I am running out to the AMEX, but I wanted to make sure you read a piece in today’s NYT by David Leonhardt: For Many, a Boom That Wasn’t. The entire article is worth reading.
The chart is pretty hard to argue with:
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While I agree that many of the contributing factors leading to this wage stagnation were in place for a long time, I think the librul NYTimes gave President George W. Bush too much of a pass:
"The causes of the wage slowdown have been building for a long time.
They have relatively little to do with President Bush or any other
individual politician (though it is true that the Bush administration
has shown scant interest in addressing the problem)."
As you will note in the links below, these are issues we addressed many years ago. This administration chose a stimulus that was, for better or worse, stock market and CapEx focused. While I am not debating the merits of that choice, the selection of those targets — versus targeting labor and wages — was a very conscious, ideological choice.
Thus, the policy results are, not totally, but to a not insignificant degree, the responsibility of the administration that selected them . . .
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Previously:
Stock Market vs the Economy (September 2003) http://bigpicture.typepad.com/comments/2003/09/stock_market_vs.html
Tax Cuts: Stock Market vs the Economy II (October 2003) http://bigpicture.typepad.com/comments/2003/10/tax_cuts_stock_.html
Accelerated Depreciation of Capital Spending (September 2004) http://bigpicture.typepad.com/comments/2004/09/accelerated_dep.html
Source:
For Many, a Boom That Wasn’t
DAVID LEONHARDT
NYT, April 9, 2008
http://www.nytimes.com/2008/04/09/business/09leonhardt.html
Start in 1994 and use real inflation adjustments and you get the potential for torches and pitchforks.
Forgive the rant. I’ve a dental appointment today. Come to think of it, getting to the truth is like pulling teeth. It hurts!
This isn’t too surprising because, in a sense, “incomes” did shoot up during the expansion. The problem was it was houses, not people, who were providing lots of extra money through methods like cash-out refis and HELOCs. For some of the worst “offenders,” their home operated like a second or third breadwinner.
I would posit that NAFTA in 1993, Fractional Reserve Requiremnt Changes in 1995, Glass-Steagall Being killed in 1999, China’s entry into WTO in 2000 might of had a little something to do with our current problems although we could of used all the money blown across the globe with public works projects at home to bring some wage inflation to America. The only problem with that thesis is the 12 to 20 million illegals in this country who undercut wages for Americans. It’s tough to have wage inflation when labor is being bid down at every turn by illegal labor.
Asset inflation is a real be-atch when it turns, and we are turning like a spinning top.
Ross, I had forgotten the CPI changes intituted in 1994. I will have to add that one to my list, and thank you for your insight!
Big business was so successful at cleaning out the pockets of Americans, and imbuing them with the manic desire to “consume”, that the next innovation – rather than higher wages – was cheaper credit. So cheap credit has been a substitute for higher wages for about 20 years, especially since 2002 or so.
Needing a hook, or plausible reason to extend massive new credit to a population with constrained wages, Big Business invented the Ownership Society. That meant houses for everybody, willy nilly, and cheap credit meant inflating house prices. The came the twin innovations of “tapping your equity” through home refinancing, and HELOC’s. In effect, houses became a conduit for consumption.
But to keep profits rising, the business elites were successful in keeping wages down, by throwing the working dog a credit bone. Sorry, no more bones for you, Fido.
There is no remedy to this problem. This country has thrown away its true wealth (manufacturing) and now produces only shitty movies and music and worthless financial crap. It’s no wonder a lot of the world hates our guts.
“who were providing lots of extra money through methods like cash-out refis and HELOCs.”
I guess that was one way of keeping up with the Jones’.
to paraphrase another poster on CR’s blog:
“just think in 20 years we can have that $500 back”
What will that be worth then is the scary question…
Ciao
MS
The emasculation of unions played a huge role–thank St Ronnie’s destruction of the air traffic controllers.
Why doesn’t anyone ask about income mobility? A recent study by the US Treasury (http://www.treas.gov/press/releases/hp673.htm) shows workers’ ability to move up the income classes is alive and well. Should a $65,000 per year manufacturing worker expect to see between 5-10% income gains per year? At what point should this worker’s wages begin to stagnate? I don’t ask this sarcastically. Look at the auto industry. Highly educated workers are rewarded with higher wages. We should stress to our children the benefits of a college education instead of bemoaning the loss of manufacturing jobs.
Adam’
Not everyone can go to college, become an investment professional, and lose billions of dollars. On a more serious note tho, a great number of blue collar jobs, think construction, have gone to illegals. We also have had no public policy initiatives designed to create jobs to replace those lost offshore. We need mature people in the next administration that understand the need for broad based public policy initiatives. There will be no easy answers but the soluition lies in broad based debate, not incompetent boobs making decisions based upon gut feel.
cant blame the NYT. there is no organized intellectual or political opposition to laissez-faire anymore in the US. certainly not the Democratic Party. certainly not the Clintons, who were happy to “feel your pain” while helping Greenspan and Wall St lift our wallets and drive wealth and income inequality to 70-yr extremes. good luck, everybody.
