bad effect up there as there aren't enough engineers to fill many of the skilled positions." That's bullshit. Posted by: Jon H at January 26, 2004 01:23 PM | PERMALINKhttp://www.nytimes.com/2004/01/26/business/26fed.html?pagewanted=all a couple of excerpts: ...Most analysts expect the Fed will essentially reiterate its position that interest rates can remain low for "a considerable period" and to say that the balance of risks has not changed since members of the Federal Open Market Committee met in December... ...But Fed officials have been focused on two other factors: the near absence of inflation and the stubbornly sluggish rate of job creation. In the stated view of Mr. Greenspan, the economy continues to have a great deal of slack in both the labor market and the utilization of factories. ... Posted by: horseloverfat at January 26, 2004 01:24 PM | PERMALINKOf course, optimism like MJ's is more characteristic of market tops than bottoms. Posted by: horseloverfat at January 26, 2004 01:25 PM | PERMALINK"It certainly seems obvious that restricting immigration would help people on the bottom portion of the wage distribution." This is the direct cause of much of the wage pressure. But, the really evil part is that Democrats are to largely blame here. The greatest source of labor savings that comes from immigrant labor is the 15% differential foreign workers get over American labor. Underground labor gets this differential directly, but even guest worker labor ontains a payroll tax savings in many countries that have reciprocating payroll tax elimination. The payroll tax differential directly, and continually favors Mexican labor which can work in the undergroiund, keep this tax, and always return home where costs are lower. It is no wonder that illegal immigration has increased by 70% since 1990. The other immigration pressure comnes from overspending in the federal governemtn, usually a Republican problem.
"Necessities, on the other hand, don't seem to get cheaper over time." There's another difference. Necessities, being necessities, attract lots of government attention and heavy regulation. The "optional" stuff sometimes gets ignored by the government, and posts amazing gains in quality and cost while no one's looking."
Yeah, I hear all about that booming economy from Republicans. Great economic growth, which came from big productivity gains that largely came from outsourcing to cheaper labor, much of that overseas. So people who hire people did well, while people who work for someone else do poorly. That is just fine with conservatives, who either hire people or dream about the day they can order other people around themselves for a pittance. What a surprise that the well off are well, well off. It's all the non-well-off people who don't see that economic benefit, who get less and lesser quality health care for higher percentages of their income, when they can get it at all. Those who can't must go to the emergency room when they get sick and quickly ruin their credit, which hinders any chance at all for them to move into the middle class. Apparently this is also just fine with conservatives since what happens to other people is not their problem. Keeping a cheap labor pool is more important than an upwardly mobile society. One of these days we'll be able to prove to all that it's Democratic Party principles that make the country better off and Republican Party principles which lead to increased poverty and inequity. We just have to hold onto power long enough. Though frankly, most conservatives already know these things and they just don't care. There is something else they don't like about us and so they have to talk down to anything we espouse, sort of a ideological straitjacket that means anything any Republican says must be right and anything any Democrat says must be wrong. Posted by: Norman at January 26, 2004 01:28 PM | PERMALINK"Military arms and technology are *very* highly regulated, but have also shown rapidly falling costs and rising performance." This deserves a good laugh, and no response is necessary. Al writes: "All of this, of course, ignores food prices, which have fallen greatly." Not that much at the store (ie, as people purchase it, rather than in quantities used for export). Why is milk so bloody expensive? As long as the price of Pringles remains at around .99 cents a can, I think this trend to lower wages and lamer jobs is manageable by the ruling class. It really comes down to this question: How much can the market bear until the market (the general population) becomes angry as bears? Another conflict in the Middle East and a call to the population to "bear down we are at war"...might help this trend along. But all in all, the ruling class is doing a great job of maximizing their profits. Their weakest link however, remains their advertising strategy¹. The massaging of pubic docility must be done with utmost attention to detail. ¹ One of the Democratic candidates (Edwards I believe) is actually talking about poor people. Acknowledging poor people even exist in America is a sign of stress on the ruling class's weakest link. They need to do something about this in a hurry. Maybe throw a billion dollars or so in the general direction of that poverty. Posted by: -pea- at January 26, 2004 01:30 PM | PERMALINKAlmost peeied my pants reading dacascadian's post. I've gotten hell
shocked out of myself from touching electric fences when standing on
wet ground in rubber boots. "One of these days we'll be able to prove to all that it's Democratic Party principles that make the country better off and Republican Party principles which lead to increased poverty and inequity" Start stating your proof, but you will be starting from the wrong logic. It's not a matter of Republicans vs Democrats. That is akin to stating that orange shoelaces break more often than purple ones. The fact is that both parties tend to listen to the ignorant and
suicidal when it comes to government policy. Unfortunately for the
rich, they are the only ones smart enough to prevent the destruction
caused by both parties. The sooner we tax the rich, the sooner they
will begin to pay attention to the problems of government. Yep, we can all afford to buy cheap electronics gear here in America. Buying a house, that's a whole 'nother matter, innit? Posted by: Steve at January 26, 2004 01:34 PM | PERMALINKI wrote: "Military arms and technology are *very* highly regulated, but have also shown rapidly falling costs and rising performance." Matt Young responded: "This deserves a good laugh, and no response is necessary." Consider the cheap JDAM attachment for dumb bombs, far cheaper than older "smart bombs". Posted by: Jon H at January 26, 2004 01:36 PM | PERMALINKAl, it's interesting how you have neatly sidestepped the point of Kevin's post, which is that America needs its middle class -- which, for a variety of reasons, is being decimated. I'll say it again: Why does anyone acknowledge Al? Posted by: scarshapedstar at January 26, 2004 01:37 PM | PERMALINK"Why is milk so bloody expensive?" Milk isn't a freemarket good subject to the ills of the infamous dairy compacts. The result is that the price of milk goes up. The payroll survey misses upturns and downturns in the economy. There's also no way for the payroll survey to measure self-employed workers and the numbers of self-employed have grown over the last 5 years. The payroll survey did miss something like 1.5 million jobs during the 92 recovery, according to Economy.com. The US economy does have a greater return to education these days. High-school drops have a much tougher road than they did 40 years ago. dch Posted by: hoo at January 26, 2004 01:39 PM | PERMALINK
... Forget that. In the 1970s, an associates degree and a 3 credit class programming COBOL would assure you entry into the middle class. Things have indeed changed, in certain ways... Posted by: me oh my at January 26, 2004 01:44 PM | PERMALINKHow long does the middle class have to stagnate in the midst of ever more stratospheric wealth for the rich before even conservatives finally admit that we have a problem? Um...they don't consider that a problem. Come to think of it, if I were getting ever-more stratospheric wealth, I probably wouldn't see a problem with that either. Rich people vote their interests, which happen to be at odds with ours. So we need to vote our interests. We just can't listen to them prattle on about class warfare since they've been winning it handily. Sort of like playing a football game and playing the second half while the other team is still in the locker room. It's our turn to come out of the locker room and fight that war they've already been fighting. Fortunately there are more of us. Posted by: Norman at January 26, 2004 01:47 PM | PERMALINKAt last, back to the job question, after the excursion into milk, payroll taxes, and related ephemera. Hoo, the issues with respect to the household survey and the payroll survey and very complex, but they are also very well-known. A quick education can be gleaned by going here: http://www.j-bradford-delong.net/movable_type/2004_archives/000125.html Then follow the links. One thing that you'll learn is that the notion that the issue is simply not picking up self-employment (to be precise, unincorporated self-employment) doesn't begin to explain the discrepancies. It's possible, after all, that this time it's different, and the much smaller household survey is more accurate than the much larger payroll survey. It's possible that people are telling the truth on the phone about the jobs they have (household survey) and lying to the government about paying unemployment insurance and the like (payroll survey). But it's not likely. The likeliest is that the household survey may be pointing to an uptick that the payroll survey will later confirm, but given the actual corrected growth in the household survey (meaning that just because the census bureau has the annoying habit of trying to count the population accurately, and therefore forcing the BLS to adjust its numbers for accurate population counts), it's still not a very pretty picture for job creation.... Posted by: howard at January 26, 2004 01:47 PM | PERMALINKI was glad to read your comments. I have often thought that we are heading for the unrest common in so much of the 19th century too. I hope that our government stops buying geopolitical favors with trade and quits trying to govern globally. I want our government to take care of Americans first. This is what the founders wanted a government to do. Posted by: Lynne at January 26, 2004 01:48 PM | PERMALINKGreat post, Kevin! It's amazing, didn't we all learn in 9th grade World History that it was the rise of the middle class in Europe that ultimately brought down feudalism, ended the Dark Ages, and led to the world as we know it? (OK, oversimplification, but that's how you get it in 9th grade.) On the subject of the effects of inequality, in particular why American health is worse than many countries that spend less on it, check out this speech from Stephen Bezruchka in December: http://www.zmag.org/content/showarticle.cfm?SectionID=10&ItemID=4647 Long, but really well stated, and does a good job of addressing the question of absolute vs. relative poverty. (I.E. the conservative argument that most American poor people have cars and TVs, so why should we worry about them.) Posted by: Charisse at January 26, 2004 01:48 PM | PERMALINKKevin, nice summary. I also wanted to note that these are easily the most entertaining comments I've read on a blog in quite some time. Posted by: Jonathan Williams at January 26, 2004 01:50 PM | PERMALINK"Name three that show the same pattern but which aren't piggybacking off of computers and Moore's law. It really doesn't have much to do with regulation." And how well would Moore's law hold up if computers were highly regulated? Not very well, I daresay. "Military arms and technology are *very* highly regulated, but have also shown rapidly falling costs and rising performance." Not the same thing at all. First, the military itself is the ultimate consumer of military arms and techology; this is far different from situations where the government either dictates terms to private consumers or buys goods and services for redistribution to private consumers. Second, the military is itself subject to competition of a most vicious kind; this leads to more sensible behavior overall. Third, the record of cost and bang-for-the-buck is not really all that great to begin with. Better than most other government agencies, as a result of the factors I mentioned above, but definitely nothing spectacular. Posted by: Ken at January 26, 2004 01:51 PM | PERMALINK"Sixty percent of households, by contrast, make less than $45,000 per year. In other words, most of the so-called middle-class tax cuts actually go to people considerably better off than the average American." One fly in this ointment is the fact that the top 5% of incomes pay over half of income taxes (contrary to Al Sharpton). Tax cuts go to people who pay taxes. "Recently, in separate conversations, I've heard young adults (mid-20's) note that they won't have the lives their parents had, or be able to give their children what their parents gave them." I worry about this too. Still, my kids had it much easier than I did
and have had unlimited opportunity for education. Blue collar jobs are
going and nothing we can do will stop it. If you want to work at a
craft, start your own business and build cabinets or houses. "As with the supermarket workers, there's a constant drive to create new lower-tier categories of workers with minimum wages, fewer benefits, with even greater use of part-time workers." The supermarket workers are getting little sympathy from customers who do not have the health benefits the UFCW has. The answer is a national health plan but that will take a while. Gephardt was the only one with guts enough to talk about it and he didn't have the data lined up. "Speaking of the supermarket strike, I heard an interestingly-sourced rumor that the chains are preparing to close the SOCAL chains and reopen them under their corporate parent's names with no unions." I could see this happening. Too bad. The strike was poorly handled. I
