Labour and the American Middle Class

James K

James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

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96 Responses

  1. greginak says:

    While its correct to note the middle class is not disappearing, just stagnating, that does leave the rich out of it. The rich in the US have done incredibly well while everybody else is stagnant. That context changes things quite a bit. We have had polices aimed at helping one small powerful group.

    I agree with almost all of this post. What i think the gov can do is more to invest in infrastructure and research ( which is pretty much peanuts compared most other things). Those things not only create jobs but can lead to better things in the long term.Report

  2. Pat Cahalan says:

    > The stagnation of the past decade is a definite concern,
    > but stagnation is not decay.

    It can be if the cost of living or of some baseline good skyrockets. Which is certainly not uniform, but is occurring in some places.

    It can also be a problem with certain other facets of our overall economic engine. If your ROI is flat or negative, interest on your initial investment isn’t beating out inflation, and you’re losing real wealth even while your income seems to be stagnant. Witness, the real estate market 🙂 If you can’t make your mortgage payment because your ARM adjusts, you lose the kit and kaboodle.

    Which, sure, is part of your risk when you buy property on paper (saving Tom the time of chiming in, here), but is still something of a point.

    At the beginning of the last decade, nobody expected that their wages would be stagnant over 10 years. If you actually performed a reasonable fiscal calculus you’d plug in something there, 3% at least, lest you invest too conservatively. Having that flatline affects you quite a bit.Report

    • James K in reply to Pat Cahalan says:

      The figures I cited above are inflation-adjusted, so cost of living increases are already accounted for.Report

      • Barry in reply to James K says:

        I’m willing to be that they didn’t really adjust for education and medical care, whose costs are sky-rocketing. And didn’t adjust for more women entering the paid labor force.Report

        • James K in reply to Barry says:

          Price indices are calculated by weighting changes in prices for each good by how much of the average person’s income is used to purchase that good. So yes, education and medical care will be accounted for for the majority of people. You’re right about women entering the workforce though.Report

      • Pat Cahalan in reply to James K says:

        Inflation adjusting can’t be uniform. It probably is in your charts.

        By which I mean if you’re averaging inflation across enough local areas, you’re going to be getting results that don’t generalize.

        I mean, you can still make a pretty good living in Montana and a few other states in the nation, relative to inflation. It’s much harder in California.

        Granted, the rational response is: “If your area is very far behind in income vs. cost of living, and the battle is even nationwide, it stands to reason that you can come out ahead if you move,” but moving isn’t always that easy.Report

  3. JakeCollins says:

    The claim that the middle class is merely stagnating does not take into account the increased pressures on the middle class
    -more health care costs
    -the end of defined benefit pensions
    -growing college tuition

    Thus, $60K in 2011 real dollars doesn’t go nearly as far as it did in 1975.

    Also, your account of where union wages comes from is mildly retarded… reflecting a simplistic Econ 101 perspective unaware of how economics works in the real world.
    1. “Workers” include management… thus union wages could dampen wage inequality between CEOs and janitors.
    2. Decreasing “Returns to capital” often in practice simply means decreasing the rate of increase. Why is this necessarily bad? [Of course for industries on the brink of collapse, this could be disastrous.]
    3. None of this analysis accounts for increases in overall prosperity enabled by a middle class that can buy stuff. (Hence the old Ford saying about his wanting his employees to be able to buy the cars they worked on).

    Most of all, the real world is a one big fat refutation for your thesis. Look at contemporary Germany or post-WWII America. But then again, reality has a well-known left-wing bias… which is why libertarians avoid studying the real world at all costs.Report

    • Co-sign this, albeit with a little more gentleness.

      I wasn’t thrilled with the “government works = welfare” trope, either.Report

    • James K in reply to JakeCollins says:

      1) There’s no money in management pay. Sure, individual executives are very highly paid, but there are so few of them in a firm that their total compensation doesn’t add up to much.
      2) What rate of increase? Returns to capital are pretty much constant, adjusting for inflation (outside of bubbles). And it’s not so much that it’s bad as it’s impossible. If you lower return to capital in an industry, the capital flows somewhere else. The demand for labour in the industry falls and either wages or employment fall to compensate. That’s not a game you can win.
      3) This effect is fictional, it doesn’t happen. Higher middle-class incomes mean lower incomes for someone else (in this specific case, we’re talking zero-sum). Increases in prosperity come from increases in productivity, and productivity isn’t changing here. Ford’s saying was pure rhetoric – he paid so well because he wanted to be very selective in who he hired.

