« The Consequences of Abandoning China’s One Child Policy- Becker | Main | Does Redistributing Income from Rich to Poor Increase or Reduce Economic Growth or Welfare? Posner »

12/29/2013

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Jack

Hmmm, Becker spends much of his essay on making the case that we have, and have long had, a structural unemployment problem not likely to be "fixed" by any policies being talked about, much less, proposed.

We're in, at least year twelve of a "jobless non-recovery" with the only "recovery" being that of corporate earnings growth and stock market gains -- Ha! with much of the "gains" due to companies having so few investment opps that they, instead, are busily inflating their stock valuations, not by productivity gains, but by buying back their own stock.

As Becker points out, an under and unemployment rate in the mid-teens wreaks havoc on those least employable. These days that category includes the drop outs, a high percentage of HS grads, and reaches up to include a worrisome percentage of college grads with a debt hanging around their neck the size of a ships storm anchor.

As for federal "efforts" at redistribution it seems a futile endeavor. As more "benefits" such as the token "earned income" or housing subsidy "trickles down" to the working poor, companies such as the wealthy Walmart simple take advantage of them and refuse to increase pay enough for their "valued associates" to stand on their own after a hard day of standing at the cash register.

Futile? Yep! As Becker and Posner agree the GINI just keeps rising and has risen more since the melt-down and bailout than in the decade before. A high GINI wouldn't be so bad IF the middle income and lower folk were able to afford to live...... and participate in the economy.

Becker claims what is needed is "more investment". But is that the case? We KNOW that companies have a bundle sitting on the sidelines, oil companies have had the most profitable decade in history, and, as above, we know companies large and small are buying back their own stock. How about all that cash stashed "overseas?" Sure it would be "nice" if they could bring it back tax free, BUT if there WERE lucrative investments here, the capital would return, or be borrowed against.

No....... what is missing is consumer D E M A N D. It would take little investment to ramp up production of cars (ours is the oldest (and gashoggingest) fleet in history, consumer electronics and appliances (most of which are still built in the US) or to fill our existing cafes, retail stores and vacation spots...... even dentist's chairs.

Homes are our largest purchase and though there is surplus inventory in some of the former "hot markets" demand is weak due to the loss of one or more jobs in the household, credit wrecked during the melt-down, or as we see with our youth, few job prospects and little choice but to delay family, and/or take a "Walmart" job and begin life in subsidized housing with the kids born under Medicaid.

I'm all for the technical investments Becker suggests as "the answer" but we can and must "walk and chew gum at the same time".
No matter what tech shows up, our largest purchases will still be home, medical care, cost of educating the next generation, cars, food, appliances, the infrequent vacation, I-phones and other electronic gadgets that don't take a high percentage of household income for those who opt to buy and maintain them.

In short we're still and economy 70% dependent on consumer spending and if the prospective consumer does not have the income to turn his many wants and needs into economic demand we'll continue to suffer a slow growth rate, HIGH unemployment and sooner or later a great deal of social unrest.

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There are a couple of ideas I'd like to bring to the discussion. These are not new or original but things that get lost in the general public discourse of income inequality.

First, inequality is the wrong question and an errant locus of attention. As Thatcher stated very clearly, it's not the gap that's the issue, it is the standard of living. If the standard of living of our "poor" (lowest quintile) is rising and already higher that other societies, what does it matter how big the gap is? Rising standard of living is the right road. As Becker notes, where there is income equality as in China pre-1981, then everyone is chained to a very low standard of living. Income equality destroys incentive, consumes wealth and lowers living standards. If you choose income equality, try North Korea. But the standard of living for the average person in South Korea is far higher. The poor of South Korea have a higher standard of living than the vast majority of North Koreans. Where would you choose to live? The gap is not relevant, the living standard is.