recall one radio talk show that was very pro-striker. He has gradually
changed. Thomas Sewell recently wrote something to the effect that "the left" uses houshold income, instead of personal income, to make poverty look more repressive than it really is. He then went on to talk about how many people move out of the lower income brackets and into the higher ones. What he failed to mention is that a huge percentage of that traffic is students working part-time during school, etc... Kinda like me-oh-my's $6.50.hr job. This Heritage Foundation Myth that poverty isn't real is infuriating. Posted by: def rimjob at January 26, 2004 01:55 PM | PERMALINKKen writes: "And how well would Moore's law hold up if computers were highly regulated? Not very well, I daresay." Er, it would have little or no effect, unless the regulations were specifically about technical details regarding shrinking ICs to smaller sizes, or regulation of silicon wafer fabrication. Moore's law is about physics, not legislation. Posted by: Jon H at January 26, 2004 01:56 PM | PERMALINK"Our education system is really out of step with the new economic
reality for these people: instead of providing them with tangible,
marketable skills, we set them up to fail by forcing them to learn
Shakespeare, while a secondary market of 2-year and tech schools has
arisen to pick up the pieces. I'm mystified as to why this isn't being
dealt.." One reason why the problems you point out are so serious, Kevin, is that we have a real historical example of a disaster caused by just such a phenomenon. The CW on the cause of the Great Depression was that the stock market expanded to a breaking point and then collapsed, bringing down the financial sector, mortgage markets and finally industry as a whole. That's partly true. But what made the collapse in 1929 so longstanding was that the bedrock of middle class people - those who could purchase what they produced - had begun to shrink in the 1920s to dangerous levels. This was especially true in agriculture (which had really been in a full-on depression throughout the 1920s) but also in industry as well. When President Hoover asked people to consume more, and for volunteer organizations to pump more of their money into the economy, there was nobody to respond. The consumers, with their wages having fallen in the 1920s and their debt levels having risen, had no money to prop up the economy. The result was that a downturn that should have lasted about three years turned into a twelve year catastrophe. The solutions to the Depression riddle were to bolster labor unions, regulate and stabilize the banks, use government resources to prime the economy, and eventually, to go to war. The two New Deals had only halting success in th 1930s but they set up the massive growth in the middle class over the next four decades. The US economy was primed to take advantage of a destroyed world economy post-WWII and distribute the wealth to the masses while doing it. Everything worked until foreign competitors started producing goods like steel and automobiles cheaply, rendering our own bloated industries obsolete. We've been fighting a forward campaign of technological change and rearguard protection of existing jobs ever since the late 1960s. If the decline in the middle class continues there will be no mass of consumers to bail out the economy. The economy will then contract to meet the demands of a smaller market while a smaller segment of the elites -who benefit by bogus supply side tax cuts - take full advantage. The only thing preventing a full-on collapse, in my opinion, is the low interest rates. Real estate, construction and banking have all taken advantage of this and will continue to do so as long as rates are this low. But since the fundamentals underneath it - especially the jobs picture - is still bleak, don't expect the Fed to raise rates soon in fear of some runaway inflation. Posted by: Elrod at January 26, 2004 02:00 PM | PERMALINKFortunately there are more of us. Unfortunately, "they" control the most popular of the avenues of information for determining what "our" interests are, which for those who realize it, is a nuisance, and for those who don't, is crippling. Posted by: cmdicely at January 26, 2004 02:04 PM | PERMALINK"The two New Deals had only halting success in th 1930s but they set up the massive growth in the middle class over the next four decades." ... Technology made the middle class. Technology made the middle class. Technology made the middle class. ... def, That was 6.15/hour, and it was after college. Not that it matters. Posted by: me oh my at January 26, 2004 02:04 PM | PERMALINKThis man suffers from a Jesus complex, most of his emotional energy is engaged in supressing his feelings of megalomania. Well, perhaps; if so, the second half distinguishes him favorably from much of the competition. "My point is that it should be possible in this country for everyone working a single honest job to keep a roof overhead, reasonably convenient transportation (either mass-transit or a car), their children watched & educated, family healthcare provided." Ok, but does it necessarily follow that every possible job is worth that much? Perhaps 8-track designers shouldn't really get paid THAT much right? So there is something going on here that you are not willing to recognize. "Military arms and technology are *very* highly regulated, but have also shown rapidly falling costs and rising performance." Normally I make some small attempt to try to hide my scorn, but please. Military arms and technology are highly regulated and have shown skyrocketing prices. Where did you get the idea that these prices were falling? Surely you aren't relying on 30 year-old AK-47 prices or something. ""All of this, of course, ignores food prices, which have fallen greatly." Not that much at the store (ie, as people purchase it, rather than in quantities used for export). Why is milk so bloody expensive?" First, food prices have been subjected to a fairly unregulated market for a long time. Since even hard-core market fanatics don't believe that prices fall to zero, it isn't surprising that food prices bottom out at some point. You should notice that they don't rise much however. Furthermore since I've been buying groceries (and that isn't all that long) I've noticed an explosion in choice possibilities. For example, I can now get fruit and vegetables of all varieties for a fairly cheap price. 15 years ago it wasn't so easy to get say avocados off-season. And then you mention milk. Which is of course one of the most highly regulated foodstuffs. You can thank former-Republican and while they still controlled the Senate Democratic-hero James Jeffords for the high price of milk. As for: I note that 4 of those are highly regulated, and higher education gets massive government subsidies. Transportation costs have not dramatically increased. Especially if you buy a used car, which I always do. Posted by: Sebastian Holsclaw at January 26, 2004 02:05 PM | PERMALINKSebastian writes: "Why is it that this kind of access is never reflected in economic figures? It seems like a big deal. " I haven't read all the responses, so this may have been covered already, but... Here's an article from Kurt Richebacher (a noted economist of the Austrian school) in the Financial Times. http://www.mtholyoke.edu/acad/intrel/globecon/gdp.htm Posted by: oneangryslav at January 26, 2004 02:11 PM | PERMALINKLiving standards are still high, Kevin writes, but it seems to me that purchasing power extends only to certain aspects of our economy. Prices on consumer goods -- particularly electronics and other tech-driven products -- have gone down tremendously in real terms in the last 30 years. In industries such as farming, air travel, or electronics, where rationalization, effeciency management, and technology have streamlined costs, Americans have far greater purchasing power than ever before. But what about industries that can't rationalize production, where computers can't replace humans and technology offers little hope of radical transformation? Industries like education and health care, for example: The costs in these industries are based on labor and thus relatively inelastic. It's no wonder that health care and college tuition costs have outpaced inflation in the last 10-15 years. Of course, health care and education are two of the most socially vital services any modern democracy can provide. Thus, while we are pushed (or simply duped?) into racking up debt in pursuit of superfluous consumer products that make the American dream feel more attainable, the real cornerstones of the American dream slip through our fingers. Posted by: Brendan at January 26, 2004 02:12 PM | PERMALINKMost points in this string are well and good, and certainly explain why economics is complicated. But remember the other huge change in the last 30 to 40 years -- women are now integrated into all levels of the workforce (perhaps not equal, but that is for another post). As a result, my father was a card carrying member of the upper middle class, and he had a very nice house, relatively new cars, and assorted other luxury items. My wife and I are both lawyers, and it takes both of our earnings to get to the same level? Why? Well, perhaps this is too simplistic, but I believe the market prices of items marketed to households, as opposed to individuals, adjusts to household income. Household income is now increasingly measured by the income of two working spouses. If you think about this point for too long, you might be tempted to conclude that having items priced based upon the assumption of one working member of the family might not have been so bad, after all, if only you could have done away with the discrimination against women. I believe from about 1990-on, this factor has been settled in the economy. But still, it has been a huge hit. I think much of the increase in home prices can be attributed to this fact -- I mean, why price a house suitable for a family in the upper middle class based on what one hypothetical working member of the upper middle class could afford when you, as seller, can base it upon what two could afford and not really shrink the number of eligible buyers? Posted by: hank at January 26, 2004 02:20 PM | PERMALINKAnother one leaves the ballpark, Kevin. This is the discussion we should have NOW. Bush will try to claim victory if the job market produces any jobs. We need to start talking about the quality of those jobs and emphasize middle class job growth. It will resonate - people know if they were better off 4 years ago or not. Posted by: G Spot1 at January 26, 2004 02:28 PM | PERMALINKSebastian, you almost connected all the dots - and then you failed at the end. I don't have all the relevant expertise to break down military spending with respect to quality improvements, but the fact is that the weaponry that the military buys today is much, much more efficient than the weaponry it bought 30 years ago, just as your car works better (meaning that your used car works better too), your tv works better, your computer works better, and you get a greater assortment of fresh produce. Mike K, nice sleight of hand, but income taxes aren't the only taxes; when you look at the full spectrum of federal and state taxes, inclusive of the payroll tax that is the only thing keeping the deficit from setting all-time records for percentage of GDP, you discover that the tax system is quite flat. oneangryslav, i'm the only person who actually responded to sebastian's earlier question, and i only thought we adjusted for quality in cost-of-living states, not gdp stats. thanks for the link; i'm going to research further. Posted by: howard at January 26, 2004 02:33 PM | PERMALINK"But what about industries that can't rationalize production, where computers can't replace humans and technology offers little hope of radical transformation? Industries like education and health care, for example: The costs in these industries are based on labor and thus relatively inelastic. It's no wonder that health care and college tuition costs have outpaced inflation in the last 10-15 years." It's not that these industries can't rationalize production, but that they won't, either because they're government run or because they're regulated and thus limited in what they can do on the one hand and protected from competition on the other. For instance, a lot of doctor visits can be replaced by software that questions the user and recommends a course of action based on common complaints while referring the user to a human doctor for questionable conditions. The problem is that the usual course of action involves taking medicine, and current regulation requires a human doctor to sign a permission slip in order for that to happen. Also, schools could better amortize their capital costs by meeting more than 180 days per year. Also, if it were easier to let go of administrative staff, and they had the sort of cost-cutting incentives that is found in the private sector, they would be inclined to do so and let technology pick up the slack. Colleges could play to their strengths and stop running second rate, overpriced apartments, restaurants, and health clubs, streamlining their operations and focusing on education. Posted by: Ken at January 26, 2004 02:34 PM | PERMALINKSebastian writes: "Military arms and technology are highly regulated and have shown skyrocketing prices. Where did you get the idea that these prices were falling?" For the same functionality, it would be cheaper. Instead, they're going for more functionality, more precision, etc. I pointed out the example of the JDAM, which IIRC costs about $14,000 to $25,000, attaches to a dumb bomb, and lets it outperform $350,000-$1 million smart bombs and cruise missiles. However, I must admit one hole in my theory is that the JDAM's low
cost was possible because the Clinton administration Pentagon allowed
the project to use commercial-quality products, rather than meet usual
DOD regulations. I am no economist, but I think that the American economy drives the
whole world's economy. As high-paying American jobs become low-paying
overseas jobs, who will be buying all the products that American