From the Census data, the family of 1960 is really not at all the family of 2006. Considering family as a married couple with at least one kid, the number has hardly changed from 23M in 1960 to 26M in 2006. If you could track that specific group, then maybe you could have useful conclusions.
The change in families from 45M(1960) to 77M(2006), means that pretty much the whole addition of 30M is a different family altogether, and is going to skew your results for tracking wages, because the group itself has largely changed.
I see we are still blaming Clinton….
wow have you no eyes to witness what has happened in the last 8 years????
Clinton was/is no angel but that does not allow neo-cons a free pass (although they certainly think they are entitled to it) to rape, loot, and pillage at will under the premise of “america”.
Wake Up….it’s both…although one certainly is more responsible for current problems (too many to list)than the other.
Ciao
MS
Larster,
I completely agree, not everyone can and should go to college. I also agree that this country has an immigration problem it needs to reconcile and there needs to be fundamental education reform. Personally, I don’t think it’s the publics’ (read:government’s) job to create jobs. Leave that to the market. The NY Times article suggests increased government spending on infrastructure, which is fine with me. My question is whether those construction workers should be entitled to income increases that the public deems acceptable? Even if the government curbed immigration, should American workers who replace these migrant farm workers expect to be paid $25,000-$30,000 per year? And should we worry when that income stagnates? Like you said, we need broad debate about this issue.
You folks are such optimists.
Thinking that a change of administration might really change things. Thinking that there are actually “mature people” involved in politics at the national level. Thinking that government actually cares about the poor, middle or wealthy classes.
Everything makes sense once you see that it is all about keeping those tax revenues flowing. Government, government, government. No matter who or which party is running it. And the business of politics skims its portion off the top as interest groups lobby to get a share of those revenues, offensively or defensively.
Spectre I agree that regulatory changes were certainly part of the problem (and I would add the Telecommunications Act of 1996 and possibly the death of the Fairness Doctrine). But why are you and Adam talking about illegal immigrants? Talking about illegal immigrants misses the entire point – there was a LOT of economic growth in the US over the past 10-15 years. The problem is a little bit went to the top 15%, a lot went to the top 4%, and most went to the top 1%. In 2003 the top 20% took home 50% of all income. Between 1979 and 2005 the top 1% saw an approximately 170% increase in inflation adjusted after-tax income.
To mention illegal immigrants and ignore the massive increase in the wealth of the wealthy is literally looking the exact wrong way. How could illegal immigrants fighting for $9000 a year jobs have more to do with the problem than 15 million a year CEOs or multi-millionaire hedge fund operators and wall street banksters? Jebus do you guys really believe the US needs MORE crappy low paying jobs?
Did you know 2007 goes down as the first year in which share buybacks exceeded profits for an entire year? What might 2008 have looked like if instead of using that money to produce short term pops when CEOs were cashing in options that money had been used to boost the salaries of 80% of the US population? The problem is pretty straight forward – in order for the US economy to expand consumers need to be able buy goods and services from each. With income stagnating (or dropping) for 80% of the population, debt has been used to maintain standards of living in place of income. Unfortunately avoiding massive deflation means either someone keeps lending money to people who will never be able to pay it back or income inequity drops and salaries increase for bottom 80%.
Old vet hit the nail on the head!
“rape loot and pillage?” That’s how my ancestors took over England!
We had/have demand pull inflation. We will now get margin crushing cost push inflation unless you can outsource your plumber, cop, firefighter, teacher, civil servant and banker to Chindia. Come to think of it, there are a few bankers I wouldn’t mind seeing outsourced and banished.
Trust when I say labour unrest is only now beginning…
the high paying middle class jobs are being offshored.
to add insult to injury, the dwindling high pay jobs left in the U.S. are increasingly being taken by H1B / L1 visa holders at a lower wage.
the globalists keep telling us that new, better, higher paying jobs will spring up and replace those lost to globalisation. but they can never tell us what those new jobs are or when we will ever see them. i haven’t seen any yet.
Not exactly sure how the “Bush administration” would prop up wages. Could you tell me how Clinton or any other president increased wages?
I’d love to hear what policies you could imagine that would do so. Until then, I’ll just assume this is a political rant with no basis in economics.
same situation over here in Germany.
we´re in the fourth year of stable growth.
the economy added 1.5m jobs.
BUT: people don´t feel the upturn.
their incomes only grow barely while inflation and taxes are soaring.
the new jobs are paid badly.
latest tactic by the employers is to hire people over staffing firms that they would have hired by their own in the past.
those people do the same qualified work but earn 30% less.
Even if it’s true that everything that goes wrong is George Bush’s fault, the question is, what is the solution? Do we vote for Obama so that he can “soak the rich”…? The top 1% is already paying about 40% of all income taxes. Is it realistic to think that that percentage can go a lot higher? (I think not).
