If I could have one wish in arguments about the economy, it would be for the default definition of “growth” to be changed. Normally, it’s taken to mean overall GDP growth, and it’s certainly true that steady GDP growth is a good thing. But really, what’s the point of economic growth if all the extra money is going to Donald Trump and the average guy is just treading water? What’s the value of growth like that?
If I had to choose one single thing as the most important determinant of a genuinely strong economy, it would be median wage growth. After all, if median wages are increasing smartly, it’s a sure bet that the economy as a whole is growing too and everyone … including Donald Trump … is doing well. It’s quite possible to have strong GDP growth that still leaves two-thirds of the country stagnant … which is roughly what’s happened for the past 30 years … but it’s almost impossible to have strong median wage growth and not also have a booming economy.
If anyone's shopping for nightmare scenarios, I have some. Scenario 1: Trump succeeds in deporting a significant percent of immigrants,…
It’s very easy to have strong median wage growth and not have a booming economy. It’s called inflation.
What you want to measure is purchasing power.
A devestating critique! If only there were some way to adjust monetary values from different years to take inflation into account. Why, it would revolutionize the entire field of economics!
Yes, it would be good if the poorest segments of our society had more money, but how to achieve this? Just take it away from productive people and give it to them? What is a good way to achieve median wage growth?
How is GDP measured? If a domestic company outsources much of it’s labor and it’s profits thereby jump, does GDP rise, even though less money is being paid out in domestic wages?
Ask a hard question, Ron. That one will only require 20,000 pages of economic analysis.
Over the past thirty years, we have seen a fairly radical shift in the orientation of our economy. It is true that wage growth has stagnated; at the same time, the standard of living (even for people at the bottom) is waaaaay higher than it was 30 years ago. This makes comparisons and analysis pretty tricky. The main reason for this shift is technological change, which at the consumer level has been pretty remarkable. We can be glib about indexing for inflation, Zarquon, but inflation measures only one aspect of differential change, among literally millions.
Just as one example: in 1970, if you wanted to have access to thousands of pieces of music in convenient and portable form, you would have to be a very, very wealthy person. Today, you need a $150 IPod. How do we measure that increase in real wealth? It’s damn difficult. I don’t really listen to a lot of music; just not a music guy. So the ability to listen to thousands of songs cheaply isn’t worth very much to me. Joe Hypothetical, however, is a complete musichead. If he had been alive in 1970, he would have spent 20% of his disposable income on 8-tracks or whatever stone-tablet technology they had back then. Now he has five IPods and ten music subscriptions and his hard drive is one giant wad of MP3s, and this only costs him 5% of his disposable income, and he’s deliriously happy compared to how he would have felt in 1970. His wealth is WAY increased. But how much? Beats the shit out of me.
Now multiply this econometrician’s nightmare by the thousand other elements of life that have been radically shifted by tech, and the nature of the comparative problem may become clearer. I was myself too glib when I said “purchasing power” – it’s difficult to compare purchasing power between years when what you can purchase is so different.
With all due respect, Rob, you need to inhale less pot – Ron’s question is perfectly straightforward and easy to answer.
If a domestic company closes a factory in the US and outsources to to a foreign factory, US GDP drops. In fact, even if a foreign company closes a factory in the US, then US GDP drops; when measuring GDP, all that matters is the country the factory is located in, regardless of where the owners of the factory live.
However, GNP would rise in your example, because GNP is measured by which nation owns the factory, not by where the factory is located. That’s the difference between GDP and GNP.
Hey! That was uncalled for. I only smoke pot on days that end in “y”, and at times that can be described with integers.
What were we talking about again? Oh yeah. GDP.
If the factory closes in Iowa and reopens in Indonesia, then yes, the direct and obvious effect is a reduction of US GDP; all those factory jobs go “poof”. But that’s only the first effect.
Among many, many downstream effects, the Indonesian factory produces the same goods at a lower cost (we assume) – which means that they’re now available cheaper in the States. That, in turn, means that some of the money that would have been spent on the Iowan widgets is now free to be spent on something else – which may well be another American product, increasing its sales and recapturing some of the lost GDP.
The Iowa factory workers don’t disappear. They’re still there. Some of them may retrain and find a better job under the stimulus of fear, thus resulting in a net increase of GDP for that person that would not have happened if they’d stayed fat and happy at Inefficient Iowa Products, Inc. Others may take work at lower wages somewhere else, reducing GDP by the differential between their wage at IIP and at their new employer, but possibly boosting GDP overall by the creation of the new factory employing the desperate unemployed.
And so on.
It’s not a simple question. There are darn few simple question in economics.
If you’d like to become more confused about GDP, you can decrease your already inadequate understanding of the topic by reading this article.