companies make? Ken writes: "For instance, a lot of doctor visits can be replaced by software that questions the user and recommends a course of action based on common complaints while referring the user to a human doctor for questionable conditions. The problem is that the usual course of action involves taking medicine, and current regulation requires a human doctor to sign a permission slip in order for that to happen." Just look at all the trouble Rush Limbaugh could have avoided if he
could have just told a computer "Gosh! My back hurts soooo bad!" and had
a bottle of Oxycontin pop out the slot at the bottom. "Consider the cheap JDAM attachment for dumb bombs, far cheaper than older "smart bombs". Better yet, concider the new fighter coming from Lockheed that will
probably cost 100 million a copy, may never work right, and a fighter
just as good is being bought by China from Russia at a fifth the cost,
and paid for with interest payments from American taxpayers incurred
when Reagan borrowed from China to build the B-1 bomber, which is now
being retired having proved useless. "For instance, a lot of doctor visits can be replaced by software" Hilarious! Since Dean is a doctor, can we run a piece of software for president? Matt Young writes: "Better yet, concider the new fighter coming from Lockheed that will probably cost 100 million a copy, may never work right, and a fighter just as good is being bought by China from Russia at a fifth the cost, and paid for with interest payments from American taxpayers incurred when Reagan borrowed from China to build the B-1 bomber, which is now being retired having proved useless." That just show that military technology is getting cheaper, but Congress is a bunch of idiots, persuaded by Lockheed to order an X-Wing fighter. Posted by: Jon H at January 26, 2004 02:40 PM | PERMALINK"Just look at all the trouble Rush Limbaugh could have avoided if he could have just told a computer "Gosh! My back hurts soooo bad!" and had a bottle of Oxycontin pop out the slot at the bottom." I don't see a problem with that. Posted by: Ken at January 26, 2004 02:40 PM | PERMALINKA new book by David Cay Johnston called "Perfectly Legal" [The Covert Campaign to Rig the Tax System to Benefit the Super Rich -- and Cheat Everybody Else] discusses many of the issues Kevin and various commentators raise. The super rich, conservative and liberal alike, with their unfair ability to gain "access" to politicians have reaped astronomical gains while the rest of us have been too busy working for a living -- too tired to stay awake at the democratic wheel. The wealth disparity and diminution of the middle class is a NONPARTISAN issue folks -- it won't change unless those of us on the lower 99 rungs of the 100 rung ladder start screaming (and getting involved in our republic --how many of you have given even a small donation to the candidate of your choice?) Posted by: BJ at January 26, 2004 02:42 PM | PERMALINKKevin says, "Democrats care about middle class job growth. They always have. Conversely, at various periods Republicans have concerned themselves not directly with jobs but instead with inflation, or with balanced budgets, or most recently with obsessive tax cuts." I think this demonstrates mostly Kevin's short memory. Reagan beat Carter in no small part because the Democrats had become the party of grievances and claims by various special interest groups to one right or another, and they forgot about economic growth and jobs. Reagan came along talking about economic growth and jobs and he won. (Well, Carter's failure as C-in-C to defend the US against Iran's aggression had a lot to do with it, too.) Even today, the only Democratic candidate for president who seems to
care at all about economic growth and jobs is Lieberman, and he doesn't
have a prayer. I forget which Democrat said it, but how can you love
jobs and hate employers? Someone needs to ask Edwards and Kerry that. Al: Is it hard to type when you're wearing a straightjacket? You must have hella nose skills. Posted by: carpeicthus at January 26, 2004 02:43 PM | PERMALINKThere are a couple of WSJ articles today about outsourcing. One of them is about the recently concluded World Economic Forum at Davos, Switzerland where the elites who advocate globalization and free trade apparently had some discussions about the unexpected outsourcing of high-skilled tech jobs. Their argument had always been that as manufacturing jobs were lost, those workers who lost jobs would move up the skills ladder. But apparently, even the staunchest advocates of free trade and globalization have been caught off guard by how quickly high-skill jobs have been exported. One crucial difference between outsourcing manufacturing jobs and service jobs is that the former involves goods whose flow the govt. can control with tariffs, if necessary to protect domestic industries. But the free trade hardliners said even in software, lower-wage programmers in India would reduce costs for users of IT, increasing productivity for those companies using cheaper software, which would in turn lead them to hire more workers. At the same time, India and China would become more viable markets for US exports. So that is the win-win scenario they have. Of course, software already enjoys huge margins and companies selling software have not shown an inclination to price their software in accordance with their low costs. In other words, don't necessarily expect IBM, which recently announced plans to offshore programming jobs to India and China recently, to pass on their costs savings. And if they did pass on those cost savings, it still has to be demonstrated that those companies who are customers of IBM software will hire more people with the money they save on IBM software from India and China. Plus, it's not clear which American products India and China are going to be buying with their newfound wealth. American cars? American-branded electronics? Well most American electronics are made in China anyways so would that count as American exports? What about American software? Ask Microsoft how much software the Chinese are paying for these days. Greenspan gave a speech today where he reiterated his support for free trade, saying "protectionism" against job losses would lead to an overall lower standard of living. Carly Fiorina once again reiterated her tough-love stance towards American workers: "We cannot protect the American people from reality." Surprising that nobody has organized a boycott of HP products given such statements. Posted by: aghast at January 26, 2004 02:43 PM | PERMALINKThe irony is so rich here that it can be sliced with a butterknife. In a thread in which statists decry the living standards for middle and lower class folks, it is completely ignored that the necessity that is among the most problematic for these folks, housing, is to large degree made problematic by statism, statism often instituted by people who would normally identify themselves as "liberal". Go investigate the land use regulation policies, median home prices, and rents in places like Boulder, Co., or Portland, OR. It ain't the people who call themselves "conservatives" who most ardently support policies which inhibit the creation of new housing stock that more middle and lower class people could afford. Also, anybody who reads this thread with an open mind can see that it isn't necessarily "conservatives who are most likely display these traits: Fear and aggression Make sure y'all wear your string of garlic and stay off the moors; here there be monsters, known to you as "conservatives". Ooooooh! Scary! By the way, if I had to wear a label, "radical" would probably best
fit; but the forces of reaction, albeit of a slightly different flavor,
are easily as strong among those people who call themselves "liberal",
as it is among those who call themselves "conservative". Check out this chart on the share of the economy consumed by federal spending: http://www.house.gov/jec/growth/govtsize/fig-3.gif It comes from a study on the effects of federal spending on economic growth, the conclusion of which was that we would all be better off if Clinton had ruled for another 4 years and brought spending down to 16% of GNP, rather than the 18% when he left office. Federal spending is now 20% of GNP, as it always rises under the Republicans. Federal spending peaked in modern times under Reagan at 23% of GNP. The study in question explains most of our job problems on this 3% transfer of the private sector to the public sector under Bush-2. The cost of government explains why two income families are needed for survival, why the educated class is failing to reproduce itself, and why we are resorting to an immigration, low wage society. In other words, high government spending has proabably killed us and there is not much we can do, expecially considering both parties claim the solution is to spend more on government.
http://www.house.gov/jec/growth/govtsize/govtsize.htm Posted by: Matt Young at January 26, 2004 02:53 PM | PERMALINK"the point of Kevin's post, which is that America needs its middle class -- which, for a variety of reasons, is being decimated." It doesn't look to me that this is Kevin's conclusion. Stagnating, perhaps. Not advancing as fast as the upper class certainly. But being "decimated"? Nope. Posted by: Al at January 26, 2004 02:55 PM | PERMALINKWill, for once (well, for twice, since we think the same way about marbury's failure to understand that his most successful future was as kevin garnett's teammate) i don't completely disagree with you, but if the problem with the affordability of housing were merely "statism," then Houston would have the highest home ownership rates in the country. Posted by: howard at January 26, 2004 02:56 PM | PERMALINKBetter yet, concider the new fighter coming from Lockheed that will probably cost 100 million a copy, may never work right, and a fighter just as good is being bought by China from Russia at a fifth the cost, and paid for with interest payments from American taxpayers incurred when Reagan borrowed from China to build the B-1 bomber, which is now being retired having proved useless. Er, what new fighter are you referring to? The F-22? And what is China buying from Russia that is remotely comparable, much less "just as good"? Posted by: cmdicely at January 26, 2004 03:02 PM | PERMALINK
Gott in himmel! What are you doing, working 4/days a week pro bono? Lawyers average what, 100k a year? 150k a year? Please tell me this board isn't full of UMC bellyachers. Posted by: me oh my at January 26, 2004 03:06 PM | PERMALINK"Our education system is really out of step with the new economic reality for these people: instead of providing them with tangible, marketable skills, we set them up to fail by forcing them to learn Shakespeare, while a secondary market of 2-year and tech schools has arisen to pick up the pieces. I'm mystified as to why this isn't being dealt.." I've got an upper-middle class friend (dad's a VP of a plastics company, $175k/yr) who's a hard worker, but not that smart. If he developed a trade school and put it to use, he'd probably be able to make a nice living running a plumbing company. However, he thinks he should have a job like mine - ivy league education leading to $80k/yr at 23. This belief has lead him towards pursuing 4-year degrees at various low-end schools in subjects like English or Business, because he thinks that'll be enough to get him a MBA and the sort of job I have. I think he'll continue to struggle towards getting a BA that will have taught him nothing productive, I think because he thinks that trade-school jobs are 'low-class'. I wonder whose fault situations like this are? The university system for making everyone think they're going to lead lives that require 4 year BAs? This guy has all the opportunity he needs - he's just not smart enough to achieve what he thinks he ought to be able to achieve. Strange situation. Posted by: Question at January 26, 2004 03:09 PM | PERMALINK"Hank said: "My wife and I are both lawyers, and it takes both of our earnings to get to the same level? Why?" Gott in himmel! What are you doing, working 4/days a week pro bono? Lawyers average what, 100k a year? 150k a year? Please tell me this board isn't full of UMC bellyachers." Are you joking? Law doesn't pay as well as you've heard. 90% of lawyers could make better money as plumbers. Posted by: Stone at January 26, 2004 03:11 PM | PERMALINKJon, Congress doesn't direct defense appropriations ineffciently because they are idiots, they direct in that manner because it is the job of a Congressman to do so, and the overwhelming of Congressmen would be tossed out of office if they didn't direct appropriations inefficiently, otherwise known as delivering pork. The role of a political actor is not to be efficient (which is why Republicans who ask that government be "run like a business" are so off-base), the role of political actor, is to serve his master, at the expense of the master of another political actor. Constitutents don't want their elected offcials to be wise and efficient, they want their elected offcials to assist them in getting their snouts in the trough, which is why the Osprey aircraft is still funded and ethanol subsidies still flow. Actors in the private sectors aren't any more wise, or any less mendacious, than political actors, but they operate at a distinct disadvantage than political actors. No matter how much log-rollling or back scratching occurs, unless they are selling to the state, private actors have to actually convince someone to voluntarily buy a good or service, or supply more capital, with funds that come directly from the suppliers or buyer's pocket. Enron no longer exists, despite all the fraud, because eventually it couldn't fool anyone to supply any more dough, and it lacked the power to force anybody to. In contrast, Congress and various defense contrators don't have to convince people to supply more capital for the Osprey from their own pockets, they only have to form an effective coalition of intensely motivated voters to force other taxpayers to. People who maintain that state centered industries are efficient, except when Congress acts stupidly, really don't understand human behavior, and what motivates it, at all. Posted by: Will Allen at January 26, 2004 03:12 PM | PERMALINKHey, no complaints here. But my point is that when you compare generations, and one of your parents pretty much made half of what you and your spouse now make, and you have the same lifestyle, something has happened. Oh, and by the way, since I suppose I end up in the top whatever percent, I should point out that this effect is not limited to what statistically is the nationwide middle class i.i. somewhere around $50,000 or so per year. It affects those in the six figure area as well. So perhaps there is yet something else going on in addition to the stagnation of the middle class. Perhaps the "bar" is being raised for everyone as a result of many more two-income households. Posted by: hank at January 26, 2004 03:20 PM | PERMALINKhoward, care to make a wager where a lower middle class wage earner has an easier time finding an affordable home, Boulder, or Houston? Posted by: Will Allen at January 26, 2004 03:20 PM | PERMALINK"The average salary for all lawyers is $88,280.