      As for your real-world examples, both Germany and 1940s USA are poorer than the modern US, so I don’t see your point. Besides which there are something in the order of 150 confounding variables that might explain the difference in prosperity between two different countries / points in time, so you claim is of little value, unless you’ve done a massive amount of macroeconometric research to back it up.Report

      • Michael Drew in reply to James K says:

        You make some pretty darn confident statements there, Mr. James K. Rising middle-class incomes are just axiomatically an inherent wash in the economy, period, end of story? Not so sure I’mReport

        • Michael Drew in reply to Michael Drew says:

          (oops) …buying that one on no evidence or argument.Report

        • James K in reply to Michael Drew says:

          No, zero sum games are an inherent wash in the economy. What determines the prosperity of a nation is its capacity to produce goods and services. Moving income from some other part of society to the middle class doesn’t affect the production capabilities of a society so it can’t effect that society’s net output.

          That’s a simplified version of course, incentives might be affected depending on how the redistribution was performed. But most redistribution is at least slightly inefficient so the effect on growth would be if anything negative. That’s not true of all possible policies of course, but I’ll be leaving that for another post.Report

          • Michael Drew in reply to James K says:

            I would suggest that demand patterns have a great deal of impact upon what in fact is produced as output in a society, and that income distribution patterns, with their impacts upon consumption, inherently have potential effects in determining those demand patterns. But I admit I am no expert.Report

            • James K in reply to Michael Drew says:

              Oh sure, it effects demand, and the kinds of goods that are produced, but not the aggregate outputReport

              • Michael Drew in reply to James K says:

                Again, it seems like you are drawing an arbitrary line here: demand can influence the kinds of goods produced, but never the aggregate level of production. But why in the hell not? Because society can axiomatically never be producing below its maximum potential output? That is an axiom untethered to facts. Producers produce in response to demand; they don’t just burn at maximum intensity at all times no matter what. If you admit demand can induce changes in the distribution of production, it seem to me the burden is on you to show that it can’t also influence aggregate production. And you have barely put in an attempt to meet any such bar, even a minimal one.Report

              • Simon K in reply to James K says:

                Hold on a sec, James. Who said aggregate output was the point? It seems like we’re talking about welfare here rather than growth. The question is, does diverting more income to the middle class in the short run create any improvement in welfare on any time scale?

                In the short run, the marginal utility of income declines as you get more of it (how fast is unmeasurable, but it would be odd if it did anything else) so diverting income from people who already have tonnes of it arguably does improve overall welfare without needing to actually change the cash value of economic output.

                Secondly, people with plenty of income tend to use extra income to buy luxury goods, financial products and healthcare. In all of these businesses, productivity is low and productivity improvements are hard to come by. People with decent incomes will use extra income to pay down debt or improve the quality of the consumption goods and durables they’re using. These are industries where productivity is typically higher. Diverting income from less to more productive areas of the economy will improve the long term growth rate, no?Report

              • James K in reply to Simon K says:

                The point I was originally responded to was that transferring income to the middle class would increase GDP growth. Welfare effects are of course a different issue.

                In all of these businesses, productivity is low and productivity improvements are hard to come by. People with decent incomes will use extra income to pay down debt or improve the quality of the consumption goods and durables they’re using.

                Boosting productivity by artificially allocating more resources to high productivity industries would be a terrible idea. It would be sacrificing allocative efficiency for GDP, which is never a good trade.Report

              • Simon K in reply to James K says:

                Remember what we’re talking about is unionization. There’s nothing god-given about any particular set of returns to labor and capital, especially if there are in fact rents to be distributed. And since most business are at best in monopolistic competition, there usually are. I don’t see what’s “artificial” about diverting some of those rents away from capital and to labor. Its conceivable that unions improve labor’s share of those rents and thus improve growth. There’s nothing any more “artificial” about this than there is about all of those rents going to capital.Report

              • James K in reply to Simon K says:

                That’s a fair point, it depends on the policy you’re talking about.Report

          • Barry in reply to James K says:

            James K June 18, 2011 at 6:39 am

            ” No, zero sum games are an inherent wash in the economy. What determines the prosperity of a nation is its capacity to produce goods and services.”

            By a measure which rates equal two societies which have equal capability – society A, with a large and growing middle class, and society B, otherwise known as Dickensian.

            ” Moving income from some other part of society to the middle class doesn’t affect the production capabilities of a society so it can’t effect that society’s net output. ”

            This is an assertion with absolutely nothing to back it up.Report

            • James K in reply to Barry says:

              What’s your proposed mechanism, because I’ve studied growth theory and I can’t see how moving money to the middle class from somewhere else changes anything at actually affects the productivity of society.Report

      • Elias Isquith in reply to James K says:

        I don’t feel like you’re addressing the issues here on grounds more substantive than textbook boilerplate. Your #1 and #2 are kind of ridiculous statements, at least in the American context, considering the enormous amount of money that’s funneled to the numerically insignificant management as well as our contemporary reliance on a bubble-centric economy.Report