MS, I’m not blaming Clinton because these changes occurred while the Republicans controlled CONgress, and they could of stepped in to raise Holy Hell but didn’t. Rather I’m listing the path that brought us to where we are. Bush did jack concerning China opening it’s markets to American Producers when we were is a great position to demand consessions from the ChiComs.
We just can’t seem to get away from the political finger pointing even when it should be clear that both groups are at fault. How depressing.
Sus Ano, to ignore illegals stealing jobs and depressing wages is insane. How can I ask my boss for a raise when I know he can fire me and actually pay less to an illegal and that is the reality we have had for years. I agree exec compensation is a huge problem, but you can’t have wage inflation when wages are relentlessly being bid down by 12 to 20 million people who shouldn’t even be in the workforce. Cause and effect once again!
spectre-
Your not blaming Clinton….someone else is…..
I have no beef with you at all……reality is well within your grasp. Unlike some here today.
Ciao
MS
“Is it realistic to think that that percentage can go a lot higher? (I think not).”
I think it is. For example, any income earned in excess of $1M per year gets taxed at 80%. So our CEO class threatens to move to Shanghai. My response…Don’t let the door hit your ass on the way out.
Spectre-
remember this….no illegals and you will pay over $7 for one head of lettuce…since we are already headed in that direction, thanks to yet another flawed policy of using food for fuel but I digress…..
Not saying it’s right……..it’s what will happen if we decide to focus on that instead of financial responsibility. Having said that the reality that anything resembling responsibility showing up in our markets is rapidly losing any efficacy…should it actually occur.
We are about to sweep contract law, securities law, and constitutional law out of the realm of democracy(IMO what we have labeled as such) in one fell swoop….and all under the guise of protecting it……….utter madness
You don’t have to be in the market to appreciate what the consequences of that will be.
Barry – I don’t disagree with your points about Bush, but think the following are far more important factors:
1) Offshoring – Created a huge salary gap between US and foreign workers. Illegal aliens also lowered the wages on the bottom end (onshoring?). Word is that Chindia is starting to run short of skilled workers and this “gold rush” is starting to slow. I think we will reach parity shortly and this effect evaporates.
2) Cheap goods – Similar to #1, but in this case we transferred our manufacturing base to asia. Good for consumers, but bad for manufacturing. The falling dollar is erasing this effect also though.
3) Home Equity – Nobody cared much about wage increases because they were too busy sucking money out of their house. As we know this is coming to an abrupt stop.
All three of these are now played out (or close) …the pain will arrive shortly in the form of continued stagnant wages, higher prices, a huge debt burden and higher unemployment.
Of course now that unemployment is rising there is less leverage to ask for a raise …but I would expect wages to start rising again after we get thru this recession.
MS, got it. God help us if folks don’t wake up out of their dream state and realize we are being raped and pillaged while the thieves slink off after they have stripped up bare. We all need to come together and demand more from those we elected.
Michael David,
I think you’re on the right track with your comment about today’s family being different.
A big factor is female participation rates. Looking at table 2 of this BLS report , the participation rate grew fairly steadily from 43% in 1970 to a peak at 60% in 1999 and has plateaued since then.
Without the “normal” addition of extra female participants, it isn’t all that surprising to see median family incomes stagnating relative to past cycles.
this is an interesting chart but it only shows ‘income’. It does not include the ‘wealth’ increase that took place from the rise in housing prices. While the ‘wealth’ effect may have been fleeting people definitely felt better about how they were doing as housing prices increased.
Overall I don’t think this graph shows the whole picture.
Well David since you asked. Basically any policy that changes the incentives currently in place could improve income inequity.
First off re-instate all the legislation that was in place to prevent this stuff in the first place. Especially anything to do with limits on media consolidation.
Then why not make it MUCH easier to unionize and the increase the power of unions. Personally I would start with Walmart. If your first thought was unions are inefficient you should maybe ask where that thought came from and inefficient for who exactly?
If you really want to get out there why not a 100% tax increase on any money companies spend on share buybacks combined with a 25% tax credit on money they spend on salaries? For that matter why not legally tie the income of CEOs to that of the lowest paid person who regularly receives money from the company? Did you instantly think but the “market” determines CEO pay and what about the shareholders? If so perhaps you need to learn about how CEO pay is actually determined. Likewise perhaps you need to think about what will happen to the stockmarket when the ponzi scheme of credit ends and 80% of the US population dramatically reduce their spending.
Remember this has ALL happened before. Massive income inequity either leads to debt or 3ird world style negative economic growth (or both). Remember in the 20s “Private debt outside of the banking system increased about fifty per cent.” Likewise Eccles argues further “Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.”
http://www.nakedcapitalism.com/2008/03/did-increased-income-disparity-help.html
MS, let’s use Immigration Policy to our advantage. If we need workers for agriculture than by all means issue whatever temporary Visas are needed to get the job done, but our open borders policy is litterally allowing the American Worker to be robbed because they have no pricing power whatsoever when it comes to wages increases. For some reason we never take a reasonable approach to anything anymore.