(IIII) The average salaries for lawyers six months after graduation of law school is $51,900." http://arapaho.nsuok.edu/~olsonj/situation.htm Don't know if that's right. What would prompt you to say that plumbers make more than lawyers? That's supposedly what we want, right? If we really had it right, then we could say, "Grocery store clerks make more than lawyers." Posted by: me oh my at January 26, 2004 03:22 PM | PERMALINKYep, we can all afford to buy cheap electronics gear here in America. Buying a house, that's a whole 'nother matter, innit? Posted by Steve at January 26, 2004 01:34 PM Home ownership is at a all time high. http://www.presidentscouncil.com/downloadables/freddiemacLet%20Me%20Be--6-03.pdf Posted by: MJ at January 26, 2004 03:23 PM | PERMALINK"And what [fighter] is China buying from Russia" This is a discussion about the Russian SU-30 series of fighters, considered the best multi-role fighter on the market today. India is able to co-produce this fighter with a price of $22.5 million; The first 22 of the F-22 will cost $5.3 billion, or $250 million a copy. Naturally, Lockheed is the contractor. GAO Report, Mar 2003: "The GAO also concludes that the F-22 program is experiencing several technical problems, including violent movement or "buffeting" of the aircraft's vertical fins, overheating in some areas of the aircraft, a weakening of materials in the horizontal tail, and instability of the aircraft's avionics software." Lockheed will also produce the F-35 multi-role fighter, which is more complicated, and, thus pricier. But the Lockheed advanced fighter is already suffering cost over-runs at the level of the F-22. Don't expect the F-35 fighter anytime at all, but expect billion to be spent anyway. Conclusion: If the U.S. had taken the lead of India and China, we could have purchased the SU-30 or SU-37 body, added American avionics and American engines and have had the advanced fighter yesterday at 20% of the cost. As it is, the U.S. will likely get neither the f-22 or f-35 fighter (both coming from Lockheed), and we will waste $20 billion trying. Since, Republicans are dumbshit in managing the DOD budget, our best approach to maintain national security is to cut the DOD budget by 40% over a four year period. [While we are at it, cut everything else by the same amount, since we are equally incapable of efficient governmet across the board] "This man suffers from a Jesus complex, most of his emotional energy is engaged in supressing his feelings of megalomania." Actually, it is employers who hire immigrants and support Republicans that is the main cause. If you remember the immigration reform of the Reagan administration, illegal immigrants were to receive greencards and in turn, employers were responsible checking that their hires were legal. This immediately became a joke: the lure of cheap labor is irresistible for Republicans. "Republican Party principles which lead to increased poverty and inequity" True, three million people have slipped into poverty since Bush II took office; during the Clinton about that many left. "It ain't the people who call themselves "conservatives" who most ardently support policies which inhibit the creation of new housing stock that more middle and lower class people could afford." Yes, given that land use restrictions occur most frequently in wealthier districts, it is. Will, how about if we bet about a lower middle class wage earner in Kansas City vs. Houston? Cherrypicking Boulder doesn't do service to your case. As i noted, i largely agree with your underlying thrust, but houston is the city in america (well, the largeish city in america) with the least zoning and other statist intrusions. It should, by your definition, have the highest home ownership rates. It doesn't. Posted by: howard at January 26, 2004 03:51 PM | PERMALINKLockheed will also produce the F-35 multi-role fighter, which is more complicated, and, thus pricier. The F-35 is, IIRC, in most ways less complicated, consistent with its mission of replacing the lighter/cheaper/simpler F-16 and -18 aircraft, where the F-22 is to replace the F-15. Although the program is, IIRC, more complicated as there are more different versions of the aircraft being developed, including a version with a coupled lift engine for the Marines and export markets that is fairly complicated. And new aircraft often have problems like this, and they get ironed out. And the SU-30 series, generally, is much more expensive and from most reports only somewhat more capable than the F-16 as a MRF, rather than somewhere in the neighborhood of the F-22. And, yeah, its cheaper than the F-22, having been in production long enough that the development costs aren't a big factor, and being produced in places with slightly lower labor costs than the United States. Still, I think outsourcing arms production to China, while it would
save money, might be viewed as having some negative security
implications. howard, that would be the case if I had said that statist policies were the only sourse of affordable housing problems. I did not. Mike, is it your serious contention that the cities with the most land use restrictions, and other forms of real estate regulation, are dominated by people who call themselves "conservatives"? Posted by: Will Allen at January 26, 2004 04:05 PM | PERMALINKWill, i take an unhedged "to a large degree" as meaning somewhere in the vicinity of 90%; if you meant "half" the problem, or "a share" of the problem, or, "in certain locales, to a large degree," or any of a number of other variants, we could have saved each other endless seconds of comments.... Posted by: howard at January 26, 2004 04:09 PM | PERMALINKWill Allen, With respect to the comments on fighter aircraft: Do a bit of
Googling, I'm lazy, so foget that, and look for comments by one of the
sec of airforce about the projected cost growth of fighters vs the
projected growth of the defense budget. This IIRC was made before the
end of the cold war. IIRC we are approaching the crossover point year
when the entire defence dept budget will buy one very hot figher. This
one high tech wonder would be able to defeat the combined airforces of
the world. The largest problem would be how to divide the figher flight
time between the airforce, navy and marines. Okay, from the mouth of George Will: "Factor out immigration -- a huge benefit to the immigrants -- and statistical evidence of widening income inequality disappears." Case closed. I don't know what his source is, though. Posted by: me oh my at January 26, 2004 04:42 PM | PERMALINKWait, here's my source: http://www.sacbee.com/content/opinion/national/will/story/8092145p-9024569c.html Posted by: me oh my at January 26, 2004 04:43 PM | PERMALINKUsing George Will as a source is like using the bible to debunk evolution –fantasies of the insane should be given all the deference that implies. Posted by: Lori Thantos at January 26, 2004 04:59 PM | PERMALINKme oh my, You left out another very intersting tidbit from the article: "The statistic that household incomes are only moderately higher than 25 years ago is misleading: Households today average fewer people, so real dollar incomes in middle-class households are about 50 percent higher today." Factor in the dual-income dynamic mentioned earlier (i.e., women now in the work force) and you have pretty much explained the problem. As you said, case closed. Posted by: The Colonel at January 26, 2004 05:03 PM | PERMALINK"Cherrypicking Boulder doesn't do service to your case. As i noted, i largely agree with your underlying thrust, but houston is the city in america (well, the largeish city in america) with the least zoning and other statist intrusions. It should, by your definition, have the highest home ownership rates. It doesn't." Not necessarily. People who can afford to own homes don't necessarily want to; whether they buy or rent is driven by all sorts of factors. Posted by: Ken at January 26, 2004 05:06 PM | PERMALINKUsing George Will as a source is like using the bible to debunk evolution –fantasies of the insane should be given all the deference that implies. Using Lori Thantos as a reasonable commentator is like considering Kevin Drum an expert on fashion. What's your point? Do you really think 12 million illegal immigrants do not have a negative effect on wages, or that there are not other effects at work here that Kevin has failed to note? What's your real agenda, Lori, and who are you trying to get even with, and why? Posted by: The Colonel at January 26, 2004 05:07 PM | PERMALINKdilbert, the building permit process is only a small part of the problem. Zoning, open space requirements, and other regs are much more significant, and places where "liberals" dominate tend to be much more restrictive, which, yes, does favor current property owners (funny how regulatory regimes often end up favoring those who wish to protect the status quo) , since it increases scarcity. It doesn't do much, however, for the 24 year old parents trying find their first place to raise kids. howard, to get down to semantic nit-picking, I would label 90%, "to an overwhelming degree", or "nearly all". Once again, we will have to differ. Posted by: Will Allen at January 26, 2004 05:07 PM | PERMALINKSo, what exactly are these middle class jobs? If they're steelworker jobs, then shouldn't The President be taken to task here for buckling to WTO pressure by removing the steel tariffs that were in place to protect the industry? And how exactly would we change high-school to be more job centric? Would we test students in the 8th grade and limit the courses they could take based on that score, i.e. college prep for those who could make it in college and trade for those who cannot? Also, I have a question about affordable housing. I recall living in Vail in the mid '80s and the lowest paid hourly workers were lifties who had subsidized housing. The highest paid? Fast Food. McD's employees had to pay market rates for housing and their pay reflected that (and the relative "uncool" factor of the work BtBtP). So, given that, in places like San Francisco where zoning and desirability drive high prices, isn't our drive for really affordable housing just one more thing that ends up benefiting the chains who can then pay lower wages than the smaller stores that typically pay better or are proprietorships providing a decent living for the owner and his/her family? So, those are my questions for our esteemed commentors. Sebastian Ok, but does it necessarily follow that every possible job is worth that much? Perhaps 8-track designers shouldn't really get paid THAT much right? So there is something going on here that you are not willing to recognize. I only propose socialism when & where the free market fails. I consider it encumbent on those with wealth, via the "social contract", to be taxed proportionately in these cases. I am somewhat persuaded by the Georgist "single-tax" argument that real property value (the unimproved land value, not the improvements) be taxed highest of all, but I am willing to hear your proposals how we can make this country less of an L-curve distribution of wealth, and more of a gaussian normal, which it should be. Posted by: Troy at January 26, 2004 05:34 PM | PERMALINK"Factor out immigration -- a huge benefit to the immigrants -- and statistical evidence of widening income inequality disappears." This is true, except for what it leaves unstated. The native population that has been here three generations or more is dying off. Right now I speculate that the fertility rate for "native" Americans is about 1.6, the level of France. The statement simply indicates that our policies are replacing us with an imported low wage population. ------------ If we are worried about the security implications of this problem, let me point out one problem we have created for ourselves under Reagan. The money Reagan borrowed for his defense budget results in an annual interest payment to China equal to their entire defense budget. Hence, if we ever have to defend Taiwan, we will be defending it against the AMerican taxpayer who will be paying China to shoot down U.S. Air Force pilots. Nothing beats that national security implication. But, the other problem is that we will never see a capable F-35 fighter from Lockheed. We are long past the time when Americans can move toward a low wage imported labor force and still build advanced defense technology with an aging, dying, educated workforce. Look no further than the fiasco that was the B-1. The bomber was way over budget, never fired a shot in anger until Kosovo, and now is being reduced to a third of its original force and likely retired. The B-1, by the way, was never liked or wanted by the Air Frce. For further proof, look at the Space Station, half built, soon to be junked, and unusable with nothing but foreign travel arrangements. In the end, Republicans threaten national security by attempting military projects that the nation ios no longer capable of finishing. We are better off going to more advanced nations, like China or Russia, then rely on an increasingly low wage, uneducated population.