Second, Equal Opportunity and how to provide opportunity is the goal we should seek. There are so many examples of folks who have risen from poverty to success. Some are at the Hover Institution today. Most Americans come from poverty either recently or generations past. The real question should not be 'why are poor people poor?' it should be 'why aren't poor people successful?'. (Another question I read somewhere else.) We live in the land of opportunity, why aren't some taking advantage of it when so many others are?

Third, Sorry to say it, but no additional amount of money thrown at educational institutions will stop people from dropping out of high school. Perhaps high schools should be tailored to not only offer College Prep but also skills training and certification such as welding, electrician, mechanic even software development. Wouldn't it be interesting to see a high school economics course based on books by Thomas Sowell? But all of this pales relative to dropping out of high school. How to encourage a HS education which is basic pathway for opportunity to climb up the income ladder? How to encourage people to even have a desire for self made success? More money at education is not the solution. Providing opportunities is what the institutions can offer. Instilling the desire in young people to succeed is where we fall short. It's something the government cannot do even through the coercion of its Utopian quest.

We are all, each and everyone of us suffering from income inequality. Of course we are. Some really rich people in this country are making a whole lot more money than me and have a huge amount of wealth as compared to myself. Isn't that unfair? Wrong question. Isn't our standard of living in this country far beyond anything human beings have experienced in the past? Our middle class standards far exceeds that of royal aspirations just a few generations ago. How did that happen? Wealth creation. Differences in income and wealth distribution are merely artifacts of wealth creation and the meteoric rise of living standards. Discussions of how to equalize income are wrong headed. We should instead look how to provide incentive to take advantage of opportunities.
Nick

someideas

Cost shifting and subsidizes raise prices and are key issues with income inequality. Housing, health care, and education are the industries with the highest costs and they are also the industries with the most subsidizes and cost shifting.
Cost shifting is Marxism, which states from each according to his/her ability to each according to his/her need. Cost shifting doesn’t work, it is discriminatory, and it drives up costs/prices.
In addition, illegal immigrants and immigrants in general are driving up housing costs and driving down wages. With millions of US citizens homeless and jobless why is our government even considering amnesty?
Hayek said, “The road to hell is paved with good intentions.” Well, we have created the highway to hell with all of the government interventions, bailouts, and cost shifting and now we cannot afford housing, health care, or education.
The free market only works if people are allowed to both win and lose their own assets/resources, however big or small. Wall Street and banks would make more prudent investments if they had to eat their own losses and homeowners would be more circumspect in purchasing a home if they had to put 20% of their own money down, knowing the government would not come to the rescue.
To further reduce the income inequality, no company should be able to deduct more than $100,000, per individual, annually. Companies would be less likely to pay huge salaries if they had to bear the full brunt of high salaries rather than shifting the cost to taxpayers through deductions.
When the government gives bailouts, tax breaks/deductions, amnesty, etc., then individuals and groups take advantage of the situation and create moral hazards which lead to higher prices, unaffordability, and income inequality. A healthy society can no longer sustain this foolhardiness.
The beauty of capitalism is it weeds out inefficiencies through accountability, and it protects the masses from poverty. http://www.youtube.com/watch?v=RWsx1X8PV_A

Jack

Plus -- thanks for joining the conversation but trouble is the living standards of those of min wage and other low wages that don't cover the costs of the most basic level of living IS the problem. Were such not the case the problem of those at the top skimming off multiples of what their forerunners earned four decades ago would be less dire.

As for Becker's (somewhat silly) mention of possibly flat income curve of China (but for upper level party members? corrupt officials?) NO one is favoring all incomes being equal. Instead the lament is that of most of us not participating (at all) in the wealth created by OUR having more than doubled per employee productivity over those 40 years.

It should be simple to see that if the incomes of 90% of the consumers don't out pace inflation that there will be LITTLE opportunity for growth in an economy that is over 70% dependent on that consumer spending. The fact of the "once percenters" having far more than they could possible spend on consumer purchases does not "balance" the stagnation of the rest of the wage earners.