        • James K in reply to Elias Isquith says:

          And you seem to be addressing the issue here on grounds of a couple of misconceptions:
          1) On an individual level executive pay in the US is obscenely high, this is true. I’m also open to the possibility that there is some kind of market failure that is causing them to be so high. But even if the CEO is paid hundreds of times as much as the average worker, they’re also outnumbered by the average worker by thousands or tens of thousands to 1. In aggregate management pay doesn’t add up to much. There may be good policy reasons fro looking at why US execs are paid so much, but saving US companies a lot of money isn’t one of those reasons.
          2) This is how capital markets work, take it from someone who has actually studied them. If the industry is competitive, there won’t be any room for shareholders to take a haircut. If they aren’t competitive then my point about monopoly rents applies (i.e. yes unions do help, but promoting competition rents would help more). So I have one answer if the market is working properly, and one if it isn’t working properly, how is that boilerplate.Report

          • Elias Isquith in reply to James K says:

            It’s boilerplate because of its reliance on the magic market of the textbook rather than real-life examples, which you’ve so far dismissed for reasons of varying understandability (on my end). But I don’t want to get into a side-track conversation, really, because to me the biggest issue with your fundamental argument is the reliance on income, which, since you’ve studied this thing, you no doubt know is a limited, imperfect metric.Report

            • Simon K in reply to Elias Isquith says:

              Income is a terrible metric. But if we’re looking at the decline of the middle class, the other metrics show a much smaller effect. In particular, if you look at consumption inequality, the effect Pickety & Saez showed for income is not apparent. If you look at wealth there is an effect, but its smaller, and wealth suffers some of the same defects as income in arbitrarily excluding health and retirement promises for some people but not others.Report

              • Simon K in reply to Elias Isquith says:

                Wealth includes debt, since its assets minus liabilities. For various reasons I don’t think the household wealth numbers are very useful for welfare purposes, though. The assets included exclude various promises that aren’t liquid financial instruments. For instance, if you have your retirement savings in a 401(k) you have more assets that if you rely on a final salary pension. Who is better off?

                I suspect you’re thinking that maybe relative consumption equality has been maintained through debt accumulation. I don’t see a welfare problem with that so long as the debt can ultimately be repaid (not just carried forward). As long as it can, debt just transfers future income into the present, which is called “income smoothing” for obvious reasons. Problems only come if people’s expectations for their future income (and lender’s endorsement of them) turn out to be unrealistic. That’s what happens in a financial crisis and of course we just had one of those. So that sort of endorses the idea that there was unsustainable consumption going on.

                Color me skeptical, though. Its extremely hard (as in, its been an outstanding controversy for over a century) to come up with a airtight economic description of what “unsustainable consumption” really means at a systemic level. General consensus (old school Keynesians disagree) is its incoherent. Everything consumed must be produced, so if someone is consuming a given value of stuff, someone else is producing that value of stuff. This (or a more technically precise version of it) is called “Say’s law”. Individuals may get into excessive debt they can’t repay, but the economy as a whole or large classes of people within it cannot. Unless people choose to accumulate cash instead of spending it. Which is something else that happens in a financial crisis. But that’s nothing to do with consumption be unsustainable and everything to do with people choosing not to spend money because they’re afraid they’ll need it. If people are holding money, it can’t be used to repay debt. That’s why the supply of money and aggregate demand are important. Whether consumption at the economy wide level is sustainable depends on whether there’s sufficient money around that people want to spend to pay for all the necessary production.Report

      • Lyle in reply to James K says:

        Note that due to working conditions Ford was having extreme turnover before he raised the pay. This was costing him in terms of production, so he invented golden handcuffs to reduce turnover, just like we have seen off and on in the oil industry where the goal was to keep people (geologists and res engineers) who could retire on the job. The way was to pay more to get them to stay.Report

