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July 28, 2006

Are We Having Fun Yet?

To follow up on my inequality post from earlier today, the new Employment Cost Index from the Bureau of Labor shows compensation falling behind inflation, which means that, in real terms, workers are making less money this year than they did last year. Indeed, according to new revisions from the GDP report, the average workers has lost 1.2 percent of his real income a year between 2003 and 2005. So here's your awesome economy: Most Americans are getting poorer.

July 28, 2006 | Permalink

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The sad fact in all this, Ezra and everyone else, is you are right but it does not matter. What every politician knows in their heart but can never admit is that there is little to nothing politicians or presidents can do that will have any effect on the income growth or lack thereof for the American people. The income gains of the 1990's (which incidentally started in Bush I's last years) were the result of the tech and internet boom of which the congress and president had no part at all. This led to the over-building, over-capital spending and over-capacity of 1999-2000 and then the stock crash and recession of 2001. Throw in 9-11 and things just got worse. Whether we had president Gore or Bush, the results would have been pretty much the same on the macro-economic level.

I''d be interested to know, what is your solution to this income decline? Massively higher taxes? The very rich have ways to avoid him (move out of country, shift wealth to capital instead of income) the merely somewhat rich could be hit a bit, but nowhere near enough to make up for the income shortfall, and hitting them will have an adverse affect on employment.

Finally, compare our real income growth over the past 20-30 yrs with coutries that go in line with the socialist perspective (France, Germany, Italy et. al.) and we do much better than them. So yeah, declining real incomes suck, but there is little to nothing anyone can do about them.

Posted by: Scott | Jul 28, 2006 3:32:31 PM

Gee Scott,

Thanks for the lesson in tinkle-on economics, no-can-do rationalizations and a French straw man to boot.
It is obvious that Ezra suggests some solutions but I will name a few:
-> Do not eliminate the inheritance tax
-> Eliminate corporate welfare
-> Roll-back the regresssive tax cuts
-> Raise the minimum wage
-> Throw out the GOP corruption machine
-> Stop wasting money in Iraq
-> Invest in new technology like stem cells and nano-technology

Posted by: afterthought | Jul 28, 2006 3:54:09 PM

Re-reading my post, it is a bit harsh.
Sorry Scott.
I DO think that current policy makes the problem worse when there are some ways to make it better.

Posted by: afterthought | Jul 28, 2006 4:12:57 PM

But Scott, those countries that are "socialist" are that way because of their political system - their "politicians and presidents," if you will. And you just said that there is little to nothing politicians or presidents can do that will have any effect on the income growth or lack thereof for the American people.

Obviously there must be something else going on here, something entirely divorced from government or politics.

I bet it has something to do with the 1990's tech boom. See, we had some people, entirely unconnected to the government and not recipients of public money in any way, who invented the internet. Then, completely without any governmental help at all, several companies started to lay cable across the USA that was capable of carrying large amounts of data.

These companies, facing heavy competition in all communities due to a complete lack of government regulation, were winnowed down in the 1990's to a few, exceedingly efficient and hyper-responsive corporations that brought about the technological and economic utopia that was the 1990's.

You know, the same thing works in the pharmaceutical industry. With no protections whatsoever, and with no public money for research - and especially no sweetheart deals to just take over publicly financed research - the pharmaceutical companies are now perfect models of the capitalist system, the way things really should work. We have lots of innovative research, new products that are entirely different than the old ones (prilosec/nexium, claritin/clarinex), and affordable prices to boot!

/sarcasm, you wanker.

Posted by: Stephen | Jul 28, 2006 4:17:29 PM

I thought that all these guys got the memo that now the GOP's in charge and data can be cherrypicked to make the economy look like it's growing, the government actually does play a large and immediate role in affecting the economy.

Posted by: Stephen | Jul 28, 2006 4:20:31 PM

If you are a loser with no skills, there is no such thing as a good economy. If you got marketable skills, you get multiple job offers.

Posted by: BlaBlaBla | Jul 28, 2006 4:28:55 PM

Stephen,

Sorry, I mispoke a little when I said there is nothing politicians can do to affect real incomes. I meant to say there is little the can do to POSITIVELY affect those incomes.

On the other point, the internet's growth is driven by people, not the government. Look at this website and all the other things that people use it for.

I still stand by my point that macroeconomically, it makes little difference who is in charge, especially in the short term. Incomes are driven by 100's of millions of individual

Posted by: Scott | Jul 28, 2006 4:42:54 PM

Sorry, I mispoke a little when I said there is nothing politicians can do to affect real incomes. I meant to say there is little the can do to POSITIVELY affect those incomes.

Indeed, because we live in this, the best of all possible worlds, we should just sit back and enjoy the ride.

