“As a side note, the Communist Party has also given their endorsement. While Communists are certainly responsible for more deaths and misery than the Nazis could ever dream of, at least their intentions were good, so I’ll give them a pass.” — Post on the very liberal DailyKos blog
Monthly Archive for October, 2011
“Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years. According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396. ” — Greg Mankiw, Professor of economics at Harvard University
This John Stossel series is a great watch and touches on most of the fundamental points driving the education debate:[youtube:http://www.youtube.com/watch?v=zyswCDwe3uo]
I admittedly don’t know much about the foreign policy issues surrounding the Israel and Palestinian conflict aside from what I have heard/read from Chomsky and leftists in general. They make some good arguments, but I am suspicious of taking them at face value since these same people make economic arguments – a topic I do claim to have some knowledge about – that suffer from very elementary and erroneous perceptions and facts. So to fill the void, I search for discussions/debates on the topic between two knowledgeable people from each side.
In that aspect, I found this bloggingheads discussion between Peter Beinhart, representing the leftist view, and Eli Lake, representing the center-right view, informative.
The best explanation of why this economic recovery is both taking so long and especially affecting those at the lower end of the economic spectrum was given by economist Bryan Caplan who I quote in full here:
Nominal wages rarely fall – even when there’s high unemployment. Part of the reason is regulation, of course. But even under laissez-faire, employers have to cope with human psychology. Almost all workers think that nominal wages cuts are unfair. And while employers might be tempted to say, “Fairness be damned,” they have to face the fact that hurting worker morale hurts productivity and profits. (See here for lots of supporting evidence). [Broken link fixed.]
So how can the market get back to equilibrium? The simplest solution is to freeze nominal wages and wait for inflation to bring the real wage back to realistic levels. A more proactive solution, though, is to cut benefits, and hope workers don’t mind.
Cutting benefits sounds crafty. But on reflection, it might be even worse than cutting wages. Consider: Most workers’ main benefit is health insurance. If employers curtailed this benefit, would workers find it unfair? I don’t know of any survey research on this point, but I’ll bet that most workers would react viscerally to cuts in health insurance. Higher co-payments? Unfair! Tighter coverage? Unfair! Cheaper plan? Unfair, unfair, unfair!
It gets worse. Unlike wages, health insurance costs go up automatically – at a rate well above inflation. So even in the midst of severe unemployment, total nominal labor costs keep rising – unless employers choose to risk severe morale problems.
In past recessions, this was probably a small effect. Back in 1980, health care was only 9.2% of GDP. By 2009, this percentage had nearly doubled to 17.6%. To get a feel for the numbers, consider George Mason. My total Kaiser premium is $1448 per month. If this rises 5% per year, labor costs soar $2700 in just three years. Relative to an econ professors’ salary, that’s not much. But for lower-paid workers, it’s huge. Even if there were a “total pay freeze,” a worker who cost $30k in 2008 would cost 9% more in 2011.
My speculation: The high and rising cost of health insurance, combined with health insurance fairness norms, is a major reason why employment is recovering so slowly. If I’m right, we’ve got a serious problem with no easy solution. As always, though, we should start with the low-hanging fruit: Don’t mandate coverage, don’t punish firms for trying to control costs, and above all, don’t amplify workers’ dysfunctional beliefs about fairness with demagoguery. Sigh.
For the record, I agree with every single point David Frum makes here against Republicans in general:
On the most urgent economic issue of the day – recovery from the Great Recession – the Republican consensus is seriously wrong.
It is wrong in its call for monetary tightening.
It is wrong to demand immediate debt reduction rather than wait until after the economy recovers.
It is wrong to deny that “we have a revenue problem.”
It is wrong in worrying too much about (non-existent) inflation and disregarding the (very real) threat of a second slump into recession and deflation.
It is wrong to blame government regulation and (as yet unimposed) tax increases for the severity of the recession.
It is wrong to oppose job-creating infrastructure programs.
It is wrong to hesitate to provide unemployment insurance, food stamps, and other forms of income maintenance to the unemployed.
It is wrong to fetishize the exchange value of the dollar against other currencies.