  4. Will H. says:

    If NZ is much like Australia, you would be surprised at the wage disparity here.
    As a journeyman (meaning someone who is certified as having completed an apprenticeship program; in my case, a five-year program), I can tell you that not all unions are the same. Lumping them all together only muddles things.
    There are: 1) Public unions, eg the public employees (AFSCME) and teachers (AFT & NEA), which do not involve themselves in a profit motive;
    2) Shop unions, eg auto workers (UAW) or the Steelworkers (USW), where you become a union member simply by gaining employment to a particular shop; and
    3) Trade unions, eg the electricians (IBEW) or the operating engineers (IUOE), which maintain an apprenticeship and certification program.
    Type 3 deals with human capital. The others deal with labor.
    Trade unions have business agents which coordinate the particular skills required with where they are needed.
    Take a look at this.
    If my business agent sends me out as an instrument fitter, I get a “referral.” I get an address, a contact name, a general idea of the length of the job, and an idea of what type of facility it is.
    For example: Upcoming shutdowns at nuclear facilities in the State of Illinois:
    Byron 2, Byron Illinois, Sept. 26, 2011
    Dresden 2, Morris Ill., Oct. 24, 2011
    LaSalle 1, Marseilles Ill., Feb. 13, 2012
    Quad Cities 2, Cordova Ill., Mar. 12, 2012
    Each one of those is a job that I might be on.
    My standard work-week is six 10’s, but the shutdowns are usually seven 12’s.
    Because Illinois is not a right to work state, the prevailing wage is set by the business agent. It’s part of his job to deliver the form by hand to the appropriate office at the state capitol by the deadline date.
    So, I go to the prevailing wage for the county, scroll down to “Pipefitter” (which actually covers some 27 different specialty trades, as well as numerous sub-specialties), and I know what my wages and benefits will be, regardless of whether I am doing heavy rigging or on the chemical flush. In the case of a shutdown, the wage is multiplied by 122.25 for a week of seven 12’s, and the benefits are paid at straight time, unless they pyramid, in which case they have that same multiple.
    Now, at present there are two career paths open to me, both of which would virtually guarantee that I would never work for less than $140k/yr ever again. One of these requires a 5-week seminar and a certification test. The other requires me to occupy my free time making my resume look spiffy.
    I am a tradesman.
    I am a journeyman.
    Now, my neighbor is a Steelworker. He works at a steel shop, and all he does all day long is cut pipe, again and again. He doesn’t make half that. I’m not sure what the Steelworkers make there, but the coal miners are bringing in about $18.35/hr.

    You see, there is even a wide disparity among unions here.Report

  5. ppnl says:

    “Well if you’re so smart what would you do to help workers?”

    How about a progressive tax structure? This is usually seen as just a way to redistribute wealth. But if people cannot afford health care for example what sense does it make to tax them and then buy health care for them? One way or another it is going to be a redistribution of wealth.

    Maybe some kind of modified flat tax. Everyone has the same base tax rate except you get a lump subtraction from your taxes if you have health insurance. If you don’t make very much then the subtraction greatly reduces your effective tax rate. If you make a mint then it has little effect on your tax rate.

    This gives people the tools they need to take care of themselves without a massive government program.Report

  6. E.D. Kain says:

    Great post, but I think you misunderstand bottom up liberalism in a sense. It has no ties to unions whatsoever. It is really the alternative to union liberalism and pity charity liberalism both.Report

    • tom van dyke in reply to E.D. Kain says:

      I still don’t see the problem with “pity-charity.” That’s what it is. A properly ordered soul would be grateful and admiring of his country and countrymen for getting his back. Of such sentiments patriotism and a sane polity is born. Is there a problem with that?Report

      • Murali in reply to tom van dyke says:

        The problem with pity-charity at least according to Rawls and a lot of other democratic theorists is this:

        Pity and charity are not sentiments we extend towards equals, but is always one extended towards our lessers. In-so-far as we officially recognise (as we do when we institute welfare programs especially the means tested kind) that some people deserve our pity and require charity, we fail to treat them fully as equals in a civil democratic polity. This as a result also undermines their self-respect (which Rawls deems to be the most important primary good)

        The abstract solution is then to have the correct basic structure of society which conforms to Rawls’s 2 principles of justice. One of my key points of disagreement with Rawls is what exactly this entails. Rawls is a bit vague on certain points, but he is clear in his rejection of pity-charity liberalism. His advocacy for greater democratic control of the means to production could be refering to union-liberalism or even bottom up liberalism. My view of current corporate structure is capitalism for me but not for thee. In many ways, large corporations run like mini-command economies and are therefore inefficient, fail to maximise productivity and fail to maximise the welfare of its workers. The key problem I see is that the highest levels of management handle all the risk while the middle and lower management as well as the workers handle almost none. devolving some of the risk, responsibility and profit to middle and lower management provides a management training program for people at the entry level to slowly learn management and gradually take on larger and larger management roles. This hyper-capitalist management structure also has the benefit of changing the employer employee relationship to one of that between equals (i.e. as business partners) as well as increasing the rate of expansion and the market share of the company. It also creates fertile ground to innovate and spread new and better practices.Report

        • Plinko in reply to Murali says:

          The obvious problem with your analysis here is that ‘pity-charity liberalism’ is that the term is a negative description used by it’s critics. You need to engage the actual ideas held by the proponents, not riff off what it’s detractors say about it.
          Free-market progressives or whatever you want to call them generally believe in the welfare state because they don’t believe it’s really pity or charity.
          What I see them actually hold is that the free market, while being the best road for increasing overall human welfare, is capricious, unpredictable and amoral. It’s not a matter that the have-nots are failures or lesser people or deserving of their lot. Skills and trades and industries become obsolete. Businesses fail. People get sick or disabled and almost all become old. These are not moral failings, they’re the inevitable byproduct of the market economy. And as such, a price we should pay is to help support those that the market leaves out.
          In addition to the moral reasoning, there’s also the practical side that we want to encourage risk-taking and business investment. A safety net (not just ‘welfare’ and unemployment but also bankruptcy and health care and education) helps blunt the risks of doing new things – which increases liberty and human welfare.Report