Posted by: TJ | Jul 28, 2006 5:15:13 PM

I meant to say there is little the can do to POSITIVELY affect those incomes.

The implication being that much can be done by government to negatively affect income. This is a faith statement.

My examples were to show that the internet itself, along with the infrastructure of phone, electric, cable and fiber optic wires would not be in place except for public money and government policy.

Without research done in publicly funded laboratories and/or with taxpayer-funded grants, the number of medicines on the market would be sharply reduced.

Without government involvement, the many products that have come out of the space program would not have come to market when they did, and would not have done so as cheaply as they did.

Without Ike's interstates, the largescale shipping of goods would greatly reduced, as would a lot of American tourism - not everybody can fly.

Speaking of flying, without its government contracts to build military planes with technology developed by the government, Boeing wouldn't have been able to build its civilian airliner fleet nearly as well or as cheaply, which would make the current levels of airtravel impossible.

In every one of these examples there have been and still are people whose incomes are due to the government's investment and involvement. Some of our largest companies, tributes to the greatness that is capitalism, would simply not exist if not for local, state and the federal government investing money and enacting policies.

I don't believe that all government action is good; equally ridiculous is the belief that it is all, or even mostly, negative.

Posted by: Stephen | Jul 28, 2006 5:17:53 PM

Scott, if you believe the things you're saying, then please cite examples or offer reliable sources or perhaps even links to peer-reviewed studies that agree with you, otherwise you're just spouting conventional wisdom or makin' stuff up.

I can shoot down your argument by citing two government mandates that did much bring about the positive outcomes (jobs creation, wealth creation, economic activity) of the tech boom of the 1990s. First is the Telecommunications Act of 1996 which laid the groundwork for the enormous opportunities that private enterprise cultivated in the Internet, wireless and cable.

The second was the Y2K scare. Government mandates created a high bar for both software and hardware compliance that resulted in new purchases and upgrades, as well as the attendant economic activity like technical support and installation, neither of which would likely have occurred had the system been left to its own devices (so to speak).

Given more time, I'm sure I could cite more examples, but suffice to say, you don't even understand how our system of government works if you continue to hold such beliefs.

Posted by: Rick | Jul 28, 2006 5:22:40 PM

If you are a loser with no skills, there is no such thing as a good economy. If you got marketable skills, you get multiple job offers.

This commenter is oversimplifying, but the essence of what he says has some truth to it. While he places all of the responsibility on the individual, Ezra's post places very little. Instead, the individual is a helpless cog in a huge machine with little control over his own destiny. Education and drive are not rewarding.

Both are extreme views.

Posted by: Fred Jones. | Jul 28, 2006 6:24:42 PM

Fred --

Huh? What's so extreme about Ezra's view? Does it really make sense to you that the top 1% of the US economy is actually somehow responsible for 36% of all increases in US output? What exactly are they doing? And if they are truly economic supermen, why did they tolerate the rest of us laggards for so long? After all, it wasn't so long ago (indeed, the second half of the 1990s) that income grew nearly uniformly accross the income distribution.

Obviously, there are things that a goverment can do to reduce income inequality. A government could enforce its own labor laws, for starters, and strengthen them (making it easier for workers to join unions) for seconds. It could curtail the privilages of intellectual property, establish global standards for liscencing in the professions, and establish uniform national standards for company law which enable shareholders to effective hold accountable the corporate bureaucrats who run their companies and mutual funds. These things would reduce income inequality in a hurry.

Posted by: Rich C | Jul 28, 2006 7:09:37 PM

I agree Fred--both sides are extreme; in the examples cited by Stephen, ie-Ike's Interstate, it is the government helping people help themselves which is valuable.

On the other hand we have a trillion dollar toilet we're building in Iraq for flushing tax money down the drain which is only making military suppliers rich. I'd say that's pretty darn macroeconomic.

Posted by: Steve Mudge | Jul 28, 2006 11:57:51 PM

Steve,

Not sure how I'm extreme in this. I was merely trying to point out how the government can have a positive effect. In no way did I claim that the government just did everything; rather I used examples of government investment that have allowed others to use their ideas and innovations to use them to their full potential.

Really, there isn't anyone on the left who argues that all corporations are inherently bad, all market-based solutions are inherently wrong, all work done by private citizens with private money is wasted. That's absurd.

But the counterclaim is often made. "The Government" has for some people become an entity entirely divorced from the people who form it and its own setting, which is equally absurd.

Posted by: Stephen | Jul 29, 2006 12:13:38 AM

Sorry Stephen--I meant to be complementing your examples as "good" government--not handing out money blindly nor stranding people entirely...guess the words just came out unclearly--the reference to the extremes was regarding Fred's comments about Blablabla's post....its Friday...