"Equality of opportunity?" Yep! The great American concept! But as upward mobility in the US has rigidified and fallen below that of Germany and other nations we once thought of as being "class based" we're not doing so hot on that noble goal either.

Consider that, by FAR, it's the sons and daughters of the 25% who graduated college in the last generation who go on to enroll and finish college today. Worse yet there is an even greater edge for those who are inheritors. And what are we doing to level things at the starting gate? Ha! ending the inheritance tax so that the immense fortunes and political power of, say the Walton heirs will not be diluted or contribute anything to paying our bills and repairing the long neglected infrastructure so crucial to us all including Walmart's vaunted "just in time" inventory management.

On education there is no need to apologize for trotting out the right wing mantra of "throw money at it." But to your suggestions, back when FEW moaned about school spending HS HAD wood, metal, and mechanic shop's as well as classes in art, music and dance.

I suppose that in addition to such "fripperies" being cut by an overzealous effort to "teach to the NCLB tests" that the opps provided by some basic tool using skills are few.

Texts by Sowell? Look the guy has an econ degree but in addition to being a complete flack for rightwing propagandists is something of a dishonest fool. But it would be good to teach an intro to econ in HS --- (today kids in advanced placement sometimes are offered an econ class) so that those not going on to college (or ducking even an intro to econ there too) would have some idea of the precepts that underlie our mixed economy. BTW there ARE a wide selection of Econ 101 texts that refrain from spewing the mythology and ideology of a Sowell or W. Williams.

"It's OK that the one percenters have grabbed all of the gains in the wealth generated by more than a doubling of productivity because our average std of living has increased and is better than in the emerging nations?"

Well........ a few problem crop up. First "average" is not median or most of us. While AVERAGE earnings have soared to $50,000 per capita, the very stagnant median household (typically of more than one earner) is but $52,000. You've likely heard of the fellow sleeping in the doorway whose feet are in 40 degree weather and head in a comfy 80 degree spot, who "on average" should be comfortable.

"Incentives to take advantage of opps?" Sure....... isn't that a constant? Well, except for their being LITTLE wage incentives for most of us who make up the 90% suffering LONG stagnant and even declining wages. Upward mobility was surely an incentive back before the ladder largely quit working.

What has to be faced is that we live in a DEMAND constrained economy where the "opps" for most is to continue in place, with raises not matching inflation or join the legions of unemployed.

Here's the basic formula:

In a consumer dependent economy stagnant wages for most EQUALS a stagnant economy for ALL.

But, Ha! perhaps someone (in denial?) can posit another reason for a decade of "jobless non-recovery" "boasting" a meager 2% annual increase in GDP that barely outpaces population growth and is utterly ineffective in reducing our 15% rate of under and unemployment.

Right wing cut, chop, spit, hope and pray is NOT going to be our salvation.

Jack

Someideas: Yours is such a garbled bunch of confused rightwing mantras that it would be fruitless to try to disentangle.

All I can do it urge your to take a basic course in economics before branching out to cherry pick tidbits of rightwing darlings like Hayek. Sorry to be so blunt, but in all things it's best to master the rudiments first.

Oh! and history, which is often easier reading is helpful too! For example we're discussing "redistribution" and the history of the upward redistribution that HAS left most of us scrambling over stagnant wages while the costs of energy, food, education, and housing keep munching away at yesterday's paycheck.

"Funny thing" those of the extreme right NEVER mention the upward redistribution of the last 40 years that were greatly enhanced by Bush's utterly unaffordable tax break for his wealthy pals and sponsors.

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The disparaging of a differing position and view point on the socialist agenda is disappointing but not surprising. I should feel chastened. However it doesn't change the facts on the ground. The lower income bracket should be brought up, not the others brought down.
If one does not drop out of high school and gets married before having children, the chance of remaining in the the lower bracket is next to nil. The knowledge of the opportunity for successful results needs to make its way into those places where people are told they can't be successful.