      • Murali in reply to tom van dyke says:

        i.e. it is better that we never have to give people charity in the first place (because they dont need it) than to do it after the fact.Report

        • tom van dyke in reply to Murali says:

          In the Judeo-Christian sense, Murali, pity is not part of it, but charity is. We all realize that but for the grace of God go we, and do not begrudge those who are in need of charity. We are glad to give, and the properly ordered soul is grateful to receive.

          This civilization is built on Judeo-Christian principles and sentiments, not Rawlsian ones. The followers of the “Galilean” gave freely to the needy before Rawls, before the Enlightenment, before America, and a millenium before that.

          The emperor Julian, Julian the Apostate, c. 350 CE, who tried to kill Christianity in its crib and bring back the Greco-Roman pagan ways, complained that “the Galileans” outstipped the noble pagans in charity, and for damned good reason. Interesting piece of history, Murali.

          I have no problem with a Judeo-Christian society and nation that renders charity to those who need it. But some thinkers do.


          • Murali in reply to tom van dyke says:

            have no problem with a Judeo-Christian society and nation that renders charity to those who need it.

            I dont have much of a problem with social safety nets either. But I dont really believe that Christ was the son of God etc etc (now if we were talking about Krishna it would be a different thing, but I dont think that you believe that Krishna, an incarnation of Vishnu, was born on this earth to right wrongs and destroy evilReport

            • Murali in reply to Murali says:

              i.e. now we are at an impasse. So how are we to agree on principles that are suitable for cooperation between ourselves?Report

            • Murali in reply to Murali says:

              society and nation that renders charity to those who need it.

              I also don’t have a problem with private charities either. But if we are to take seriously the notion of being governed by our equals and of participating in a society of equals, then ad-hoc redistribution should be troubling. Ad-hoc redistribution is always second best to modifying the rules such that said redistribution is not needed.Report

      • Barry in reply to tom van dyke says:

        That it doesn’t work; aside from that, it’s great.Report

    • Koz in reply to E.D. Kain says:

      Now you’re confusing me. I thought the liberaltarians were top-down liberals because they favor generous funding of social welfare programs, and more importantly argue that free market institutions are the only way to afford it.

      Bottom-up liberalism seems kind of nebulous to me, like more of an impulse than a policy proposal.Report

    • James K in reply to E.D. Kain says:

      How then does bottom-up liberalism seek to boost up incomes? I’m certainly interested to hear the alternatives, after all we could use some good news on this front.Report

      • E.D. Kain in reply to James K says:

        Well, I suppose I was driving at the notion that bottom-up liberalism, as opposed to union-liberalism or leftism, would work to undo corporate welfare, break down barriers to enter markets and professions, etc. thereby giving more people opportunity from the ground up by removing artificial scarcity, rents, etc. In other words, the idea is it must go beyond grow-give but turning to government backed labor is the wrong idea since government is at the heart of the problem. So bottom-up liberals see union-liberalism as just a more veiled form of pity-charity. Does this make sense?Report

        • James K in reply to E.D. Kain says:

          Yes, that makes a lot of sense. I think I had my terminology mixed up.Report

        • None — absolutely none — of these good ideas have as much as a snowball’s chance in Hell of being achieved without the political muscle that unions represent. We’re retreating into fantasy if we imagine that massive entrenched power can have privileges wrested from its control through good intentions and grassroots organizing alone. This is politics; you need a hammer.Report

          • Entrenched Interests Update–UK: biggest strike in 100 years?:

            The leader of the largest public sector union promises to mount the most sustained campaign of industrial action the country has seen since the general strike of 1926, vowing not to back down until the government has dropped its controversial pension changes.

            Dave Prentis, general secretary of Unison – which has 1.4 million members employed by the state – described plans for waves of strike action, with public services shut down on a daily basis, rolling from one region to the next and from sector to sector.

            He said there was growing anger over a public sector pay freeze that could trigger more disputes further down the line and that the changes would unfairly penalise women, who form the majority of low-paid public sector workers. “It will be the biggest since the general strike. It won’t be the miners’ strike. We are going to win.”


          • Koz in reply to Elias Isquith says:

            Comments like this are maddeningly incomplete.

            1. Proof by assertion. Elias doesn’t give any reasoning why unions are supposed to be necessary. Certainly from what we know of their history they are creators of barriers to entry and artificial scarcity as opposed to destroyers.