The Right, The Right, and The Facts:
Deconstructing the Income Distribution Debate by Krugman
“Even if it’s true that everything that goes wrong is George Bush’s fault, the question is, what is the solution? Do we vote for Obama so that he can “soak the rich”…? The top 1% is already paying about 40% of all income taxes. Is it realistic to think that that percentage can go a lot higher? (I think not).”
40% of what ?
In 2005, for example, the top 1% paid close to 40% of all income taxes, but also received 20% of all income. Per this link:
http://www.taxfoundation.org/news/show/250.html
In fact, the top 5% received over twice as much income as the bottom 50%.
I’m thinking that “thou doth complain too much”.
Barry, I usually expect you to have a fairer perspective. There are a lot of factors producing that graph, but Bush’s policies–idiot tho he may be–are insignificant.
Adam,
“Why doesn’t anyone ask about income mobility?”
Been there, done that.
It’s been well documented that income mobility between generations has been falling since the radical change in our tax system in the early 1980s, whereas in prior decades to that it had been rising. Since then, except for a temporary reversal from ’93 to 2000, most children of rich parents stay rich, and most children of the poor stay poor.
“A recent study by the US Treasury (http://www.treas.gov/press/releases/hp673.htm) shows workers’ ability to move up the income classes is alive and well.”
This from the same administration’s Treasury Department that thinks that tax rate cuts generate more tax revenue, and that the national economy has been just great over the last eight years.
Don’t worry, be happy.
.
For an excellent in-depth discussion of why the middle class is tethering on the economic edge, (versus a generation ago) check this Jefferson Lecture for Prof. Warren at Harvard.
http://www.youtube.com/watch?v=akVL7QY0S8A
(You may want to skip the first 5 minutes of introductions and blablabla)
Warning: This is no place for those who have a big problem with data and reality. And no! it is not about “Libruls good, neocons bad!”
That said, prepare to be shocked when you see the graph about total taxes 1970 versus today.
Spectre your concerns about not having bargaining power is a valid one in many ways. It is no doubt the case that you and your fellow employees have little individual power. Just think if only there was some mechanism or group which could represent your interests and make it literally impossible for you to be fired without cause and replaced by a non-citizen. I wonder how problems like that were addressed in the past and who exactly has convinced you those solutions won’t work anymore…
That said I still think you are looking the wrong way. Try to imagine economic output as a pizza, instead of 10 people arguing about how many pieces of the whole pizza they each get, thanks to income inequity 1 or 2 people are taking literally half and letting the remaining 8 or 9 people squabble over the last half. Economies don’t work if everyone gets exactly the same, but they also don’t work if half the pizza is gone before it hits the table.
Sus Ano, I agree with your income disparity argument as well. The last time we saw income inequality like we have today was the Great Depression. It’s certainly part of the problem that needs to be fixed.
Using your pizza analogy, with the wealthy getting say 6 slices, it’s patently unfair for American workers to have to share the remaining 2 slices with people that should not even have a seat at the table. Let’s fix both problems so that the American Worker finally gets a fair shake from all concerned.
“Using your pizza analogy, with the wealthy getting say 6 slices, it’s patently unfair for American workers to have to share the remaining 2 slices with people that should not even have a seat at the table. Let’s fix both problems so that the American Worker finally gets a fair shake from all concerned.”
I normally am very against the anti-immigration stances taken by many in this country, but I’m willing to give some ground on this issue. It seems especially bad when you look at how such labor is exploited in this country.
Wouldn’t it be wiser for us to prevent such exploitation, and use the resulting wage gains (and increase in federal revenue) to provide for financial aid to Mexico, etc. so that they can get their own infrastructure and economies going in a way that doesn’t cause such dislocation and damage ? I think most would agree that this would be a better outcome for all. I like the image of the US as a shining example much more than I like the US as an example of a low-wage hell-hole that exploits its workers.
Come on Barry, enough of your Bush bashing ways.
Considering we didn’t get excessive GDP growth or a overly tight labor market after the 90’s excesses, you weren’t going to get big wage growth. It had to end sometime.
One thing that Barry does not mention is that the same only more has been happening to HOURLY earnings, especially discounting inflation, so it does not depend on family size. It is just declining leverage for USA workers.
There are very clear long term trading implications in this. It is not non-USA workers whose standards of living are improving fastest, and companies with significant sales of “aspirational” consumer goods in Asia and other growing areas are doing pretty well. Investing in companies who sell mainly to USA mass-market consumers, which has been largely Warren Buffett’s strategy for the past several decades, may not be such a good idea in the future.
One flaw that the NYT writer made was to use household income without adjusting for the significant decline in the average size of a household. In 2006, the Census reported an average household consisted of 2.57 people. In 1966 it was 3.3 people. If the story had been done on per capita income, it would have shown an increase.