Jack

Plus: No intent to disparage, but what would be the point of such a site and discussion were ideas and opinions not tested? And, hopefully, against known facts and long tested economic tenets as compared to the ideology, propaganda and pap that is in much greater supply?

We agree completely that there MUST be increases in lower and, formerly, middle incomes lest what remains of our economy continue to stagnate.

Of course the means of increasing the long stagnant and even declining wages are in the short run, limited to (small) increases in prices, or slicing a bit from gross profits and the related stock holder value and/or dividends. Each of which means slowing the rampant growth in what is skimmed off by the "one percenters".

In the longer run, increased wages can come from higher and more profitable sales as those WITH a buck to spend re-enter the marketplace. Even later, as either by political or market action wages could be increased in line with ever increasing levels of per worker productivity gains. (Currently THE problem is that of NO productivity gains "trickling down" to those doing the work, lest one hang their (Chinese made?) hat on relatively lower prices (in some sectors) and fiddling with "higher quality products for the same price" which is a very difficult row to hoe.

It is true that those managing to graduate and get their foot on one of the lowest rungs (which of course, today, leaves out a HIGH percentage of our youth, including not only HS grads but college grads being pulled under by "their share" of a trillion and half of college DEBT.) but much of the point is that of the ladder NOT being lifted "by the rising tide lifting ALL of the boats" as was JFK's long ago hopes and prediction. Something very, very wrong and it IS the working folk (and our economy as a whole) that is paying the hefty price.

"The opps?" Well, trouble is, increasingly the first rung of a still rather stagnant ladder of limited upward mobility goes to those having graduated college in "certain" disciplines. Better yet is that of having a "class" creating inherited position or inheritance.

As college grads are still less than 30% of our youth, and an even lower percentage of our workforce, WHAT is to be done with the other 70 - 80% of our workforce? Many of whom have been under or completely unemployed for six months, a year and even longer.

In Britain where their own foolish response to the melt down has created even higher rates of unemployment a recent poll indicated 30% of their young folk entertaining thoughts of suicide and feeling "worthless". Is their mess or our own any way to run a democratic nation or an economy that our founders mandated to "develop our national resources for the well-being of THE people?" Nothing much about having the one percent cart off ALL of the gains of our amazing doubling of per capita productivity.

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Friend Jack,
Your comments are appreciated and I understand your fears that things are getting worse. Truly in the past few years, the growth of government, its affront to liberty and free choice, its total disregard of the constitution and rule of law have subsumed the human capital that powers our historic rise in living standards for all people. But our country is still the land of opportunity and the beacon of freedom most humans yearn for.
Just today, that opportunity was availed to elevate an individual and his family from poverty to success. A young boy came to California from Mexico, learned English, worked in the low paying entry level jobs on the farms and in the grocery stores paying for his law school education. He just received his law degree and license and will begin his practice. No one told him he could't succeed.
The path is open to all who have the desire and make the effort. Its a well trodden road.
Its about the human desire to succeed which desire is removed by dependency, victimhood and the culture of results inequality. Drop out of high school and the chance of success for you and your family is next to nil.

Jack

Plus: Thanks for your response, but truth is the size and cost of government has not increased in recent years. The only major diff that prevents us from paying our bills with about the same tax revenue percentage of other post-WWII years is that of the DEBT service from the accumulated deficits of Reagan, Poppy, Bush and of course during the steep revenue fall off and hefty unemployment and welfare costs of the post-melt down era. Yep! next to our bloated military the next largest single check we write is to those here and abroad holding our interest bearing bonds.

Here are some helpful graphs depicting the recent decline in spending vs gdp:

http://www.usgovernmentspending.com/us_20th_century_chart.html

While the story of the illegal immigrant who has been allowed to practice law here was charming and perhaps even inspirational, truth is WE are creating about 7,000 more lawyers EACH year than there are employment opportunities. Many are working in low paid jobs either in their area of expertise or in entirely different low paid jobs of under-employment and are being dragged under by the weight of their large student loans. We discussed the trill and half owed before.