...hey, its Friday!

Posted by: Steve Mudge | Jul 29, 2006 1:53:56 AM

Even though I am a corporate tool and huge believer in low taxes and fluid labor markets, I am also worried about inequalities of wealth in the United States. Whether or not it is "fair" according to one's political philosophy, my instincts tell me that it is not good. I do, however, have a couple of quibbles with Ezra's admittedly short-hand post:

1. The conclusion that "most Americans are getting poorer" does not follow from the data offered, because average household net worth is (or at least was through 2004, the latest year I could get data on a quick search). Now, you might say that the increase in the average is concentrated in the hands of a few wealthy people, and that may be true -- didn't research the point in the 17 seconds I put in. Point is really that wages are not a wholly reliable proxy for wealth and poverty.

2. A decline in the average wage does not mean that even the average worker is getting poorer. There are vast geographic differences. I am an employer in New Jersey -- we have hundreds of workers not far from Trenton -- and I can assure you that wages are going up rapidly in this market. If you are reliable, responsible, not a complete idiot (and this has nothing to do with formal education) and do not create problems in the workplace in this highly compliance-oriented world in which we live, your pay has been going up well over the rate of inflation, and that does not even include the soaring cost of the health benefits component of your compensation.

Posted by: TigerHawk | Jul 29, 2006 9:58:09 AM

Ooops. There is a game-changing typo above: "because average household net worth is rising"

Posted by: TigerHawk | Jul 29, 2006 10:00:36 AM

Another point: We have plants in southern California, Cincinnati, New Jersey (as I mentioned), Puerto Rico, south-central Pennsylvania and the suburbs around Boston and New York. I get a good view of labor costs in a lot of places. Based on these admittedly anecdotal observations, it is not that the typical worker is not seeing rising wages. He is. Anybody who can do anything even a little analytical or technical is doing pretty well. You don't need to go to Harvard to fall into this category -- I'm talking about somebody with a few terms at a community college and -- this is critical -- enough personal ambition that they are willing to learn new stuff all the time. The wage problem in the economy, I believe, involves several groups of people:

1. People who lack either the ability or the inclination to learn and change with the economy. This is a surprisingly small proportion of the total, and is not really a function of formal education so much as attitude, ambition, and native intelligence. There still are people who think that they can have one sort of job doing one stupid thing their entire lives. This is not a survival trait in the modern economy, even if it worked well through 1980 or so.

2. There are people who will not move to improve their economic condition. This is a social question that neither progressives nor conservatives tackle. The truth is that most of the rules that make European labor markets so sticky are there to subsidize people who do not want to move even 50 miles for a new job. Americans, by and large, are willing to do so, and to date we have seen no reason to indemnify them against economic harm if they are unwilling to do so. However, there is a subset of Americans who either cannot or will not move, and they can have a very tough time of it.

3. People who are simply terrible employees. There is some percentage of workers who produce far less than their colleagues, who are subversive at work, who gripe constantly but unconstructively, who do not share the mission of the enterprise, who hate their boss but not enough to change employers. These people are toxic, and I assure you they do not see their wages go up.

My sense is that virtually all people with stagnant wages fall into one of these three categories. They were protected when the private workforce was more unionized, because union rules quite famously prevented the employer from doing anything about these people. Now they are much less protected. The question is, what should be done about them as a matter of social policy?

Posted by: TigerHawk | Jul 29, 2006 10:17:23 AM

because average household net worth is rising

We're interested in medians, here. I assume you're only giving the mean, which is not too helpful to us when it comes to evaluating the experience of most American workers.

TigerHawk, like it or not, these are the experiences of the median workers. Many of us look at falling real compensation and think, "this is bad, how can we seek to remedy this?" and to answer that question, it's helpful to find out why this is happening, and you may well be providing some answers about why the median worker sees his wages falling. However, there's a dark undercurrent I find when it comes to seeking explanations for why this is occurring, which is not coming from a place of, "how can this be fixed?", but rather, "how can we blame the victims?"

I confess that I'm woefully uninterested in the hanging moral blame on that the majority of American workers for the fact that their wages are declining and much more interested in how we can create a better life for those workers who face an economy in which they're realizing a decline in real wages, regardless of the reasons that put them there in the first place. Telling them, "well the minority are doing great and outweighing your losses. The economy is doing great! You should be thankful!" isn't really helpful.

I myself am well-educated and hard-working and have experience in a variety of fields and can readjust quickly. If I lived in Brazil, Mexico, or India, I'd have a great shot at being successful there, as well. What is supposed to make America different than these other nations is that it's not just the elites who are supposed to thrive; it's supposed to be everyone. When they don't -- and when it's the experience of most workers to find that they're not doing well -- it's our problem.