One flaw that the NYT writer made was to use household income without adjusting for the significant decline in the average size of a household. In 2006, the Census reported an average household consisted of 2.57 people. In 1966 it was 3.3 people. If the story had been done on per capita income, it would have shown an increase.
A question for you all…
There seems to be a lot of complaints about the H1-B visas… But they allow 65,000 a year for 3 year term. It’s extendable once… so I guess 65,000 * 6 at most (some people may head home). That is 390,000 people. Round to 400,000 if you like, spread between science, engineering, finance, and supermodelling.
By way of comparison, there was more than 13,000,000 scientists and engineers in the US in 1999 as per http://www.nsf.gov/statistics/us-workforce/1999/tables/TableA1.pdf and from the same website, there seems to be about 1,000,000 new science and engineering bachelor grads each year. That’s just science and engineering too…
I’m curious whether those H1-Bs are really the problem? I’m aware of those numbers being at the cusp of the supply & demand curve, but are these workers enough to totally stop real wage growth?
I’m thinking some more focus on research, infrastructure and the like might have much more effect than a small percentage of workers…
OhNoNotAgain, how about Mexico take care of Mexicans? Look at the oil revenues generated in Mexico, yet the poor there never see any benifit. Their political system is completely broken, and it must be changed before the Mexican poor will prosper in their own country. The American worker has taken it in the shorts for too long, and my concern is them and their families. Frankly, I’m tired of worrying about everyone else while we have our own working poor in this country with no benifits including no healthcare.
I can think of one way that Clinton would have raised wages —
By keeping taxes higher.
Jim Hancock —
You forgot another huge reason for wage stagnation:
E-commerce.
It allowed made many businesses much, much more efficient: (think of how many video rental clerks were put out of work by Netflix, and how many Tower records salesmen were axed by ITunes, and you begin to sniff it).
An enormous section of the sales force was replaced by HTML code, and it really kicked in during the last 6 years or so.
Spectre,
An illegal immigrant may be able to do your job, but not mine, and many of the jobs of my friends. As you well know, illegals are a problem for low-and medium low wage jobs, especially in construction/manual labor. Restaurant jobs have always had sucky pay, so. It’s not a white-collar/office job phenomenon.
My GOP friends always thought I was crazy when I said that Rove could have created his “permanent Republican majority” had he given the majority Bush tax cuts to households making $85-200k per year. I guaran-damn-tee you that the money would have been redirected straight into the local economy. Perhaps not so much to keep people from using their homes as ATM’s; but it may have put off the inevitable for a few years.
Kurt,
“One flaw that the NYT writer made was to use household income…”
Looks to me like Leonhardt utilized family income in median wages.
“Household Income“, median or otherwise, is not a measure of anything.
“If the story had been done on per capita income, it would have shown an increase.”
Which is why you shouldn’t use per capita income. It’s an average. If you and Warren Buffet are in a room, the per capita income of the room is $32 billion, which is not representative of either of you.
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SPECTRE,
“Frankly, I’m tired of worrying about everyone else while we have our own working poor in this country with no benefits including no healthcare.”
Working poor?
Here’s a shocker: Between 2001 2004, there were 1.2 million working people who lost their healthcare benefits while staying employed. Of these, 800,000 were married people with 2 children making on average 75K per year.
But of course, don’t expect anyone from the MSM to give you that kind of information. I got that data point (I was about to say this scandalous statistic) from the link in my previous post around minute 40:45 onward.
http://www.youtube.com/watch?v=akVL7QY0S8A
SPECTRE,
“Frankly, I’m tired of worrying about everyone else while we have our own working poor in this country with no benefits including no healthcare.”
Working poor?
Here’s a shocker: Between 2001 2004, there were 1.2 million working people who lost their healthcare benefits while staying employed. Of these, 800,000 were married people with 2 children making on average 75K per year.
But of course, don’t expect anyone from the MSM to give you that kind of information. I got that data point (I was about to say this scandalous statistic) from the link in my previous post around minute 40:45 onward.
http://www.youtube.com/watch?v=akVL7QY0S8A
Well, Susan, coming from the rusty Midwest, I can tell that unions sure as **** ARE inefficient, and “making it easier” to unionize really means making more shops closed shops. How that increases my freedom or well-being (by having a UAW thug breathing down my neck to sign off on a card check) is rather…not obvious. A couple more examples that are patently self-evident: Michigan, and government workers, both of which are heavily unionized. Where are auto factories going? to non-union states, but you know what? Toyota pays pretty much as well as the Big 3.
If WalMart was such a hellish place to work, I’m not certain why hundreds upon hundreds of people line up to work there, whenever one is threatened to open (Exhibit 3: South Side of Chicago).
The fact is, you can’t pay a person $20/hour to make less than 10 $2 widgets/hour and stay in business. In fact, you can’t pay pay that person $20/hour to make less than 20 $2 widgets/hour in most operational structures. I don’t care if it’s a union shop or not. This is why $2 widgets are made in China, India and Mexico.