rich conservative business men and the religious loonies who support them. Under a republican president rich businessmen get a 2% gain, and get to keep it with none going to the poor. Under a democratic president rich businessmen bring in 12% gain, but only get to keep 6% of it, with the other 6 going to the poor. Wouldn't those who believe the bible prefer the solomon-like wisdom of the democratic split of the wealth, rather then the 'I'd kill the baby (wealth) before I see it with her (the poor)' additude of the republicans? It seems to me there is some religious rhetoric that could be developed from this. Posted by: TomK at January 26, 2004 05:36 PM | PERMALINK"Are some of the things we do to help the lower class really simply making it easier for them to be preyed upon by the chains?" The answer here is simple. The real problem with the low wage jobs is the 15% payroll tax. This
tax should be reduced to zero, smoothly, as wages drop from 30,000 down
to 10,000. Low wage Americans simply must either join the underground
labor force, or stay out of the workforce. They have no other choice. Matt Young: What is this 'underground labor force' and how do I become a part of it a decent paying job sounds great. I'm young and poor. Posted by: TomK at January 26, 2004 05:40 PM | PERMALINK"Republican Party principles which lead to increased poverty and inequity" Republican spending and Democratic discrimination against the poor. Both parties are to blame. Democrats have kept a flat tax on the poor for decades, they increased this tax from 2% in 1935 to 15% today, and when the next entitlment adjustment comes, the Democrats will hit the poor with another 5%, essentially killing of the American population. Democrats represent the death cult of American politics, in a race to wipe out the American middle class and replace us with imported low wage labor. People like Kevin Drum claim some magical morality when they deny their involvement in this attack on the middle class. But what is especially disgusting is when the environmentalists team up with the liberals, then blame someone else when the million of new poor demand more urban sprawl. Republicans are almost as bad. me oh my and the colonel, the twaddle that will is peddling (which he presumably picked up from greg easterbrook - i'm not going to waste my time reading george will on a topic like this, i'd rather pick nits with will allen, who is at least cheerful when he gets carried away) was debunked only yesterday in the times. You can read both the times account (which quotes easterbrook himself as acknowledging that "he had done a poor job of writing that page" and agreeing that "Even if there were not that increase in immigration, there would certainly be a rise in inequality." So so much for part a. Part b: household size. I'd have to look at the numbers to check it out further, but on the face of it, i'd say that the reason that household size is down is because of fewer children and more divorced, single-parent households, which means that the idea of examining household wages as divided by total household occupants is bunk. Perhaps there's more to it, but, as Lori rightly said, consider the source.... BTW, Colonel, no, i don't think that illegal immigrants have had much of an impact on wage rates for legal job holders. These are, by and large, two different marketplaces.... Posted by: howard at January 26, 2004 05:55 PM | PERMALINKOops, after quoting easterbrook, i meant to say that you can read the account "here:" http://www.j-bradford-delong.net/movable_type/2004_archives/000127.html Posted by: howard at January 26, 2004 05:56 PM | PERMALINK"What is this 'underground labor force' and how do I become a part of it a decent paying job sounds great." Well, the rich liberals in my neighborhood have one method. WEe hire each other's children in our businesses, and pay them under the table. The kids are bright, intelligent, and mostly work part time for job experience and spending money. So, we bring them in to the office, put them in the stock room or on the computer, then get a personal check or cash. Construction companiess work almost exclusively with cash labor. Only on large audited projects will they bring in the union guys. Restaurants that have survived usually use ethnic or family labor. My favorite breakfast place is Chinese run, and all the waitresses are Chinese young girls, (no Americans need apply). Their entire wage is under the table and they split tips. No credit cards or checks please, cash only. Others I know have run generic computer sales for years, labor and parts almost completely out of the legal market. In software, much of the Linux software development has evolved into a cash basis, or a consultant basis which allows the software developers to write off their entire income. Then it goes up the ladder, where income for executives is now predominantly stock. If the company goes public, then hello foreign citizenship. My stockbroker has some amazing tales. Then there is simple tax evasion, up threefold in recent years. Of course I don't live in the agricultural region where government provides the subsidy and underground labor provides the workforce. Doing a little searching you will find the underground labor force at 20% to 30% in California, amazing when you consider that 50% of the economy comes direcvtly or indirectly from government.
Simple, folks like us saying, "There outta be a government program..." for each social ill that bothers us. "These are, by and large, two different marketplaces...." Actually...bean prices can effect caviar prices. Where is your Times link? Posted by: me oh my at January 26, 2004 05:59 PM | PERMALINKNever mind. God, that makes me look stupid when I'm writing, and you post, then I post a question which you answered in your post. Posted by: me oh my at January 26, 2004 06:01 PM | PERMALINKRe: two-income households and living expenses. This is certainly the case for home values, which in many areas is a straight bid market. $100k/yr will NOT get you a house in the SF bay area, even in the hood. Posted by: Troy at January 26, 2004 06:06 PM | PERMALINKno problem, me oh my, but let's pursue your point for a moment. I left in the hedge "by and large" for a reason: i agree that these things aren't completely independent markets. Nonetheless, illegal immigrants have a much greater propensity to take low-wage, zero-benefit, no questions asked jobs than native-born americans (putting aside special cases like matt young cites of neighborhood teenagers working under the table and such like, although methinks matt young is way overboard on both the size of the government's role in the economy and the degree of the "underground" economy, but that's his ideological predisposition). If illegal immigrants weren't there to take these jobs, either they wouldn't exist as jobs or, more likely, the pay rate would be higher. As a result, there's very little reason to think that illegal immigrants are dragging down wages. What's "dragging down" wages - more to the point, what's leading to the outmigration of better paying jobs and their replacement with lesser paying jobs - are a few factors, of which the most important, of course, is that capitalist enterprises look to control costs. There used to be plenty of textile jobs in new england; then there used to be plenty of textile jobs in the south; now there aren't so many textile jobs in america at all. Secondarily, as i said way back up top, the internet drives down costs, including, therefore, wage costs. Finally, the current level of unemployment, and the lack of strong unions, puts negotiating leverage in the hands of capital; it takes an unemployment rate (as we saw in the late '90s) in the vicinity of 4.5% to put negotiating leverage in the hands of labor.... Posted by: howard at January 26, 2004 06:16 PM | PERMALINKWill, "it takes an unemployment rate (as we saw in the late '90s) in the vicinity of 4.5% to put negotiating leverage in the hands of labor...." Is that true? For instance, I think of France and Germany as having powerful labor organizations, but fairly high unemployment. What you're refering to there is ordinary bargaining power...the same kind that drives up stock prices. As for immigration, while I have problems with it, I'm not suggesting it effects the economy (overall) negatively, but only puts a "lie" into certain statistics. Easterbrook admitted he went too far in this respect, but the skewing is still there in part. Posted by: me oh my at January 26, 2004 06:37 PM | PERMALINKEstimates of California's underground economy: http://www.immigrationshumancost.org/text/cash-economy.html "A new study co-authored by Daniel Flaming, president of the Economic Roundtable, a nonprofit, public policy research organization in Los Angeles, estimates that up to 1.5 million of Los Angeles County's workers are now paid in cash - a destabilizing economic trend that runs counter to the rest of California and the country." This is 28%. However, conventional estimates for all of California range around 15%, and 10% nationwide. http://www.horizonmag.com/3/urban.htm "Nonetheless, a few years ago, the New York City Comptroller's office was quoted as saying that the underground in that city constituted a $50 billion-plus economy -- that's 17 percent of the city's total economic activity." But, more importantly, the underground has a high rate of growth. Estimates a decare ago were closer to 5%. If you estimate the size of the underground economy by the size of the amnesties we grant to low income immigrants, then Regan gave citizenship to 3 million, but Bush-2 willl amnesty 10 million. If you add legitimate businesses thaat cheat to a large degree, then the number could easily reach 30% in California. Posted by: Matt Young at January 26, 2004 06:50 PM | PERMALINKBTW, Colonel, no, i don't think that illegal immigrants have had much of an impact on wage rates for legal job holders. These are, by and large, two different marketplaces.... That’s funny, Leonhardt, whom de Long cites, says the following: “The millions of immigrants who have entered the country in recent decades have indeed made inequality look larger than it otherwise would.” He is not differentiating between legal and illegal immigration. Come now, are you really suggesting illegal immigration has no effect on wages whatsoever, that somehow the economic effects of 12 million largely unskilled laborers has zero net effect on the economy and wages because their economic activities are somehow neatly compartmentalized? Be serious. I’m not trying to demonize illegals, but it’s one of many numerous variables that Kevin has neglected to factor into his theory. As usual, he simply blames Republicans (the proxy moniker for ALL non-liberals and skeptics of the nanny state) and ignores everything else. It is undeniable that the upper quintiles have advanced faster than the lower quintiles, I’ll grant, but nevertheless the lower quintiles HAVE advanced, and quality of life has improved. I’d love it if somebody can prove to me that income mobility doesn’t exist, then I’d be concerned that the rich are doing so well, but since they or their children are not long for the upper quintile, I am not concerned about it. That is insufficient reason to confiscate their property. And finally Leonhardt states: “Less than half of the rise in pay among lower-income households comes from actual wage increases. Most of the rise is a result of families putting in more hours on the job as many women have joined the work force.” Your sources are backing up my and others’ claim, not refuting it, ie women in the workforce. And Easterbrook admitting he did a poor job of writing ‘that page’ is not the same thing as admitting his entire premise is false. … the idea of examining household wages as divided by total household occupants is bunk. And yet you’d buy (presumably?) Kevin’s statement that tax cuts don’t fuel economic growth (I suppose government spending is the only route to economic growth, as if economic activity necessarily has anything to do with the nanny state spending.) Maybe the broader lesson is that statistics are so easily manipulated. Kevin used about a dozen links in his essay. I could compose one with a dozen cherry-picked links to create a counterargument. In the end it all feels like we’re going in circles, doesn’t it? Why