Posted by: Constantine | Jul 29, 2006 11:52:35 AM

Tigerhawk,

Your comments say more about your life experience and your self-perception than what other people are like.

I have also been an employer, and can testify to the level of idiocy that can be found in the workplace. I can also testify to the existence of bright, articulate, hard-working people who haven't been able to get a high-paying job or rapid advancement or whatever it is that's supposed to magically happen for everyone who is "willing to work hard."

I've also seen quite a few people who have nothing going for them besides being born at the right place/time, with the right skin color and connections. And these idiots somehow manage to infiltrate the top levels of corporations.

Obviously there are variables present that go far beyond simplistic moral judgments on poor people.

Speaking anecdotally, my wife and I are both educated, both of us have had managerial experience, both of us get good performance evaluations. Our income is well above the median for our area. But if things started to go downhill in this area, we wouldn't be able to leave, at least not easily. Being responsible, we own our home. But if things get bad around here, it would become difficult to sell. I don't see how we should be expected to make 2 house payments.

In a poor economic situation, we would be less able to afford plane flights to other locales in order to do job searches and interviews. Not every company will fly you out to interview with them. As the parents of young children, we may not want to switch corporations based upon insurance considerations.

Simplistic assumptions based upon your own personal situation are not going to help the millions of people who have led - often through no choice or fault of their own - very different lives. This is not to imply that you haven't worked hard blah blah blah, but that we can't assume that everyone has exactly the same opportunities as everyone else. It's a nice myth to tell our children in order to motivate them, but nothing more.

Posted by: Stephen | Jul 29, 2006 12:37:21 PM

College-grad wages stuck in a slump

Who says? Oh those guys:

"Wage stagnation, long the bane of blue-collar workers, is now hitting people with bachelor's degrees for the first time in 30 years. Earnings for workers with four-year degrees fell 5.2 percent between 2000 and 2004 when adjusted for inflation, according to White House economists."

bla, bla, bla, Fred & Tigerhawk - just remember - the plural of anecdote isn't data.

Posted by: Bruce Webb | Jul 29, 2006 1:27:51 PM

And as long as we are having fun with numbers. You know that average 3.5% GDP growth from 2002 to 2005? Proof of the miracle of Bush tax cuts? Took quite the hit yesterday.

from bea.gov NATIONAL INCOME AND PRODUCT ACCOUNTS

Been revised down to an average 3.2%

"The percent change from the preceding year in real GDP was revised down for all 3 years: From 2.7 percent to 2.5 percent for 2003, from 4.2 percent to 3.9 percent for 2004, and from 3.5 percent to 3.2 percent for 2005. "

2nd year in a row that that 2003 & 2004 were revised down.

Posted by: Bruce Webb | Jul 29, 2006 1:40:37 PM

On the other hand we have a trillion dollar toilet we're building in Iraq for flushing tax money down the drain which is only making military suppliers rich.

That is true if you believe there is no value in persuing a democratic influence in the middle east. The exact same thing was said about pouring huge percentages of our GDP into rebuilding Japan and Germany after WW II. Many thought it was a waste to rebuild our enemie and reshape these extreme cultures. However, I think we can agree that in the long run, it was a value in more ways than one.

Posted by: Fred Jones | Jul 29, 2006 2:02:26 PM

An on net worth.

A whole bunch of that is housing, if your area gets a price correction it is going to take a lot net worth with it. And while you can borrow against a house you can't eat it.

Two years ago my appraised value was dropped about 30%. on paper I took a huge hit in net worth (condo lawsuit), this year they jacked it back up 56% (suit settled in our favor). Woosh, but strangely I did not feel worse off when it dropped (all that meant was a big property tax savings and at that point had no plans to move) and I only felt better after it went up becomes circumstances changed and I may need to sell.

Net worth is not the same as wealth until or unless it is converted, lots of people are assets rich and cash poor.

Posted by: Bruce Webb | Jul 29, 2006 2:10:39 PM

Income inequality is irrelevant, I dont understand what you liberals fascination with that is. Poor people should be evaluated on their own, not relative to rich people.

A proper analysis would be "how is the average poor person doing in the 2000s as compared to the 1990s, 1980s, 1970s, etc.

If poor people are getting better off as time goes along, then thats a definitive victory, even if they didnt improve as rapidly as rich people.

Whats the purchasing power of a poor person today? Can they afford to get enough food to eat? Can they afford decent housing, relative to their poor peers in previous generations? These are the relevant questions, not whether or not poor Joe Blow's income relative to Bill Gates is stable or decreasing.

Posted by: joe blow | Jul 29, 2006 10:19:21 PM

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