CEO pay is a red herring. I’ll agree it’s often disgusting, but why stop at legislating CEO salaries? Why not legislate my salary or my buddies’ salaries? (no I don’t make minimum wage, so it’s a valid argument). If you did legislate it, you’d likely lower CEO salaries rather than raise the grimy masses (not saying that’d be a horrible thing, but it’s not your desired outcome), and you’d increase their shares/options and non-cash comp. As an example, Kindler of Pfizer “only” makes $1.5M in salary and $3.1M in bonus. Pfizer has about 85,000 employees. Let’s say you cut his salary in half. You could give everyone a $10 annual raise!! Now that’s an economic stimulus plan. Ok, let’s give his bonus away too–you can do that math, it’s peanuts. The rest of his comp is stock/options etc.
As to the US equity markets, well, I’m net short them. So yeah, I’ve thought about the ramifications, dear.
As for the ’20’s, etc, the US has survived for over 200 years with a majority of that time having massive income equality:
1776-1865: Slavery. Don’t get more unequal than that. Ok, I’ll grant you there was a big war over it, but it wasn’t because the slaves were underpaid, it was because they were…slaves.
1866-1910: Age of the “robber barons.” The Gilded Age. Hmm. WWI rolls around (for the US) in 1917. Not really caused by massive income inequality.
1918-1929: Roaring ’20’s. More inequality!!! Will it never stop?
1945-1985: The mythical land of the post-war years when everything was wine and roses and everybody was created equal and wearing alternatively gray flannel suits, hippie shirts, leisure suits and big shouldered suits.
1985-now: Massive, huge, growing, enormous, unprecedented (except for every era before it) income inequality.
See why I’m a little blase about this issue?
“… latest tactic by the employers is to hire people over staffing firms that they would have hired by their own in the past.”
I can go you one “better”. Layoffs and forced retirements followed by bringing the same people back into their old jobs as “temps”.
I know one engineer who was “canned” by his 20-year employer. He then worked for a competitor as a temp for a couple of years. When his contract there was up he returned to his original employer and his old job, but this time as a temp. When budgets were trimmed there again, he returned to the competitor once more as a temp and replaced the temp who’d replaced him. Another couple of years and he returned to his original employer for the 3rd time, once more as a temp.
Insanity, eh?.
“Toyota pays pretty much as well as the Big 3.”
Actually, they don’t.
“OhNoNotAgain, how about Mexico take care of Mexicans? Look at the oil revenues generated in Mexico, yet the poor there never see any benifit. Their political system is completely broken, and it must be changed before the Mexican poor will prosper in their own country. The American worker has taken it in the shorts for too long, and my concern is them and their families. Frankly, I’m tired of worrying about everyone else while we have our own working poor in this country with no benifits including no healthcare.”
I agree with everything you say. However, we’re talking about *illegal* immigration, and we have to balance the cost of enforcement and border patrol with efforts to get Mexico to clean up its act. And my point was that proper enforcement along with allowing US wages to increase would naturally result in more funds that could be used as a carrot and stick approach with Mexico. No matter how you slice it, Mexico is our neighbor and we need to deal with them in a way that benefits us both. We simply can’t ignore them.
“If WalMart was such a hellish place to work, I’m not certain why hundreds upon hundreds of people line up to work there …”
Because, as bad as WalMart is, there’s nothing better in ChicagoLand without driving out to DuPage County?
“See why I’m a little blase about this issue?”
Yeah, because you were never on the receiving end of the inequality. I’m sure you’d be singing a different tune otherwise.
This lack of empathy towards fellow US citizens is quite shocking to me. It’s the kind of thinking that allows all sorts of things like shooting striking workers, company towns, etc.
GreenAB: “latest tactic by the employers is to hire people over staffing firms that they would have hired by their own in the past.”
You forgot to mention the (perhaps Germany specific) part where changes of the employing agency are “arranged” every two years or so to evade conversion to permanent employees.
I know of several such cases where engineers were “ping ponged” between agencies. The reason it worked was a lackluster labor market with (better) alternatives few and far between. Not software engineers though, that sector was pretty strong at the time, and most people wouldn’t have stood for that kind of shit.
(Footnote: Employment contracts can be “termed” in Germany, up to both a time limit and renewal limit; discharging permanent employees is far more difficult and costly than letting a term contract run out.)
engineer al: As the popular phrase goes, “the insanity has system”.
David,
“1945-1985: The mythical land of the post-war years when everything was wine and roses and everybody was created equal and wearing alternatively gray flannel suits, hippie shirts, leisure suits and big shouldered suits.
1985-now: Massive, huge, growing, enormous, unprecedented (except for every era before it) income inequality.”
Actually, that would have been:
1945-1980: “mythical land of the post-war years”
1981-1992: The real wages of the overwhelming majority of Americans declined every year, going backwards by about 20% in just twelve years, as the income of the wealthy explodes, producing a greatly widening income-inequality.