/PSA
RonF – Just because one group of people at a business are in charge of doling out the money that the business earns, and happen to give themselves most of it, implies nothing about the relative productivity of the other employees of that business.
Robert – Yes, technological advancement is an issue. However, in the past 30 years it’s mostly been an issue for luxuries. Food, shelter, transportation, and medicine have not had such astounding gains in efficiency that we can’t reasonably say that someone who earns the same real wage today that they earned 30 years ago has no significant change in the quality of food, shelter, transportation, and medicine that they can afford. And of course, the technological impact on luxury spending is higher the more you have available to spend on luxuries. What you can do by tracking the median wage along with the GDP is get a sense of what share of the goods available to Americans as a whole the average American can actually claim. I’d say that having this share decrease is a bad thing on its own, regardless of how sparkly the share winds up being.
someone who earns the same real wage today that they earned 30 years ago has no significant change in the quality of food, shelter, transportation, and medicine that they can afford
Really?
So in 1970-1975, you could:
* easily find organic food in the supermarket
* buy a house whose net energy consumption approached zero
* get a high-powered, safe, airbag-equipped car that got 65+ mpg
* get genetic therapy for illnesses
?
* easily find organic food in the supermarket
* buy a house whose net energy consumption approached zero
* get a high-powered, safe, airbag-equipped car that got 65+ mpg
* get genetic therapy for illnesses
*sigh* My point was supposed to be that in these categories, the option for paying more for better quality existed, but not paying less for better, thus making the question of the effects of technological advancement easier to handle in the aggregate. However, that apparently wasn’t what I wound up saying. But I’ll be saying that now, if anyone asks.
I think I’m just not understanding you. (I’m very high – ask Amp.)
Are you saying that people today have the option of spending more to get things they couldn’t get 30 years ago, but that we don’t have the option of spending less to get things we couldn’t get 30 years ago?
Robert- More or less, yes. Less flippantly, “We have the option of spending more [than they spent on items of that category] to get get things they couldn’t get 30 years ago [that are higher quality than similar things that they could get 30 years ago], but that we don’t have the option of spending less [than they spent on items of that category] to get things we couldn’t get 30 years ago [that are higher quality than similar things that they could get 30 years ago].”
OK. The first part seems indubitably true; let’s take it as an assumption.
The second part I question: we can’t get basic new stuff cheaper than the parallel old stuff that they used to get. I don’t think that’s true.
Safeway sells fresh pasta in plastic boxes. It’s tasty; certainly better than the boxed stuff. You couldn’t get that in 1975; maybe you could in an Italian deli somewhere, but few people would have access. So the parallel good would be boxed, non-fresh pasta of the same type plus the canned meat or cheese filling.
To test your thesis should be simple. Compare the inflation-adjusted price of (say) a pound of fresh tortellinis (mmm) today with the cost of boxed tortellini in 1975 and a can of cheese sauce.
I don’t have a time machine, or an archive of 1975 Safeway newspaper advertisements, but maybe someone else does.
Well, while we’re waiting, I’d like to hear your thoughts on this part of my post:
“What you can do by tracking the median wage along with the GDP is get a sense of what share of the goods available to Americans as a whole the average American can actually claim. I’d say that having this share decrease is a bad thing on its own, regardless of how sparkly the share winds up being. “
Politics of envy. Who cares about the relative size of the shares? What’s important is whether the shares are growing in absolute size. If I go from $100 to $110, I am better off, even if my share has gone from 1% to 0.9%.
Endorsing the contrary quickly reduces us to endorsing absurdities.
I suspect Robert is understating the challenge: we can’t even be glib about indexing inflation. Measuring inflation is hard.
As I understand it, current measures compare the price of an exact selection of goods today with that same selection during the previous year. For example, it might incorporate a comparison of the price of a 24-oz box of Grapenuts today with the price of a 24-oz box of Grapenuts last year. The calculation does not reflect the fact that this year Post started selling a 36-oz box of Grapenuts at a lower price per oz, and as well a package of twelve 2-oz “Grapenuts-to-Go” breakfast bars. Nor does the calculation acknowledge that the Kashi-Lean people now offer a new, better-tasting Grapenuts-like cereal.
In short, the calculation does not acknowledge the existence substitute goods. There is some merit in this policy. After all, acknowledging substitutes would require judgment about which goods are adequate substitutes for other goods, and the government does not want to inject subjectivity into its calculations. But real shoppers DO acknowledge substitute goods, and change their shopping behavior accordingly. The net result of is that the inflation index likely exagerates the inflation that consumers actually experience. (And people who get full cost-of-living increases are likely getting raises, in effect.)
Relative shares matter if you believe that a) people should be rewarded commesurate with their efforts and b) people are not guaranteed to be rewarded commesurate with their efforts.