don’t we just drop the façade and say we want other peoples’ money
because we resent them. It’s a time-saver. Textile mills used to be in New England, then in the South and now not in the United States at all. Why? Because manufacturing (or production of any good or service) is conducted in the places that involve the lowest total cost. In the 17th century and earlier only luxury goods were traded over long distances. Everything consumed by the average person was produced locally. Why? Very high transportation costs. Through the 18th, 19th and 20th centuries transportation costs fell steadily. Production of goods began to move to low cost areas. What makes a low cost area? It is not just low wages. It is the combination of wages, education of the workers, infrastructure, parts and material suppliers, political and economic stability and other factors. Fifty years ago, these factors were available in quantity and quality combinations such that the US, Canada and western Europe were the major low cost manufacturing locations. You could hire workers for pennies a day in much of the world, but that was the only factor of production that was cheap. Over the past fifty years, more and more countries have reached the point where they have decent infrastructure, stability etc. The Japanese were the first. Japan is a relatively small country with a limited labor force compared to the already industrialized world, so Japanese production was limited. Japan took 20 or 30 years to climb to income comparability to the US and w. Europe. South Korea and Taiwan followed. India and China are in this this process. However, India and China have vast labor pools so wage rates in those countries will remain low for an extended time period until all the former peasants are absorbed into the industrial economy. Until this happens there will be continued pressure on wages for jobs that can not be moved to those countries. We used to think that jobs such as computer programmers and architects were safe from this process. Not any more; communications are now so cheap that these jobs can be moved around the world. In this country we have two choices: Build a social welfare system that puts a floor under everyone, or get used to seeing a lot of the very poor. Posted by: ____league at January 26, 2004 07:06 PM | PERMALINK"Why don’t we just drop the façade and say we want other peoples’ money because we resent them." Why don't we just tell the truth that the rich don't pay any taxes at all because they command all the disposable income they feel like having. A little honesty (just a bit) would be sooooooo refreshing. Posted by: category 3 at January 26, 2004 07:13 PM | PERMALINKKevin's basic error is that LBJ made everyone's life miserable, and if LBJ is excluded, the only Democrat administration worth talking about is Clinton. Under Clinton, we have to accept the fact that he reduced government over his two terms, and prosperity increased. So, Democrat or Republican, Kevin must support the idea of reducing government at least back to Clinton levels. We faithfully await Kevin's plan to reduce government. Posted by: Matt Young at January 26, 2004 07:14 PM | PERMALINKhoward, why are you dragging me (and accusing me of "peddling stuff") into the immigration effects debate? My comments in this thread have been restricted to real estate regulation and prices, which is an area in which I have some experience. Posted by: Will Allen at January 26, 2004 07:16 PM | PERMALINKWhy don't we just tell the truth that the rich don't pay any taxes at all because they command all the disposable income they feel like having. Is that a fact? You don't know any wealthy people, do you? Most people considered wealthy own rental property or small businesses--they're not CEOs rigging the system, and they pay a boatload of taxes. I'd be considered wealthy -- in Arkansas maybe -- and trust me, I DO NOT DECIDE HOW MUCH DISPOSABLE INCOME I FEEL LIKE HAVING. In fact I work my tail off. You're living in an alternate universe. Posted by: The Colonel at January 26, 2004 07:21 PM | PERMALINK"I DO NOT DECIDE HOW MUCH DISPOSABLE INCOME I FEEL LIKE HAVING. In fact I work my tail off." Maybe you should stop being a wealthy wannabe and realize that as the repukelicans drive the US into banana republic status, they ain't taking you along, i.e., if you truely are working your tail off just to get by (and not just to feed your insecurity with ever greater useless status symbols), then you're exactly the endangered species Kevin and democrats are concerned about. Posted by: category 3 at January 26, 2004 07:38 PM | PERMALINKWe're getting close to comment 200, must be time for the (virtual) shouting match. Posted by: Ugh at January 26, 2004 07:40 PM | PERMALINKCategory 3, Ah. You are unserious. Cutesy little names for the opposition (Repukelicans) does not equal smart political commentary, nor serve as a legitimate foundation for smart public policy, either. But you go ahead and live in that alternate universe where the U.S. is somehow going to degrade into Banana Republic status. Something tells me you've never even been out of the United States. Posted by: The Colonel at January 26, 2004 07:46 PM | PERMALINK"Cutesy little names for the opposition..." B-b-but Rush does it all the time!!! I thought that's how you Repukelicans operated! Posted by: me oh my at January 26, 2004 08:01 PM | PERMALINKWill, i'm not dragging you in (just to take care of this point first): i was referring to george will, as were me oh my and the colonel. (i sometimes have the same problem with people referring to "howard" meaning howard dean.) i only put you in the parentheses to set you in distinction to george will ("i'm not going to waste my time reading george will on a topic like this, i'd rather pick nits with will allen, who is at least cheerful when he gets carried away") - sorry if that wasn't clear enough. me oh my, i was referring to the american situation requiring 4.5% unemployment to provide worker wage power in the absence of strong unions. In France, there are strong unions (which, of course, some would say are partially responsible for the relatively higher french unemployment rate), so there is more wage power. Now, Colonel, i had to go back through and read you several times to be sure what we're arguing about, although your "let'd drop the facade" helped make it clearer. In short: the question of whether illegal immigrants are a "drag" on wages isn't in the least disposed of by the fact that "immigrants" have helped widen inequality. whatever makes you think these are the same thing?; the question of per capita household income isn't in the least disposed of by the fact that more women work today than was true 30 years ago; and the question of tax cuts and growth (which you have dragged into the discussion) isn't disposed of by insulting non-sequiters about government spending. What i'm quite sure Kevin would say, just as i would, is that tax cuts could be structured in many ways, and we don't think the way Bush structured his is particularly growth-inducing. As for mobility, there has been a lot of work done on the subject of
generational income mobility (which is the relevant question: the simple
fact that a college graduate from a wealthy background may earn $20K
doing some public-service oriented work until turning 25, then get an
MBA and earn $1.2M doesn't demonstrate income mobility). Get out, do a
little google searching, and you'll discover a lot of suggestive
(although not dispositive) studies that income mobility in america is
less than it used to be. Colonel, by the way, just to spend a moment on wealth: the upper 5% of household income begins somewhere (i haven't looked in a while) in the neighborhood of $160K. This makes you well compensated. Serious household income (the upper 1%) begins somewhere, iirc, around $300K and goes well up into the millions: these are america's 1 million highly compensated households. There are many people who are well compensated and even some people who are highly compensated who are, nonetheless, not wealthy, due to their high consumption. Regardless, the upper 5% of household net worth starts somewhere a little north (forgive me for not looking up right now) of $1M: this is reasonably wealthy. Serious wealth in America nowadays begins at somewhere in the neighborhood of $10M, which is somewhere in the upper 1-2% of households. Obviously, salaries and purchasing power vary by geographic locale, but that's the general reality, and most of these 1M - 2M households do have a great deal of influence over what they earn and what they keep of what they earn. Posted by: howard at January 26, 2004 08:27 PM | PERMALINKGosh howard, if only the bow-tied Will's book royalties would get confused with my mail occasionally...... Posted by: Will Allen at January 26, 2004 09:07 PM | PERMALINKWhat do the rich consume from government? They consume almost all of our forward defense, which is about $300 billion/yr. They consume about half of our State Department, what? about $15 billion. They consume about half of our foreign aid, say $8 billion. The rich are also due to pay interest on the national debt equal to their unpaid back taxes, say $30 billion/yr. Then, above that amount, they consume an equal share of government on a per capita basis. So, computing the federal bills which almost exclusively create economic conditions for the rich, we would expect the "wealthy" to pay an additional $350 billion or so. That is the wealthy are being subsidized for government services that almost exclusively support their activities. The remaining $2.0 trillion or so are federal taxes ignorant poor people apply to themselves. Who are the wealthy? I would apply a progressive tax on the top 20% to the amount of $350 billion/yr. Currently everybody pays a flat payroll tax of a trillion. Corporations probably consume about $400 billion in government domestic services. The remaining $500 billion in federal spending should be spread out among everybody with progressive rates close to what we have now. Do this and the federal government will get a whole lot more rational very quickly as rich people start making decision about whether they want all the government services they pay for. Posted by: Matt Young at January 26, 2004 09:17 PM | PERMALINK"They consume almost all of our forward defense, which is about $300 billion/yr." What? You count soldiers as wealthy? Or government engineers? Posted by: me oh my at January 26, 2004 09:27 PM | PERMALINKTo quibble a bit, you can't really use that "male wages have stagnated" bit for much; female wages shot way, way up over the period. Otherwise, good stuff. Posted by: Jason McCullough at January 26, 2004 09:49 PM | PERMALINKHoward, Regarding immigration and women in the work force, and as noted in the link you posted from Leonhardt, there are many factors playing into a so-called ‘decrease’ in the purchasing power of the middle class that have nothing to do with conservative cabals and/or capitalist exploitation of the proletariat. Your attempt to parse out a significant difference between wages and income of immigrants is a bit ridiculous, as if the primary income source for the bottom quintiles (and thus a factor in widening inequality) isn’t primarily wages. Immigration IS a factor. You cannot argue otherwise. Believing otherwise smacks of partisanship, not research. And to pretend that the influx of women into the workforce has had little effect on household