            2. Presumably, the conclusion is that therefore we should support unions, but that remains unargued. What are the costs and benefits? Speaking of which,

            3. There is no indication of any bounds on the collateral damage the existence and strength unions might cause.

            Could Elias, or any union supporter, fill in the blanks if they had to?Report

          • Elias – unions are essentially in bed with corporations. So this line of thinking is only valid in a much different world than our own.Report

            • Not all unions are the same, something I should have noted from the start. So maybe this would be more clarifying if we took one or two specific examples? We’re talking about private unions, I assume? (Public unions are another matter, imo.)

              Let’s use one of the largest, most powerful unions as an example — the SEIU. Would you call them “in bed with corporations”? I think I could see one answering this question in both the negative and the affirmative.

              On the Yes side is the fact that the SEIU is often essentially a wing of the Democratic party and the Democratic party is itself very much in bed with corporations.

              On the no side is the fact that the SEIU represents perhaps the left-most wing of the party, the one most likely to advocate policy changes that generally-Democrat-friendly corporations might dislike. Bills that try to stymie off-shoring of jobs, etc.

              Would you argue that their moments of discord with the DLC-type wing of the party represent attempts merely to increase the economic and political power of their members a/k/a themselves? That would be an eminently defensible position, but then we’d get into whether or not these attempts, though self-centered, nevertheless have a net-positive impact on all equivalent members of the private sector.

              And I hope none of this sounds like a rhetorical trap or the like. I don’t claim to know with 100% certainty how I feel about “bottom-up liberalism,” and the problem of power/politics is my main stumbling block in this regard.Report

  7. I’d love to see those median income numbers divided by some sort of index of purchasing power: typical healthy basket of food for a year, car, gas, education, health care, etc.Report

    • Simon K in reply to Christopher Carr says:

      They’re adjusted for the CPI, which is basically exactly what you’re asking for. It would be possible to do it for the BLS indices for individual goods, which might be interesting. Note that the “income” people spend on healthcare isn’t included since the data is based off of tax returns and employer’s health insurance premiums are excluded from income for tax purposes.Report

      • Anecdotally, and I know I sound like a moron saying this (especially since spellcheck is telling me that “anecdotally” is not a word), I suspect manipulation of those numbers. The CPI strikes me as a poor metric these days, and I say this with my hat in my hands knowing I have nothing concrete to back it up.Report

        • Simon K in reply to Christopher Carr says:

          Well, I don’t think anything the BLS does makes the numbers inaccurate. They go to great lengths to make them as accurate as possible and will explain at great length why what they’re doing is a good as is possible, and that the problem is in fact really hard. All the source data as well as the final indices is publicly available if you want to make your own index, and people do. There are various near-conspiracy-theories about how the adjustments made to the data supposedly understate inflation but I don’t see anything of substance. If you look up “hedonic adjustment” and “harmonic mean” (I think, maybe its logarithmic) combined with inflation you’ll see, but I warn you its a lot of tedious stats to go through to learn about something that’s wrong.

          The real reason the inflation numbers feel wrong to us right now is that our intuitive understanding of what inflation means is wrong. We think inflation will mean we can’t afford to buy the things we need because prices have risen, so we will have to make painful adjustments. This is not inflation. Inflation is when the prices of the things we need rise, and we don’t make painful adjustments because there’s enough money around that we don’t have to. If you’re making painful adjustments by definition you’re buying less of something so prices somewhere will be falling. So there’s actually a sort of systematic error in people’s perceptions – if it feels like things are getting really expensive, there’s usually no need to worry about inflation.

          Right now, things feel really expensive because we’re adjusting to two large, related price adjustments – land is cheaper than we thought, and oil is more expensive. So people feel they have less wealth, but they’re spending more money on gas, so they’re cutting back on other things. The thing is that precisely because they’re cutting back, other things such as consumer goods are falling in price. Hence, no inflation.Report

          • Thanks for that. That was an excellent articulation. So, what you’re saying is that the prices of things like gas and food that we need are rising, but the prices of the things we aren’t buying are falling (until we start buying them again). That makes sense.

            For me, it’s like two snapshots. When I left the U.S. five years ago, nobody was spending 200 dollars at the grocery store.Report

          • Will Truman in reply to Simon K says:

            What consumer goods prices are falling? Other than technology, I mean?Report

            • Relatively speaking, technology prices aren’t actually falling.

              Certain types of technology are being packaged together in more cost-for-use-case-effective packages, so they look like they’re getting cheaper.

              But a netbook != laptop computer. So the fact that you can buy one for $200 doesn’t mean that a laptop computer is now $200.

              Just sayin’ 🙂Report

              • Well, it’s a complicated equation. On the one hand, my most recent laptop cost $1300. The one before it cost $1100.