People should be rewarded according to the terms of whatever contractual arrangement they have freely negotiated.
“but that we don’t have the option of spending less [than they spent on items of that category] to get things we couldn’t get 30 years ago [that are higher quality than similar things that they could get 30 years ago].””
I don’t think that is true at all. A mid to low price Honda car is better AND cheaper than a mid to low price Ford from the 1970s.
“Relative shares matter if you believe that a) people should be rewarded commesurate with their efforts ”
I don’t think people should be rewarded commensurate with their efforts. I know lots of people who put in all sorts of effort and don’t get much of use done.
1. Who cares? The taxpayer rights people care. They regularly trumpet the fact that the rich are paying an ever increasing share of the government’s budget. (They neglect to mention that the rich are the only segment of the population that is getting richer, making it inevitable and entirely appropriate that they would pay an increasing share.)
2. Comparisons matter where competition matters. The Iraqi troops did not care that they were perhaps the best trained and equipped troops ever to defend Iraq. They cared that the Coalition Forces were a zillion times MORE trained and equipped. War is competition.
What else is competition? Politics! And as the rich get richer, they can buy more of everything, including politicians. The Republican Congress created a child tax credit to subsidize child rearing, but phase out its application to people earning
Nobody’s guaranteed to be rewarded commensurate with their efforts. How do you propose that a given reward is determined to be judged commensurate with a given effort?
iPods and fresh pasta mean jack shit if you can’t afford rent or health insurance.
So, Simple frigging question, has *rent*, *health insurance* and *education* gotten cheaper (adjusted for relative wages) or more expensive? Have increases in wages kept up with inflation, and rising costs that outstrip inflation (like health care and education?)
Robert, are you happier having a cheap iPod than he is affordable health insurance for all Americans? How about food for those who can’t afford it? A job market that provides jobs with A LIVING WAGE for anyone who’s willing to go to work.
We’ve got cheap iPods and overpriced prepackaged fresh pasta that Robert thinks is tasty (Robert also thinks canned corn is tasty, so what does he know?)
Have we got those things? NO
Why don’t we have these things? Because they won’t make anyone a profit. It’s a fallacy that a robust economy means a better life for everyone. In fact, it can mean an increasingly shitty life for the poor, and an increasingle better life for the rich.
Economies don’t care if people die of treatable diseases. Christians are supposed to, but the ones in charge who pretend to be Christians, and the people pretending to be Christians who vote for them really don’t care enough to do anything about it. In stead, they cut services to the poor in order to fund more tax breaks for the rich.
This isn’t just ‘Fuck you, I’ve got mine‘, it’s ‘Fuck you, I’ve got enough political power to take anything you were getting, and give it to me, even if it means letting you die due to not being able to affford health care, or starve due to not being able to afford food.‘
You can use fancy terminology like rewarded commensurate with their efforts but in reality, people who can’t affford food are being told that, due to the costs of the war in Iraq, they’ll have to find other help, because the government just gave another few billion in no-bid contracts to Halliburton.
Happy holidays everybody.
I don’t see how cutting services and cutting taxes is “taking” from anyone. Rather, what you are objecting to is not taking as much from the rich and not giving as much to the poor.
Having said that, I will agree with you that, constitutional issues aside, spending the money on social work is probably better than pouring into the rathole called “Iraq.” (That is, presuming that the social programs we fund do not alter incentives so as to cause more irresponsible behavior, e.g. the Great Society).
I would think that, if we are to have programs, a program to increase the number of easily accessible banks in the inner city (including, perhaps, subsidies to maintain fee-free checking accounts with low balances or to allow for check cashing without the requirement of a balance for the check casher) or to make the benefits for non-college skilled trades similar to those given to those in college (i.e. why shouldn’t someone who wants to train as a plumber’s apprentice get the same loan and financial aid deals as a person going to college?) would be useful.
Or, as Steve Sailer has suggested, a disaster relief corps (perhaps as a part of the National Guard, but a part that would not be eligible for overseas military service, that is, those who join would not be, e.g., sent to Iraq). Such a corps could provide opportunities for people who would go into the Army but who can’t pass the Army’s IQ tests (disaster relief would not require as much specialized technical knowledge, and therefore as high an IQ as the modern high-tech army does). There are a lot of people who would like to serve their country but who cannot make it into the Army who would be able to serve usefully in a capacity such as this, and it would provide opportunities.
In any case, I agree that Iraq is a rathole, and would rather see my tax dollars go elsewhere.
Yikes! Josh, I share your frustration, but Robert isn’t the target here. (And he wasn’t the one speaking in terms of “rewards commensurate with efforts” either.) Those red states full of “people pretending to be Christians” are the same states full of people lacking a living wage. The states suffering the most under Bush are the states that voted for him.