Ha! citing a few "success stories" to refute?? the glaring problem at hand reminds me a lot of the civil rights era and the stories of the "superspades" that cited the success of Jackie Robinson, Belafonte and a few others with the status quo seeking bigots declaring "If THEY can do it..... things must be just fine". But I hope such is not your intent?

Yep, rereading your last repetition of all being well, I guess the above IS your intent? Kinda let the dark shades of ideology drop down to obscure the facts I've presented.

So, yep, you and your younger family members keep believing that you can clamber up the sinking ladder to join with the ONE percent who HAVE taken virtually ALL of the gains from more than a doubling of US worker productivity and are NOT spending sufficient amounts to spur this heavily consumer dependent economy.

See if you can find something real or even imaginary to refute the basic equation:

Stagnant and declining wages for MOST in an economy that is over 70% dependent on consumer spending EQUALS a stagnant and declining economy for ALL and with the related unlikelihood of their being rungs on a ladder to climb ---- for most.

More? The current snail's pace 2% growth of GDP just barely outpaces US population increase of 1% per year. Toss in continued productivity gains and offshoring some percentage of jobs and "we" expect to decrease under and unemployment? or grow wages for those doing the work? Ha!

someideas

Jack, everything is interconnected so cost shifting, subsidies, bailouts, redistribution, taxes, amnesty all affect income inequality. If we want more equality then we need to let the free market work. The free market should be free of cost shifting, subsidies, bailouts, redistribution, etc. It does not mean that the government can’t impose some rules, but ever since the Wall Street bailouts, cost shifting, subsidies, tax deductions, and the Community Reinvestment Act accelerated in the 1970’s, income inequality, the high school dropout rate, and unemployment have also accelerated.
When you compare North and South Korea or East and West Germany, or the former USSR, then it is easy to see the harm caused by trying to make everyone equal through bailouts, cost shifting, subsidies, etc. You can try to level the playing field but human nature will never allow you or the government to create equal outcomes. It is up to each human being to decide how he/she will play the hand he/she is dealt.

Jack

"If we want more equality then we need to let the free market work."

This claim is counter to the chapters in every Econ 101 text that depict those of lower skills (and those selling generic commodities) have NO (zero) market power. Those who'd rather not read the typically short chapter can take the short cut of listening. In the NO market power sector one hears "What are "they" paying?" Well up in the income levels you'll instead hear "Well WE sat down and hammered out an employment contract and compensation package that included H/C and matching 401K contributions".

That is THE reason every advanced nation has a min wage law (typically with a min wage higher than that of the US) and a variety of farm price supports.

For now we should skip the grab bag of talk radio buzz words as each would require a longer examination than I'd want to perform.

As for using the results of a centralized command economy that spent far too much of what little they had on their military as "Exhibit A" for doing nothing in response to the SOARING wage/wealth inequality of the US the situations are FAR too disparate for comparison. It's largely of talk radio ideologues most of whom have never been in the same room with the most basic economic text.

It IS puzzling how so many on these pages seem only able to deal in black or white, all or nothing terms which make it difficult for them to understand even huge gradations. For example you're resistant, it seems, to even small increases in the min wage that would make "those folks" more able to live their lives w/o partaking of the transfer programs you mention and dislike.

Meanwhile at the other end of the spectrum you're perfectly "all right" with CEO's and upper management "compensations" having SOARED from an already high in the world, 70 times working folk's wages to over 400 times that today......... and rapidly counting. In terms of wealth things are skewed even more radically toward those of the top 10%.

"Let it continue?" Until there is nothing for those doing the work? And zip for "going shopping" to sop up some of our excess productive capacity of our VERY productive nation, and ha! enough of China's and others that they don't go into deep depression either.

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