1993-2000: The longest consecutive yearly increase in real wage growth since the 1960s, producing a temporary reversal in income-inequality.
2001-2008: The real wages of the overwhelming majority of Americans declined every year, as the income of the wealthy explodes, producing a greatly widening income-inequality.
“See why I’m a little blase about this issue?”
No.
.
This can’t help…..
WSJ – Inflation, Spanning Globe, Is Set to Reach Decade High
OhNoNotAgain, I agree that we must deal with Mexico, but on a level playing field. Their Immigration Laws make ours look tame, and they enforce theirs. This has been a bonanza for the Mexican rich because they can pawn off their poor and destitute on us and go merrilly on their way. Meanwhile, the social services we can provide, which is a finite amount, must be shared with those who shouldn’t even be in our country. Let’s face facts concerning America. We are broke, and moving forward the strain on social services will grow and become much worse. We must take care of our own first before we can be a good neighbor with anyone else.
Mark Thoma on the Leonhardt article:
“It could be that the administration’s lack of attention to domestic issues and the troubles that working families face is one of the costs of war – there wasn’t time to address these issues and run a war too. But there was plenty of time to cut taxes on capital gains and dividends, plenty of time to try and remove the estate tax (even in the aftermath of Katrina), there was plenty of time to do things that benefited those at the upper end of the income distribution, so that argument doesn’t stand up to closer inspection. There was time to address these issues – there was time to find a way to share the gains from the boom across a wider swath of the population – but the administration and congress, a congress that was controlled by Republicans for most of this time period, had no desire to do so.”
http://economistsview.typepad.com/economistsview/2008/04/if-you-didnt-he.html
I usually don’t spend time fact checking blog comments, but VJ’s last one just begs for it.
VJ says “1993-2000: The longest consecutive yearly increase in real wage growth since the 1960s, producing a temporary reversal in income-inequality.”
Wrong. There was no temporary reversal in income-inequality. The Gini Index of Income Inequality went from .454 in 1993 to .462 in 2000. In 2005 (latest available), it was .469.
Tom, why let facts get in the way of cheerleading for his side? Thank you for fact checking the nonsense. According the VJ, Clinton the Apostle walked on water just like Jesus Christ.
Also, his old lady says NAFTA was a bad idea even though he supported it along with our global warming saviour and signed it into law.
Tom, to be fair to VJ, I will say that according to IRS figures the top 1% received 21% of GDP which matches the figures leading to the great depression. Your facts and mine can still be reconciled although if the top 1% is receiving more than another group must be receiving less. My guess, and it’s only a guess and I can be wrong, is that the top 10% paid more.
Why would that be? Because the 1% can live off of dividends with the 15% rate while the top 10% are thrown into the AMT grinder.
You (several of you) just proved my point–“inequality” has had plenty of cycles before, and I suspect will continue in the future, as I very rarely believe that “this time it’s different.”
Actually, Toyota does pay about as well as the Big 3–what they don’t provide are the ca. 1950’s unsustainable benefits.From 2007:
http://www.aftermarketnews.com/default.aspx?type=art&id=80833
“Toyota Motor Corp. gave workers at its largest U.S. plant bonuses of $6,000 to $8,000, boosting the average pay at the Georgetown, KY, plant to the equivalent of $30 an hour. That compares with a $27 hourly average for UAW workers, most of whom did not receive profit-sharing checks last year. Toyota would not provide a U.S. average, but said its 7,000-worker Georgetown plant is representative of its U.S. operations. ”
I’m not quite sure what the “receiving end of inequality” means. I’m not equal to others. Across this great land, there are plenty of people who can run faster than me (despite my bests of 21.6s in the 200m, 4:32 in the mile, 58m for the 10 mile, just over 2 hours for the 20 mile races). There are plenty of people smarter than me (despite my 700+ scores on all subsections of the SAT and GRE). There are millions of people richer than me. Do I care? Not really. Why should I? I have a decent place to live, a decent job, money in the bank, good health and a decent family.
As to my poverty-stricken bona fides, I grew up in a working class area of Milwaukee, dominated by Arabs, Mexicans and Polish factory workers/cops/firemen. I worked at Burger King when I was 16, and the night shift at a hotel during college, while attending day classes and working in a lab in the afternoons. I worked every summer. I went to state schools and got my first financial gig by cold-calling everyone I could Google during the wonder years of 2002. Yeah, I had everything just handed to me. Whatever.
David these figures are from 2004, but I’m sure it’s gotten worse. I have no problem with executives making a great living, but in many cases they have turned pigmen just like the Wall Street types:
Average pay for top American CEOs and board chairmen has soared from $479,000 to $8.1 million in the last quarter century, as measured in annual surveys by Business Week magazine, the only source that goes back that far. The pay of average (non-management) workers over that time, as measured by the U.S. Bureau of Labor Statistics, hasn’t even kept up with inflation.