It is wrong to believe that cuts in marginal tax rates will suffice to generate job growth in today’s circumstance.
It is wrong to blame minor and marginal government policies like the Community Reinvestment Act for the financial crisis while ignoring the much more important role of government inaction to police overall levels of leverage within the financial system.
It is wrong to dismiss the Euro crisis as something remote from American concerns.
It is wrong to resist US cooperation with European authorities in organizing a work-out of the debt problems of the Eurozone countries.
It is wrong above all in its dangerous combination of apocalyptic pessimism about the long-term future of the country with aloof indifference to unemployment.
With that said, I also agree with every single point he makes here.
“I don’t feel any obligation to represent liberal Democrats. Over the years I’ve argued, for example, in favor of getting rid of the corporate income tax, creating school vouchers inversely related to family incomes, and extending free-trade agreements — positions not exactly favored by liberal Democrats.” — Robert Reich
This inevitable tradeoff appears again in UC online class offerings:
Lecturers make up nearly half the undergraduate teaching corps. They fear — with good reason — that the classes they teach are the most likely to be moved online. Their union, an affiliate of the American Federation of Teachers, has negotiated a deal with UC that requires union approval for new online courses or programs that threaten lecturers’ jobs. “We feel that we could stop almost any online program through this contract,” union president Bob Samuels told Inside Higher Ed.
“The University of California last week tentatively agreed to a deal with UC-AFT that included a new provision barring the system and its campuses from creating online courses or programs that would result in “a change to a term or condition of employment” of any lecturer without first dealing with the union. Bob Samuels, the president of the union, says this effectively gives the union veto power over any online initiative that might endangers the jobs or work lives of its members. “We feel that we could stop almost any online program through this contract,” Samuels told Inside Higher Ed.” — Link via Tyler Cowen
I gotta be honest, I haven’t been following the presidential candidates for 2012 as closely as I’d like, but I also gotta say, this took balls on Rick Perry’s part and for that, he is my current favorite candidate for 2012:[youtube:http://www.youtube.com/watch?v=RDZNWc50-eY] [youtube:http://www.youtube.com/watch?v=la2yvb063yY]
Economist Russ Roberts writes:
The death of Steve Jobs is a useful reminder of the fact that much wealth is not winner-take-all but winner makes everybody better off. Steve Jobs’s estate is estimated to be something between $6 billion and $7 billion. About 2/3 of that is Disney stock he received when Disney acquired Pixar. The rest if Apple stock. This is clearly a fraction, maybe a small fraction of the wealth Jobs created for the rest of us.Yes, he made a lot of money. But he made it by making the rest of us better off. He didn’t take it from us. He shared it with us.
One reason that the top 1% only earned 8% of the income in the 1960′s vs. 20% now is that our economy has changed in ways that are good for all of us. I pause here to mention the obvious–the bottom 99% can be better off with a smaller share of the pie if the pie is getting sufficiently bigger which is what has happened over the last 50 years. But the top 1% gets a bigger share not because they are hoarding more of the pie. The top 1% gets a bigger share because the opportunity to create a lot of wealth for everyone has changed.
Think of it this way. The IBM Selectric was a wonderful improvement in the typewriter market. The people who created it and ran IBM made a lot of money from that improvement. And that’s nice. But improving the personal computer makes you a lot richer now than it did then. It creates more wealth. So the most creative people in technology today (Brin, Jobs, Page, Gates, Zuckerberg) make a lot more money than they did in 1960. That’s good.
Full post can be found here.
“I have an even better argument against tax cuts for the rich. According to Bernstein’s logic, they don’t even work for the rich. If you look at the mean income for the top 20% of all families, it also shrinks between 1989 and 1992, grows between 1992 and 2000 and falls between 2000 and 2010. So those tax cuts for the rich didn’t even help the rich. Kind of ruins the class warfare story, doesn’t it? (I hope to get some graphs up on this in a later post.) The same results hold for the top 5%. Data are here–use the numbers corrected for inflation. Maybe, just maybe, other factors than tax policy explain our financial well-being.” — Russ Roberts