Alas, not such a simple question, due to the dynamics Robert has identified.
“Rent” for what? Once upon a time, poor people lived in “flop houses,” squalid hotels on “skid row.” In the ’60s, “Urban Renewal” bulldozed them. So today skid row is gone, and the people who used to live there now live on sidewalk grates. (And in “manufactured housing” a/k/a mobile homes, which is quite a technological innovation. But the same right-thinking forces that promoted Urban Renewal also favor zoning trailer parks out of existence.)
Anyway, it should not surprise anyone to learn that if you eliminate all the cheap housing, the average cost of housing will rise. But that does not mean that people are paying more in real terms for the same house today as yesterday. Maybe they are, but I’d need to see something more than average cost data.
Health insurance: I would like to know how much it would cost to buy a 1960-era health policy today. That is, a policy that only provided the care available in 1960. Got AIDS? You’re toast. Need an organ transplant? You’re probably out of luck. Psychiatric disorder? Electroshocks for you. But not to worry, cuz you don’t expect to live beyond 67, right? Comparing a 1960s-era health insurance to today’s health insurance is like comparing a Pontiac Catalina to a Honda Accord.
Education: Certainly today’s primary and secondary education is required to do more than the education of a bygone era. Today we expect schools to accommodate people who would have been excluded previously, including blacks; Native Americans; people with various physical, mental and emotional challenges; and many more immigrants. We expect schools to provide subsidized meals. We expect them to teach sex ed. We expect them to conduct standardized tests. We expect them to provide data to the military. Etc.
Higher ed. is tougher. Clearly many technical fields have grown more sophisticated, and some of this may have increased the cost of providing the education. It is less clear to me that it should cost more to become an English Major or a lawyer today than in bygone days, yet I suspect it does. I suspect there has been real, bona fide increase in the cost of obtaining a degree. But maybe the benefits of that degree have increased as well? Dunno.
I don’t think that’s true, Rob. How is the standard of living for a begger living in a SRO today higher than it would have been 30 years ago (very possibly in the same SRO?) And it’s my impression that the total number of homeless have increased since 1975; how has their standard of living increased?
How is the standard of living for a begger living in a SRO today higher than it would have been 30 years ago (very possibly in the same SRO?) And it’s my impression that the total number of homeless have increased since 1975; how has their standard of living increased?
Firstly, by virtue of the fact that technology has improved the standard of living attained for the same level of expenditure. The beggar in the cheap hotel in 2005 has 25 channels on the 19-inch color TV; the one in 1975 has 3 on a black and white. The beggar who goes to the library in 2005 has the Internet; the beggar who goes to the library in 1975 has access to nothing. The free clinic he could get into in 1975 could do nothing about a host of ailments other than giving him a kind word; the Medicaid benefit he can access now can cure freakin’ cancer. And so forth.
Secondly, by virtue of the fact that the surrounding society is twice as wealthy now as it was then (in terms of PPP-adjusted per cap GDP), meaning that there are far more resources available to help people in the same boat. There are far more soup kitchens, far more job training programs, far more actual jobs available to the beggar. The amount of opportunity to improve his plight, whether through the pity of strangers or through his own bootstrap-dragging, is considerably increased from 30 years ago.
Uh … you’re losing me here.
Joe and Paul are sitting at the bar when Bill Gates walks in. “Yippee!” shouts Joe, “the average net worth of everybody in the bar just skyrocketed!”
“So what?” say Paul. “The fact that there’s a bezillionaire in the room doesn’t make us any richer.”
“Oh, there you go,” sniffs Joe, “promoting class warfare again.”
The bar example is an artificial increase in wealth, caused by a unitary actor changing locations. The increase in social wealth is real, caused by hundreds of millions of people being much more productive and having much better tools.
The increase in social wealth can be caused by all kinds of things other than “better tools”, as you well know.
Our TVs may be nicer, but multiple channels won’t buy you a house and won’t guarantee that your Medicaid treatment actually will pay for your cancer cure. We knew how to fill teeth in 1975, yet today’s poor still don’t go to dentists.
Robert,
In Louisiana a male homeless person isn’t entitled to recieve Medicaid unless he’s also receiving SSI. And if you are getting SSI then you are also eligible for all the other assisstance you say is available to the beggar of today.
The fact is that a homeless woman cannot get Medicaid unless she is pregnant, and then her coverage only lasts until six to eight weeks after the delivery. Though because of the child, if DSS allows her to keep it, she will be eligible for housing, food stamps, training, etc.
The homeless vet of today is no better off in reality than the homeless vet of 30, 40, or even 75 years ago.