If average worker pay, which is now $26,899, had risen like CEO pay, it would exceed $184,000. If the minimum wage had risen at the same rate, it would now be almost $45 an hour.
Sure, like I wrote, I think CEO pay is overall at disgusting levels. I also think that it will revert at sometime in the (near?) future.
Additionally, sure, the minimum wage would be $45/hour IF it increased at the CEO’s rate.
There are at least 2 problems with what I see you getting at:
1) Again, you can’t someone $20/hour to make 10 X $2 widgets/hour. It does not pencil out. Period.
2) Slashing CEO/executive salaries might make everyone feel good, but as I wrote before, if Kindler at Pfizer took a 75% pay cut, and gave every dime to his employees, he’d give them an average ~$50 annual raise. Again, sure it might be offensive to you that he made $4.5M in salary last year, but taking away his money and giving it to every employee doesn’t amount to a hill of beans.
Dave, let me point you toward some history when poor people were told to eat cake, and we all know how income inequality was solved. We can do it nice, or poor people will get so angry that the Uber Rich will be completely f***ed. It’s all about choices, and J6P ain’t in the mood for, “it will get straightened out in the future” when they see themselves as debt slaves to a corrupt system. It won’t be like the 1930s this time around.
Re: Francois
Wow. That Elizabeth Warren vid was incredible. Can’t believe it was an hour, it went by fast.
Shocking really.
Tom,
“I usually don’t spend time fact checking blog comments, but VJ’s last one just begs for it.
VJ says ‘1993-2000: The longest consecutive yearly increase in real wage growth since the 1960s, producing a temporary reversal in income-inequality.’
Wrong. There was no temporary reversal in income-inequality. The Gini Index of Income Inequality went from .454 in 1993 to .462 in 2000. In 2005 (latest available), it was .469.”
There are quite a number of problems I’ve always had with the “Gini Index”. From their utilization of averages of quintile data, to the use of household income, not to mention their fundamental reliance upon a sample of some of the households polled by the Census Bureau as the basis of the index.
* The uses of averages is well known for producing flawed results, for all the obvious reasons.
* “Household income” is not a measure of anything. If you want a long explanation, I can provide you with one, but suffice it to say that the chief of the ‘Housing and Household Economic Statistics Division’ at the Census Bureau has admitted that “Household Income”, median or otherwise, does not accurately measure income in America.
* Telephone surveys of homes is notoriously unreliable, as was discovered with the Labor Department’s phone surveys when compared to payroll data. People lie. In the main it isn’t nefarious, as the jobless worker who says he’s a consultant or some other euphemism because he doesn’t want to admit he’s unemployed, or the poor person who is frightened to admit to some income because the person calling is from “the government”.
Nevertheless, the “Gini Index” is computed utilizing that Census Bureau data.
I have a chart somewhere that illustrates quite nicely what I was referring to, if I can find it, I will post it.
.
SPECTRE,
“…why let facts get in the way of cheerleading for his side? Thank you for fact checking the nonsense. According the VJ, Clinton the Apostle walked on water just like Jesus Christ.”
Something isn’t true just because you BELIEVE it to be true. Try relying upon something other than just your baseless emotional beliefs.
.
Spectre…
Again, let me point out that poor people in the US have eaten cake for over 200 years and we really only had 1 war–over slavery, and over the principle of it, not because they were poor (obviously, given the state of poor ex-slaves after the war).
You’re arguing again that “it will be different this time.” It won’t be. Period.
The Great Depression again? Give me a break. When all the “poor” people in this country have a car or two, an iPod or three, a TV or four, cable, cell phones, washer/dryer, dishwasher, indoor plumbing, too much food to eat, etc etc, I really don’t see a revolution happening.
For heaven’s sake, you want to see poor people, take a trip to the hinterlands of Africa or South America.
When politicians, particularly Democrats, start talking about wage growth, you can bet it will be wrong. This data is both right and wrong.
If you control for demographic changes in the average “family” this changes dramatically the result.
1. The average family size has decreased substantially over the course of this time period, and the average number of earners has decreased even more.
2. Starting in 2003, the % of retired households or families has been climbing steadily steadily. This means they have little to no “wage income”. This does not make them poor. They have Social Security and investment income, not wage income.
3. This measures wage income, but fails to measure investment income. This comes from all sources, including growth in home values, stocks, bonds, etc. This is an increasingly larger percentage of even the median families income.
So this article is right, but is actually misleading. Wages are not under any more or less pressure than they have been, but the underlying demographics are shifting given the retirement of the baby boomers which started in earnest 3 years ago.
Those that mention illegal immigration as a causal factor are correct. If the Democrats cared about lower skilled wage earners, they would do the one thing that would help them, close the borders!
So we pay a bit more for a Big Mac? Well, is that not the income redistribution they seek by other means? At least the market place is doing it, not misguided, distortionary tax policy