I think there are other factors that are affecting inequality that are less amenable to policy solutions. For instance, I'm pretty sure the Superstar Effect is responsible for a lot of income growth in the top 1% of the income distribution, but there's not a lot to be done about it. Also, there may be somethign dodgy going on with executive pay, but while that would make the top 1% richer, executives aren't paid enough in aggregate for it to affect the middle class (or poorer people) to any significant extent.
As for the cause of middle class stagnation, I think there's more than just low competition at work, I was really talking more about the welfare of low income people in this post. If I were to finger a culprit for middle class stagnation it would be health care costs (I presume the value of benefits are not included in the household income statistics, at least that would be the normal way of reporting) and health needs a whole post to itself. Also, while middle class stagnation is a real problem, middle class Americans are still extremely rich by international and historical standards, so I wanted to focus on people who are suffering significant disadvantage.
But if anything these seem like perfect arguments for why the impediments of licensing do not create monopolies. In fact, you have taken industries where the vast preponderance of professionals are small independent contractors.
I'm using monopoly in a broad sense here. When economists speak of "monopoly rents" we don't just mean the rents extracted by literal monopolies, but oligopolies and other less-than-perfectly competitive markets as well. Imperfect competition may be more visible with large conglomerates, but it's probably more common at small scales.
There's another reason why small-scale barriers to entry matter - they makes it hard for low income people to start their own business, thereby restricting the opportunities for poor people to increase their income.
I might suggest that the above speaks to neither greater nor lesser governmental licensing /oversight / regulation.
I'm afraid I don't follow the workers' comp example (we don't really have it in New Zealand, so I don't have enough context), but I wouldn't want to lump licensing, oversight and regulation together. Not all regulations affect barriers to entry equally. Regulation in the form of "here are some safety standards you must follow, but anyone who does can enter" is a very different proposition to "in order to enter the market the government will perform a needs assessment to determine whether another firm is necessary". I'm talking more about the specific content of regulation than the quantity of it, though if the overall quantity of regulation becomes sufficiently complex it can pose a real problem for small businesses.
Where exactly is the difference between annexing Mexican and admitting one Mexican in cultural terms?
Annexing Mexico just means replacing the Mexican government with a US government. But the Mexican immigrant leaves their old culture behind to join a new one. Now in fairness, cultural transfer is never one way, so a sufficiently large number of Mexicans would alter American culture, so there's probably some feasible limit to immigration before a major change to culture takes place.
Mind you, I have no idea if open borders would actually result in this much immigration. The Burkean solution would be to steadily loosen immigration restrictions and see what happens.
You know, that's a good question. Is someone out there conducting surveys? Mind you, the term "estimate" can hide a multitude of sins. You can always produce an estimate, no matter how little data you have - whether it's any good is a separate question.
I think the rules of honourable combat are a good example of how honour allows the nobility to oppress the commons. You're supposed to whack at each other and rely on your armour to stop the enemy's blade, not dodge around. But plate armour in the real world (and I presume in Weteros as well) was fearsomely expensive - that's the likely reason Bronn doesn't have any.
It's a bit like the ban the Catholic Church put on crossbows (at least it banned the use of them against Christians). War's no fun if the peasants can fight back.
I would start by saying that education is a public good in a way that healthcare is not.
No, it really isn't. Public goods are non-rival (once you produce the good, there's no real limit as to how many people can use it) and non-excludable (it's really hard to stop people from using it once it's been provided). Education is neither of these things. What education does (arguably) provide is a positive externality, but that only justifies a subsidy (say, by giving people x dollars to spend on education), not government production of the good.
My uncle worked undocumented in the US for the best part of 20 years. He has a green card now, but it took him marrying a citizen to manage it (he didn't marry to get the papers, he genuinely fell in love and tried to get a green card through his own merits, but he couldn't do it, not even with training as a teacher, so he stopped putting off the wedding).
The US and New Zealand have something in common - we're both New World countries. The old ways of blood and soil were never our ways, we were formed from the lost and dispossessed - you only risked a long journey to a new world if the old one held nothing for you. We took those no one else wanted, and we thrived. We forged our respective cultures from the scraps of other nations and we are stronger for it. Immigration is the life blood, choking it off as thoroughly as you currently are invites stagnation.
I think the reason for this paradox is the Anchoring Effect, everyone evaluates policy relative to the status quo.
This is a good piece Erik, and it touches on a distinction that gets far too little play in policy debates.
When I was studying policy economics at university, we were taught that there's a fundamental distinction between public provision (the state paying for stuff) and public production (the product is directly produced by a government agency) and the latter was much harder to justify than the former. Unfortunately this is not a distinction that may people seem aware of. But how could one understand the arguments for (or against) vouchers without it?
So the reveal would need to wait until Danearys shows up and Melissandre realises she's wrong about Stannis being Azor Ahai reborn.
Not that I'm sure that Snow's anything but a bastards. And besides which, since he's a sworn brother of the Night's Watch he no longer has a claim to the throne, if he ever had one.
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.
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.
You're right that household income doesn't account for the rise of two-income households, unfortunately it doesn't look like the income figures you link to are inflation-adjusted.
Also, its my understanding that the average household size has fallen over time, so the differences between using household income and personal income are less clear than you might think.
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.
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.
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.
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.
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.
On “Competition and Inequality”
I think there are other factors that are affecting inequality that are less amenable to policy solutions. For instance, I'm pretty sure the Superstar Effect is responsible for a lot of income growth in the top 1% of the income distribution, but there's not a lot to be done about it. Also, there may be somethign dodgy going on with executive pay, but while that would make the top 1% richer, executives aren't paid enough in aggregate for it to affect the middle class (or poorer people) to any significant extent.