incomes and purchasing power is … odd, particularly since your sources beg to differ. But perhaps there is something I’m missing. My main point is that Kevin is not addressing these other factors and cherry-picking his sources. Do you really think a day spent researching won’t reveal a gaggle of sources that counter everything he has posted, as if there weren’t thousands upon thousands of mainstream economists? The Republican conspiracy meme is particularly irritating. That i'm quite sure Kevin would say, just as i would, is that tax cuts could be structured in many ways, and we don't think the way Bush structured his is particularly growth-inducing. Er, well, I think Kevin would advocate any and every tax increase for any arbitrarily defined limit called ‘wealthy’, a limit that would conveniently move downward as capital dries up. Somebody must fund cradle-to-crave centralized government programs. Thus he automatically opposes any cuts to these ‘wealthy’, even if they are not really particularly wealthy. I guess having $1-2 million acquired over a lifetime of hard work automatically means you have lost the right to your own property. Nice. I seldom post, but I have never seen Kevin exhibit one iota of serious skepticism for any government program, no matter how expensive. And without exception he believes the ‘wealthy’ should pay for each and every one of these programs (thus he wants to turn payroll taxes into a progressive tax scheme). He doesn’t even believe that individuals should pay for their own retirement, their own leisure time -- it should be paid for by somebody else. Nevertheless, I was never that jazzed about the tax cuts, either, as they helped only a little short term and will help only a little more mid-term. Long term I believe they are healthy, if government spending can be reigned in. That is a big if. you'll discover a lot of suggestive (although not dispositive) studies that income mobility in america is less than it used to be. Yes, and poverty isn’t what it used to be either, but for some reason that seems to have no bearing on this discussion. In such a case, we’d need a ‘dispositive’ study, no? -- mere suggestion would not do. Why is that? And once again, do you really believe it’s impossible to find contrarian critiques in various trade and academic journals that dissect the methodology of these studies and reveal that, whichever direction income mobility is headed, American society is still fundamentally extremely healthy, and likely to remain so? Mmmm ….. Obviously, salaries and purchasing power vary by geographic locale, but that's the general reality, and most of these 1M - 2M households do have a great deal of influence over what they earn and what they keep of what they earn. Actually, no they don’t. Aside from certain non-taxable investment vehicles that are generally not taken advantage of by your average small shop business owner and duplex renter, and the various tax accounting tricks you can play when you are involved in business, this is not the case. Most people are not experts at tax evasion, even those worth $1-2 million, who typically just own fat annuities, a duplex or two, and maybe a side business making furniture or stained glass windows. Offsetting capital gains with capital losses, for instance, or carrying over expenses into a later year is hardly the same thing as ‘deciding what you earn’. And regarding generational income mobility, and to speak in metaphor, I have only two words: Paris Hilton. ;-) Hopefully you get what I’m saying. Colonel, it's late and i will try and keep this brief, since no one but you and me care. The initial claim was that "illegal immigration" exerts a downward pressure on wages. While you've made some sweeping generalizations, you haven't provided any arguments why this should be true, and by and large, i don't think it is. The initial claim was that people were really doing better than the whiners all think they are because households are smaller while household income is up, meaning that per-person income within household is up. I pointed out that this appears to be a meaningless stat, and you haven't countered that. You've noted that more women work today - which is certainly true - and that there are more two wage-earner households - which is also certainly true - but in no sense have you actually supported the claim. In fact, although i'm not going to dig back through the stats, the likeliest interpretation of the last 30 years of median household behavior is that women going to work is what has enabled the household to maintain its standard of living. I'll let Kevin deal with your distortions of his beliefs (and the beliefs of most liberals), but from my perspective, your discussion of taxes, retirement, fruits of labor, and so forth is nothing like the country i want to live in. Fortunately, to date, a majority has agreed. On income mobility, you again are non-responsive. Yes, thank you, i know contrarians exist. Sometimes, contrarians are onto something. And sometimes contrarians are just being contrary. We are capable of individually looking at the evidence - the best arguments i've seen suggest that there is less intergeneration income mobility in america than there once was. Behavior of wealthy people: i'm sorry. you're wrong. The small number of wealthy people are different than you and i, just as they were when Fitzgerald first pointed it out. And no, i don't get your Paris Hilton reference: she was born wealthy. Despite the depradations that you are convinced the wealthy suffer, she's still wealthy. Was that in doubt? Posted by: howard at January 26, 2004 10:14 PM | PERMALINKSorry for joining late. This is slightly off-topic, but anyway. Many on-topic things have already been said. praktike: forcing students to learn Shakespeare (instead of marketable skills) When not taking the Shakespeare literally, but extrapolating it to an education covering the arts, culture, and history, I think that it is very desirable to have that. Do you want schools to crank out nerds that excel in one technical subject but are otherwise emotionally and culturally poor? Marketable skills change by the year, what is more important is a solid foundation in the sciences and something that enables people to find their place in the world and evaluate what is going on around them based on the accumulated experience of humanity, which is precisely a relation to culture and history (the arts relating to both). When I hear "marketable skills", I'm reminded of industry leaders in
Germany who effectively (but not literally) said that it's the job of
the education system to teach the practical skills that are needed in
specific jobs at Siemens, IBM, etc., not all this ivory-tower
foundational bullshit. At the same time, the industry increasingly
reneged on providing the vocational training due to quarterly-driven
cost cutting. They want culturally-starved laborers who don't know
anything but work, not well-rounded humans. Howard said: "If illegal immigrants weren't there to take these jobs, either they wouldn't exist as jobs or, more likely, the pay rate would be higher. As a result, there's very little reason to think that illegal immigrants are dragging down wages." Huh? You say if illegal immigrants weren't here the jobs would pay better. So illegal immigrants are dragging down wages. This is basic economics. Wage rates are determined by supply and demand just as in any other market. Increase supply and the price goes down. The right to live and work in the United States is the most valuable asset many poor Americans possess. Liberal immigration rules hurt them by devaluing this asset. Posted by: James B. Shearer at January 26, 2004 11:13 PM | PERMALINK"This is basic economics." Yes, but sometimes you have to go in for the more advanced economics. If a person is paid 5.15/hour but produces 6.15/hour worth of goods and services, then the increased production more than compensates for the reduced value of labor. That is, an immigrant may (in a sense) take your money, but this is fine if he replaces it with a greater amount of goods. The real problem with immigration concerns the finite amount of natural resources in relation to the increasing population. Thus, an immigrant can produce goods, but not land, water, air, etc. Posted by: me oh my at January 26, 2004 11:21 PM | PERMALINK"Wage rates are determined by supply and demand" Very very true, there is more too it. Societies adapt to change, and societies can easily adapt to low wage economy after having a higher wage economy. If some external factor favors low wage jobs, then society will actually generate more low wage labor where it didn't exist before. In other words, an external stress can actually create more poverty and kill off a middle class. Biologists know this. So aside from near term supply and demand, remember long term adaption which can actually mean devolution. San Francisco is a perfect example. [Mayor] Willie Brown discovered his anti-homeless policies created more homeless by creating more spots for the homeless and fewer spots for the middle class.
Colonel, you seem to be confusing those whose earnings are in the top 1% with those poor schlubs with $1-2 Million in worth (I can see where the number of 1-2 Million individuals might have been misleading, but it was a reference to the number of people, not how much money they had). The people you are talking about are generally comfortable, but they aren’t what anyone is calling “wealthy.” Top 1% wage earners make $900k/yr – anyone making that much money and only worth $1-$2 Million is either very new (and stunningly lucky to be making that kind of money from nowhere), or phenomenally wasteful. And while I disagree with much of Matt Young’s posting, he does have a good point that our defense budget is largely consumed by the wealthy. This little entertainment in Iraq does nothing to benefit the average American – it is a great way to provide a revenue stream for Republican contributors at the expense of the taxpayers, but it doesn’t make us safer, it doesn’t improve the life of our soldiers, it is merely a massive transfer of wealth (both in blood and treasure) from the working class to the wealthy. Finally, you (Colonel) have ignored the fact that our tax system is
effectively flat. Once you take into account all of the taxes paid, the
burger flipper at Wendy’s is paying about the same percentage as the
CEO of Wendy’s. This is spite of the fact that the latter has a much
greater share of disposable income – and arguments suggesting that such a
scion of wealth and privilege has done more to deserve such wealth
aren’t believable in a society where Paris Hilton’s “contribution” to
society “earns” her a lifetime of sloth on the backs of those whose
efforts she is allowed to skim. "the burger flipper at Wendy’s is paying about the same percentage as the CEO of Wendy’s." Taxes don't disappear. The burger flipper and CEO are both receiving a portion of their taxes back in the form of government services and redistributions. The poor receive a greater share, per income. Posted by: me oh my at January 26, 2004 11:47 PM | PERMALINK"The poor receive a greater share, per income." I doubt this, and it hasn't been proven. I am still looking for studies in this regard, and my own informal work probably won't be good enough to convince anyone. But, my first pass at the problem, indicates that the wealthy generally consume more government services than they pay for. MacDonalds, in particular, enjoys a monopoly well protected by legions of police, judges, and laws. MacDonald employees, in general, could just as easily work at the mom and pop hamburger joints that MacDonalds replaced. But it's MacDonalds management that ontains a bigger share of the pie based on an artificial monopoly protected by business law created and enforced with middle class taxes. And I think we should have a bigger debate about this topic.