                On the other… I can buy an unopened HTC Touch Pro for under $80. It was $300, used, when I bought one just a couple years ago. I can buy 4GB of RAM for what it used to cost for considerably less.

                So if you compare today’s latest and greatest to yesterday’s, you might not see a decrease. But if you’re looking at specs, you’re very likely to.

                And in any event, for Simon’s purposes, being able to buy 3 songs off an album for $4 versus having to pay $12 for 12 songs of which you only wanted three, would constitute savings since the other 9 songs didn’t constitute added value (to you). So I wanted to take that off the table.Report

              • Simon K in reply to Pat Cahalan says:

                Its extremely difficult to measure because the products change, qualitatively, almost constantly. How does the launch of the iPad play into the CPI? The BLS does something called “hedonic adjustment” which tries to related the prices of different products in a way that makes sense. For technology, it probably slightly over-states inflation.Report

            • Simon K in reply to Will Truman says:

              According to the BLS data, household furnishings, most kinds of clothing, most computers and communication equipment, tobacco and personal care products. Look at – all the CPI data is there. This is pretty consistent with “what people would give up to pay for more expensive gas and food”, no?Report

  8. Kaleberg says:

    On what basis do you claim that the government cannot create jobs? It has happened so many times in the past, that denying it seems rather silly. Ronald Reagan relied on make work jobs with his military build up against the Soviet “threat”. He created jobs just fine. Bill Clinton created jobs by supporting technology, unions and raising taxes. Raising peak marginal tax rates almost always encourages economic growth and creates jobs. In fact, you can’t have high levels of economic growth without high taxes.

    Sure, you can make a Zeno’s paradox argument that economic growth is impossible, but as the joke goes, you can usually get close enough for all practical purposes. The problem with crowding out arguments is that they are empirically false.Report

    • James K in reply to Kaleberg says:

      What I said was that there are two kinds of government job making:
      1) Pure make-work jobs, which are just welfare + lying.
      2) Employment through promoting economic growth, but pity-charity liberalism already advocates growth.

      I certainly believe that economic growth is possible, but I think government has much less control over it than most people believe (note – less is not none).Report

      • Will Truman in reply to James K says:

        In this dichotomy, where would quality-of-life jobs fall? For instance, picking up cans on the side of the road or cleaning the poop on public lands? It’s a service being provided, but it doesn’t seem to be initiating growth. But neither does it seem to be welfare+lying, since a service of some non-monetary value is being provided?

        (Note, this isn’t a workaround argument to say that we should put unemployed people to work cleaning up poop. I’m just interested in learning more about this only-two-kinds thing.)Report

        • James K in reply to Will Truman says:

          It’s a bit of both. There’s some service involved so to that extent it’s a legitimate job, but if you’re paying more for the job than it’s worth to you, the difference is welfare+lying.Report

          • Plinko in reply to James K says:

            I think you’d have to account also for the value of the work being done, and also the value to the person doing the work vs. doing nothing.
            After all, paying someone $300 to do $100 worth of work is a win-win vs. paying them $250 for doing nothing to keep them from starving.
            Also I think it’s quite clear that working at all has virtuous circle benefits for the worker – people who have work will find it easier to get more work. That’s also positive sum since it’s more likely the worker finds a non-make-work job and that the government has to keep paying them to do nothing/make work in the future.Report

            • zic in reply to Plinko says:

              Since you want to include the cons of not working, please note that household income in the early years charted likely were from a single income, and now likely result from two incomes; household income may have gone up, but its increase caused other expenses.

              And there are pros to having one parent not working:

              direct involvement with the family’s children; savings of day-care costs, work clothes cost, etc., increased chance of home-prepared meals and family dinners, better organized and run household without outside paid assistance.

              There are also significant social benefits of a parent volunteering in local schools, churches, and other non-profits endeavors.Report

      • Barry in reply to James K says:

        “What I said was that there are two kinds of government job making:
        1) Pure make-work jobs, which are just welfare + lying.
        2) Employment through promoting economic growth, but pity-charity liberalism already advocates growth.”

        Bullsh*t. For example, it ‘s clear that we could use a *lot* of roadwork, bridgework, etc. Not to mention *not* gutting our K-12 system.Report

        • James K in reply to Barry says:

          More jobs from greater service provision is a completely different issue, though I would point out that the money to pay for those extra services has to come from somewhere.Report

          • Alec in reply to James K says:

            The net gain from a job created is not zero. In other words, the right will claim that a dollar spent on a government job just means one dollar out of circulation. This is not true or how it works. It is not a zero sum game.