As for the cause of middle class stagnation, I think there's more than just low competition at work, I was really talking more about the welfare of low income people in this post. If I were to finger a culprit for middle class stagnation it would be health care costs (I presume the value of benefits are not included in the household income statistics, at least that would be the normal way of reporting) and health needs a whole post to itself. Also, while middle class stagnation is a real problem, middle class Americans are still extremely rich by international and historical standards, so I wanted to focus on people who are suffering significant disadvantage.
"
I'm using monopoly in a broad sense here. When economists speak of "monopoly rents" we don't just mean the rents extracted by literal monopolies, but oligopolies and other less-than-perfectly competitive markets as well. Imperfect competition may be more visible with large conglomerates, but it's probably more common at small scales.
There's another reason why small-scale barriers to entry matter - they makes it hard for low income people to start their own business, thereby restricting the opportunities for poor people to increase their income.
I'm afraid I don't follow the workers' comp example (we don't really have it in New Zealand, so I don't have enough context), but I wouldn't want to lump licensing, oversight and regulation together. Not all regulations affect barriers to entry equally. Regulation in the form of "here are some safety standards you must follow, but anyone who does can enter" is a very different proposition to "in order to enter the market the government will perform a needs assessment to determine whether another firm is necessary". I'm talking more about the specific content of regulation than the quantity of it, though if the overall quantity of regulation becomes sufficiently complex it can pose a real problem for small businesses.
On “Immigration, Inequality and Pie”
Annexing Mexico just means replacing the Mexican government with a US government. But the Mexican immigrant leaves their old culture behind to join a new one. Now in fairness, cultural transfer is never one way, so a sufficiently large number of Mexicans would alter American culture, so there's probably some feasible limit to immigration before a major change to culture takes place.
Mind you, I have no idea if open borders would actually result in this much immigration. The Burkean solution would be to steadily loosen immigration restrictions and see what happens.
"
You know, that's a good question. Is someone out there conducting surveys? Mind you, the term "estimate" can hide a multitude of sins. You can always produce an estimate, no matter how little data you have - whether it's any good is a separate question.
On “Game of Thrones Bookclub (Week Four)”
No, I was just using his lack of armour as evidence to support my contention that armour was too expensive for commoners in Westeros.
"
I think the rules of honourable combat are a good example of how honour allows the nobility to oppress the commons. You're supposed to whack at each other and rely on your armour to stop the enemy's blade, not dodge around. But plate armour in the real world (and I presume in Weteros as well) was fearsomely expensive - that's the likely reason Bronn doesn't have any.
It's a bit like the ban the Catholic Church put on crossbows (at least it banned the use of them against Christians). War's no fun if the peasants can fight back.
On “The policy illusion”
That part is the externality. Non-rivalry implies a marginal cost for producing the good of 0.
"
No, it really isn't. Public goods are non-rival (once you produce the good, there's no real limit as to how many people can use it) and non-excludable (it's really hard to stop people from using it once it's been provided). Education is neither of these things. What education does (arguably) provide is a positive externality, but that only justifies a subsidy (say, by giving people x dollars to spend on education), not government production of the good.
On “Jose Antonio Vargas: “My Life as an Undocumented Immigrant””
My uncle worked undocumented in the US for the best part of 20 years. He has a green card now, but it took him marrying a citizen to manage it (he didn't marry to get the papers, he genuinely fell in love and tried to get a green card through his own merits, but he couldn't do it, not even with training as a teacher, so he stopped putting off the wedding).
The US and New Zealand have something in common - we're both New World countries. The old ways of blood and soil were never our ways, we were formed from the lost and dispossessed - you only risked a long journey to a new world if the old one held nothing for you. We took those no one else wanted, and we thrived. We forged our respective cultures from the scraps of other nations and we are stronger for it. Immigration is the life blood, choking it off as thoroughly as you currently are invites stagnation.
On “School Choice and Single Payer”
Or as Sir Humphrey Appleby put it "where one stands depends on where one sits".
"
I think the reason for this paradox is the Anchoring Effect, everyone evaluates policy relative to the status quo.
This is a good piece Erik, and it touches on a distinction that gets far too little play in policy debates.
When I was studying policy economics at university, we were taught that there's a fundamental distinction between public provision (the state paying for stuff) and public production (the product is directly produced by a government agency) and the latter was much harder to justify than the former. Unfortunately this is not a distinction that may people seem aware of. But how could one understand the arguments for (or against) vouchers without it?
On “Still More Caricatures of Libertarianism”
I think of libertarianism more as a verb, all systems of thought are when you get right down to it.
On “Labour and the American Middle Class”
That's a fair point, it depends on the policy you're talking about.
On “On Ned Stark, Ice and Fire”
So the reveal would need to wait until Danearys shows up and Melissandre realises she's wrong about Stannis being Azor Ahai reborn.
Not that I'm sure that Snow's anything but a bastards. And besides which, since he's a sworn brother of the Night's Watch he no longer has a claim to the throne, if he ever had one.
"
Yeah, I'm sure I remember that happening too.
On “Labour and the American Middle Class”
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.
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.
"
No you're right, it isn't, that would fall under "growth promotion policy" which I did allow for in my post.
"
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.
"
You're right that household income doesn't account for the rise of two-income households, unfortunately it doesn't look like the income figures you link to are inflation-adjusted.
Also, its my understanding that the average household size has fallen over time, so the differences between using household income and personal income are less clear than you might think.
"
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.
"
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.
"
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.
"
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.
"
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.
"
Oh sure, it effects demand, and the kinds of goods that are produced, but not the aggregate output
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