"the wealthy generally consume more government services than they pay for." Don't be silly. A person who makes 12,000 pays basically no federal income. A person who makes 200,000 a year pays about 40,000. We could break down the amount of welfare, infrastructure, police, etc, that each uses, but the first person undeniably absorbs more than ZERO, while the second one probably absorbs less than 40,000. Posted by: me oh my at January 27, 2004 01:39 AM | PERMALINKYou should read: http://www.crookedtimber.org/archives/001213.html "we could break down the amount of welfare, infrastructure, police, etc," Then we should do it, and try to get a baseline. Handwaving, which I do and which you do won't resolve the matter. I am continuing to work on the issue, but have not seen any real studies. So Matt - are you suggesting we make the Social Security and Medicare Taxes progressive or that we eliminate them altogether? In a related question, should we kill the old and poor and the sick and poor or should we let them die on their own? Posted by: LowLife at January 27, 2004 05:10 AM | PERMALINKme oh my: I think the reference there includes more than merely federal income tax, but state income tax, sales tax, &c. Don't know whether or not that makes the proposition true, but it does at least render it not trivially false. Posted by: Anarch at January 27, 2004 09:55 AM | PERMALINKSomeone implied earlier that immigration restrictions had resulted in not enough engineers which in turn had made the companies turn to outsourcing. I live and work in Silicon Valley as an engineer, and conducted a job search over the last year, and I can assure you that there is NO shortage of engineers here, not even close. Santa Clara County has had the worst unemployment rate in the country for several years running. During the boom, say 1999, this was true, and it drove salaries up. But what's driving offshoring of engineering is cost, nothing else. I've begun to wonder if I need to move to someplace cheap and work over the internet. While its true that during the boom, salaries here may have jumped 20 percent, the effect was to make an engineer 5 times more expensive than an Indian engineer instead of 4 times more expensive. So I don't think its a first-order effect. Offhand, I can't think of any government policy that would both help me and which I could support. A declining dollar is going to help me, that's for sure, by making my cost more competitive with overseas engineers. But it also makes the "non-essentials" more expensive. Hmm, maybe that's not such a bad thing. Posted by: Jay at January 27, 2004 10:24 AM | PERMALINKI'm constantly surprised that discussions of this sort ignore structural changes in the technology base of our, and other, economies. The Clinton bubble grew as a result of commercializing technologies which, in many cases, had their roots in the defense programs of earlier decades. The list is very long, but it includes high density computer chips, the networking protocols that underly the Internet, robotics research (for decades, most robotics and AI/expert systems research was DARPA funded), spread-spectrum radio systems (now available as cordless phones & cell phones) ... and I've just touched on a few examples from my own areas of experience, from being in Silicon Valley in the 70s-80s, to being in Research Triangle Park when startups began emerging there in the early 90s. When technologies mature and hit the market this way, they revolutionize all sorts of things, including the costs of manufacturing and the need for labor to do these jobs. Customer support phone jobs can go to India, not only because these technologies now allow cheap communications around the world, but also because 3 decades of software evolution has resulted in Customer Relationship Management databases, built on expert systems software techniques, which *replace* the need for a lot of personal skill and knowledge on the part of the support employee. The same thing happened with "high skill" jobs like network administrators. Administrators do not increase knowledge or make new products, they simply make the connection between a complex set of tools (like computers) and the users. Over time, these skills can and do get automated to a great degree. When that happens, as in certain kinds of computer programming, the jobs can go to remote, lower-paid personnel. Robotic assembly lines do the same for blue collar manufacturing jobs, which in the 1950s in many cases required a fair degree of craft skills and which today require far less skill. The reality is that many of these jobs will NEVER come back because the need for the jobs themselves is slowly evaporating. If we are to have a thriving middle class, new *kinds* of jobs will need to be created. What drives job creation over the long haul in a technology-intensive
economy is innovation, entrepreneurship to commercialize that
innovation and then a wider manufacturing and distribution system
(usually provided by multinational companies, unless the startup
achieves rapid momentum and grows into that status itself). Often the
original R&D work HAS to be funded either by government programs
(military, space, civil engineering needs) or by excess profits (IBM in
the 70s-80s, pharmaceutical companies). The hard reality is that
innovation cannot be legislated and it does not emerge just from
academic pursuits - it nearly always emerges in response to a pressing
need for which existing solutions are not adequate. In the case of
e.g. military programs or space exploration, these technologies can be
very costly to deploy but precisely because they challenge the state of
the art, when the results have commercial potential, they end up
yielding huge economic payoffs in the form both of improved quality of
goods and in the form of well-paying middle class jobs. Howard, The initial claim was that "illegal immigration" exerts a downward pressure on wages. While you've made some sweeping generalizations, you haven't provided any arguments why this should be true, and by and large, i don't think it is. Your initial claim was that “illegal immigration” (why the scare quotes?) DOES NOT exert a downward pressure on wages. While you’ve made some sweeping generalizations, you haven’t provided any convincing arguments why this should be true, and by and large, I don’t think it is. The initial claim was that people were really doing better than the whiners all think they are because households are smaller while household income is up, meaning that per-person income within household is up. I pointed out that this appears to be a meaningless stat, and you haven't countered that. Actually, I said it was an ‘interesting tidbit’. I’ve done some quick searching on Google and have found nothing to back up George Will’s claim. His assertion is based upon somebody’s study from somewhere, I’m sure (beyond just Easterbrook), but perhaps you’re correct. I’m not particularly attached to this claim so let’s let it go. I’ll file this under ‘disputed’ for now. You've noted that more women work today - which is certainly true - and that there are more two wage-earner households - which is also certainly true - but in no sense have you actually supported the claim. In fact, although i'm not going to dig back through the stats, the likeliest interpretation of the last 30 years of median household behavior is that women going to work is what has enabled the household to maintain its standard of living. Riiiight. OK, you win. I guess housing isn’t the single greatest cost to households. Nope. I guess I need a study to understand that whereas pre-1970s a single income was enough to purchase a house, when a greater percentage of households became dual-income this had a negative net effect on housing affordability. Yup. In a bidding environment the price of housing would NOT appreciate steadily over time relative to the average wage earner’s purchasing power and it is an illusion that we are now in the position that it often takes two incomes to purchase a home. Yup. Supply and demand does not apply. Nope. Come on, Howard. I really hate having to research and post links endlessly for simple information. It is one thing to ask for specifics to George Will statements, but this is common knowledge. Give me a break. I know you think you’re being thorough, but what you’re really doing is conflating availability of Internet studies with reality, and confusing the ability to link with the ability to make an argument. I'll let Kevin deal with your distortions of his beliefs (and the beliefs of most liberals), but from my perspective, your discussion of taxes, retirement, fruits of labor, and so forth is nothing like the country i want to live in. Fortunately, to date, a majority has agreed. Don’t be a simpleton. I do not have one iota of respect for demagogues, and in particular I have none for those who use their position on matters of public policy to gain brownie points amongst the logically challenged. Having a problem with Social Security in its present form is hardly demonstrative of a lack of compassion, and not believing that I or anyone else should have to pay for someone else’s retirement will be the position of the 50% of the population that will have to pay for the other 50%, should they come to understand what a progressive payroll tax system really means. I have no problem with a national pension plan, so long as it is voluntary and so long as it is a true pension plan, meaning that the pay-as-you-go system will have to be modified. In particular I like that companies are forced to match employee contributions. Additionally, given that single households are on the rise, I’d like to see the system partially privatized so that individuals can pass the benefits to their loved ones (or favorite charity!). ;-) Given this option I’d take it, so stop waxing emotional about how compassionate you are because you want to tax the ‘wealthy’ and do nothing to fix Social Security. Leave emotionalism to the art history majors. On income mobility, you again are non-responsive. Yes, thank you, i know contrarians exist. Sometimes, contrarians are onto something. And sometimes contrarians are just being contrary. We are capable of individually looking at the evidence - the best arguments i've seen suggest that there is less intergeneration income mobility in america than there once was. I’m not as unresponsive as you think. It’s easy enough to find
studies that demonstrate income mobility or another point I need to
make. You will then counter with another study, of course, then I
counter with another study and dissect the methodology of your study,
etc., etc., etc, round and round and round. As I said, this will end up
going in circles. But still, since you really think this is useful,
let’s play. This one says that wage and earnings inequality began to
trend downwards in the 1990s: But wait, this one says that there is no clear trend when you take
the long view, and that is largely demographic and technological change
driving the phenomenon (NOT Republican conspiracies), and that public
policy has had little effect on trends since 1950: This one blames technology for increasing wage inequality (aka
increasing income inequality relative to the lower quintiles) and that
redistribution is good: Oh, and speaking of Social Security, here’s one that explains how
Social Security disenfranchises children of the poor because their
parents cannot pass on their SS contributions: Hell, since we’re going crazy with studies, here’s one that says
redistributive welfare schemes simultaneously mitigate and exacerbate
poverty: On and on we’ll go. Many of these studies have bibliographies. Use them, and don’t respond unless you’ve read each every one of these and analyzed their methodology. Until then, you are just being contrary and not privy to the ‘best arguments’ I’ve seen. Enjoy. (I do not argue that income mobility has not decreased somewhat. That is not sufficient excuse, however, to confiscate private property, even if that property does come in the form of income (dollars) instead of real property.) Behavior of wealthy people: i'm sorry. you're wrong. The small number of wealthy people are different than you and i, just as they were when Fitzgerald first pointed it out. No, the wealthy are not significantly different than you or I. That is just what you tell yourself to justify confiscating their property. I know you think you’re limiting your definition of wealthy to those corporate bugbears of your dystopian nightmares, but the point I’m trying to make is that liberal schemes to remove wealth will extend far beyond the Bill Gates’ of the world and into the realm of the small business owner and duplex renter. That is the political reality, ideology notwithstanding. The term wealthy invariable ends up meaning not me or not poor, and asking those who are simply slightly above middle class to pay for everybody else is not just. (But I suppose I need a study citing this, as well.) I am not wealthy, but I grew up around it. I know of what I speak. And no, i don't get your Paris Hilton reference: she was born wealthy. Despite the depradations that you are convinced the wealthy suffer, she's still wealthy. Was that in doubt? If you’re going to make literary references to Fitzgerald, you should at least try a little harder when I am speaking in metaphor. Paris Hilton’s father created wealth and Paris Hilton herself with squander everything she inherits. This is often the case with the children of the wealthy. The most ambitious individuals usually come from the middle or upper middle classes. Being a man of the world you should know this. Thus people like Paris steadily drop steadily down the economic ladder. It takes time, but it inevitably happens. (Although she probably made a bundle on her little TV show, no?) Posted by: The Colonel at January 27, 2004 12:26 PM | PERMALINKOoops. I need to update my HTML skills. Here are the links I provided: This one says that wage and earnings inequality began to trend downwards in the 1990s: But wait, this one says that there is no clear trend when you take
the long view, and that is largely demographic and technological change
driving the phenomenon (NOT Republican conspiracies), and that public
policy has had little effect on trends since 1950: This one blames technology for increasing wage inequality (aka
increasing income inequality relative to the lower quintiles) and that
redistribution is good: Oh, and speaking of Social Security, here’s one that explains how
Social Security disenfranchises children of the poor because their
parents cannot pass on their SS contributions: Hell, since we’re going crazy with studies, here’s one that says
redistributive welfare schemes simultaneously mitigate and exacerbate
poverty: Lori, Finally, you (Colonel) have ignored the fact that our tax system is effectively flat. Once you take into account all of the taxes paid, the burger flipper at Wendy’s is paying about the same percentage as the CEO of Wendy’s. It’s far more complicated than this, but let’s simplify it: Prove that a flat tax is unjust, unfair, and generally just a really negative, nasty thing. (Caveat: I have no problem with a progressive income tax system – in fact none other than Milton Friedman has argued that a progressive tax is in fact in certain economic conditions an excellent tool of monetary policy. Don’t ask me the details, I read it in passing. Note, however, that you use it as a weapon for getting even with somebody – I agree with it in a more limited way because I believe it is sound policy.) This is spite of the fact that the latter has a much greater share of disposable income – and arguments suggesting that such a scion of wealth and privilege has done more to deserve such wealth aren’t believable in a society where Paris Hilton’s “contribution” to society “earns” her a lifetime of sloth on the backs of those whose efforts she is allowed to skim. I guess you’ve just demonstrated why you reacted so negatively to my accusation and implication that some simply let their resentments drive their positions on public policy, and that their rational justifications are simply a façade. Thanks for playing. Note, also, sweetie, that only one in six inherit their wealth -- the rest acquire it through hard work and smart work. Do me the favor and drop the adolescent Marxist class warfare crap. Adults only please. Posted by: The Colonel at January 27, 2004 12:45 PM | PERMALINK"Thus people like Paris steadily drop steadily down the economic ladder. It takes time, but it inevitably happens." ... Overalls to overalls in three generations. It's an American tradition. ... Robin said, "[Technology] nearly always emerges in response to a pressing need for which existing solutions are not adequate." Then we would have stopped inventing things in 1915. Our needs are met. Posted by: me oh my at January 27, 2004 12:48 PM | PERMALINKThe shrinking, or near-extinct, or threatened middle class is a paranoid delusion, contrary to fact. Ask your pal Paul Krugman: After all, even if you use an unadjusted CPI, the standard of living of the median family (50th percentile) in 1950 America appears startlingly low by current standards. In that year, median-family income in 1994 dollars was only about $18,000. That's about the 20th percentile today. Families at the 20th percentile--that is, poorer than 80 percent of the population--may not be legally poor (only about 12 percent of families are officially below the poverty line), but they are likely to regard themselves as very disadvantaged and unsuccessful. So even using the old numbers, most families in 1950 had a material standard of living no better than that of today's poor or near-poor.Posted by: Derek James at January 27, 2004 12:49 PM | PERMALINK
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