            Let’s say, for example, you pay Bob a dollar to fix a bridge or be on a school building crew. Bob will, most likely spend 80% of that dollar in the local economy buying food, lodging, entertainment. Because Bob bought groceries, Chuckie gets paid. Chuckie, and all the people Bob bought stuff from, will then spend 80% of the 80% Bob spent, and so on,until that one dollar has run it’s course.

            This is why, for example, $1 tax dollar taken out of circulation for food stamps by the government, returns a whopping 1.73 back to circulation!

            Whereas, a dollar removed from government by a corporate tax cut, returns 30 cents.

            Economic multiplier.


            • James K in reply to Alec says:

              Yes, I know what multipliers are. But multipliers rely on Keynesian models which are short-term only, sure you get some growth in the short-run but once prices adjust (which can take as little as 2 years) you get higher prices, and the growth you created disappears. That’s why Keynes only recommended stimulus in a recession, he realised it was a temporary measure to deal with short-run economic stagnation.Report

  9. Barry says:

    James K:”…by letting the free market do its thing and use welfare to help those who are left in the cold,…”

    We’ve been trying that for thirty-odd years. The end result has been that the rich are taking a greater share of the country’s income and wealth, paying lower tax rates on it, and then hammering benefits for everybody else.

    I don’t mean to be harsh here, but you are proposing ‘A, then B’, and we’re ended up (largely) with ‘A, then go f*ck yourself, we’re too poor’ for a few decades, with the various right-wing libertarian types participating very heavily in the second part. I’ll respect this argument only from people who’ve supported higher taxes on the rich, healthcare reform, and who’ve opposed the destruction of Social Security and Medicare.Report

    • James K in reply to Barry says:

      The question of how to get the privileged to relinquish their privilege is a sticking point, no matter what policy you’re trying to implement.

      I’ll get to what policies I recommend in a future post, but for now I’ll say your tax system needs to be rebuilt from scratch, I’m concerned that Social Security and Medicare will fail unless they are substantially reformed (and that would be disastrous), and I support health care reform, but not the kind of reform that was passed.Report

  10. zic says:

    Household incomes don’t really reflect economic reality. In the 1960’s, those incomes were likely generated by a single worker. And the rise in income reflects women’s entrance to the workforce.

    For that, you’d need a chart based on this type of data:

  11. Barry says:

    James K: “Starting with full employment, my problem is that there’s very little a government can do to help out on that front. ”

    James, when have we been at full employment? I’d rate the last period at about 3 years in the Late Clinton era (after the right stopped crying doom at his policies, and started taking credit).

    I’m going to be harsh on you – this is assuming something which generally doesn’t exist, for the purpose of justifying what you want to do (or not doing what you don’t want to do).Report

    • James K in reply to Barry says:

      I didn’t say you had been at full employment (though you were probably pretty close during parts of the 1990s, full employment isn’t the same as 0% unemployment), all I said was that government can’t do much to help in getting to full employment.Report

  12. RTod says:

    Not to mix and match separate posting themes from the League, but that graph would actually show an increase in actual wages over the past 10-12 years. It doesn’t shown an increase in “real household income,” however, in great part because of the annual increase in health insurance costs.Report

  13. Alec says:

    So, yeah, the Hoover Dam was a make work job with no long term economic multiplier benefit? How about the interstate highway system? I bet a fabulous make work job would have been to fix the I35W bridge in Minneapolis in, say, 2002.

    Make work jobs have an incredible stimulative effect in and of themselves, but they also have lasting and long term benefit to the economy and society. What would our corporate titans do without our system of roads? What would our next generation of leaders do without schools?

    Improving our society, in order to lay the foundation for business, is not “make work welfare”.Report

    • tom van dyke in reply to Alec says:

      How about let’s put up 100 “make work” nuclear reactors? We don’t build hydroelectric dams anymore; we unbuild them for eco-reasons. In fact, I can’t think of any analogues to Hoover Dam that would create wealth, unfortunately. New energy sources are capital-intensive, not labor-intensive.

      As for the roads and “infrastructure,” at this point it’s maintenance, and although maintenance definitely has a cost/benefit value, it’s merely loss-prevention, not genuine wealth creation.

      In other words, the “jobs created or saved” conundrum. Jobs created are not the same thing as jobs saved: wealth created is not the same as losses prevented.

      I’m all for preventing losses, but buying insurance makes nobody rich. Except the insurer, but that’s a separate gripe. 😉Report

    • James K in reply to Alec says:

      Improving our society, in order to lay the foundation for business, is not “make work welfare”.

      No you’re right, it isn’t, that would fall under “growth promotion policy” which I did allow for in my post.Report

  14. Zac says:

    Alec, Tom, I agree with both of you (kinda). Let’s build 100 more nuclear reactors. Let’s patch up the ailing highways, roads and bridges of this country. It’ll put lots of people to work and inject some much-needed capital back into the construction sector of the economy.Report