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Looks Like Prosperity to Some

| 104 Comments | 8 TrackBacks
Every so often, you read some stuff, see some connections and get a post that just writes itself. I've said in the past that one of the most serious issues we face (and are primarily ignoring) these days is what Neil Stephenson summarized so pithily:
Once the Invisible Hand has taken all the historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity -- y'know what? There's only four things we do better than anyone else: music, movies, microcode (software), and high-speed pizza delivery.
We face an outgoing tide, in which the prosperity which had once been concentrated here, and shared widely between the classes of capital and labor, is going out. Owners of capital can invest abroad, and can, if they are clever and lucky improve their situation. Owners of labor find themselves in increasingly direct competition with lower-cost labor abroad, or with less-skilled labor which can compete because machines and systems make their skills redundant. Start here (note, intrusive registration required, use 'laexaminer'/'laexaminer'), with an article in this morning's L.A. Times about WalMart:
The Wal-Mart Supercenter, a pink stucco box twice as big as a Home Depot, combines a full-scale supermarket with the usual discount mega-store. For the 26-year-old Ferguson, the draw is simple. "You can't beat the prices," said the hotel cashier, who makes $400 a week. "I come here because it's cheap."
Across town, another mother also is familiar with the Supercenter's low prices. Kelly Gray, the chief breadwinner for five children, lost her job as a Raley's grocery clerk last December after Wal-Mart expanded into the supermarket business here. California-based Raley's closed all 18 of its stores in the area, laying off 1,400 workers. Gray earned $14.68 an hour with a pension and family health insurance. Wal-Mart grocery workers typically make less than $9 an hour.
Calpundit also links to this story, and last night, had a guest post up from a grocery clerk union leader about the current strike, which concludes (I think these words are Kevin's):
Here’s the key question: Would you rather that these 70,000 middle class jobs become poverty level jobs filled by workers who have to turn to the taxpayer for healthcare and food stamps? That’s what the companies are proposing because that’s what Wal-Mart has. The CEOs of these three companies are just trying to keep up with the Waltons. Their combined operating profits have gone up 91% in the past five years...but Wal-Mart’s have gone up even more. Good lord — when is enough enough? At what price profits???
It's not just about grocery clerks. In another LA Times story today, we've got this:
BURLINGTON, Iowa — America used to need this town tucked into a crook of the Mississippi River. The assembly lines in Burlington and other factory towns nearby built the products that kept the nation moving — school buses, car batteries, backhoes, tractor-trailers. Workers put in 60- and 70-hour weeks to meet demand. The backhoes are produced in Mexico now, the batteries in Canada. Men and women who once defined themselves by what they built now support their families with unemployment checks. "There's not a market anymore for a guy who shows up for work and does his job well," said Devan Rhum, 37, a former factory worker. "All of a sudden, we've got our hands out. It's degrading."
What's it about? The Times story on Wal Mart says:
"We have split brains," said Robert Reich, U.S. secretary of Labor under President Clinton and now a professor of economic and social policy at Brandeis University in Waltham, Mass. "Most of the time, the half of our brain that wants the best deal prevails." The connection may be lost on many, Reich said, but consumers' addiction to low prices is accelerating a shift toward a two-tiered U.S. economy, with a shrinking middle class and a growing pool of low-wage workers. "Wal-Mart's prices may be lower," he said, "but that's small consolation to a lot of people who end up with less money to spend." Others insist there is a net benefit whenever consumers can get more for less. "If you have lower real prices, you're saving money," said Arthur Laffer, a key advisor to President Reagan who is now an economic consultant in San Diego. "The prices' falling, in effect, raises the wages of everyone who buys their products."
Yes, but...that works well for the first few companies; the companies make more money, and lowering the price of goods improves the overall standard of living while only impacting a few workers. But there is a tipping point, where suddenly the number of workers who have gone from the middle-class downward begin to impact the overall economy - and we're not better off then. Calpundit says it well when he says:
So which is the better and more sustainable model? Increasing the overall affordability of goods by creating a larger class of people who can afford them? Or increasing the overall affordability of goods by squeezing the blue collar workers who make them and thus lowering prices? Both models work, but one works by building up the working class and the other works by tearing it down. I'll take Door #1.
Along those lines, this week's Business Week has a great article (subscribers only) on the decline of economic mobility. Because it's protected, I'll quote pretty extensively. (By the way, Business Week has taken over from Forbes as my favorite iconoclastic business magazine, and I'd encourage people to subscribe.)
The result has been an erosion of one of America's most cherished values: giving its people the ability to move up the economic ladder over their lifetimes. Historically, most Americans, even low-skilled ones, were able to find poorly paid janitorial or factory jobs, then gradually climb into the middle class as they gained experience and moved up the wage curve. But the number of workers progressing upward began to slip in the 1970s, when the post-World War II productivity boom ran out of steam. Upward mobility diminished even more in the 1980s as globalization and technology slammed blue-collar wages. MANY EXPERTS expected the trend to reverse as productivity rebounded during the heated economy of the 1990s. Certainly, there were plenty of gains. The long decline in pay rates turned around as supertight labor markets raised the wages of almost everyone. College enrollment boomed, too, and home ownership shot up, extending the American dream to more families. Low interest rates and higher wages allowed even those on the bottom to benefit. There was even a slight decline in the ranks of the very poorest families, as measured by asset wealth -- those with a net worth of less than $5,000 -- according to a study by New York University economics professor Edward N. Wolff. But new research suggests that, surprisingly, the best economy in 30 years did little to get America's vaunted upward mobility back on track. The new studies, which follow individuals and families over many years, paint a paradoxical picture: Even as the U.S. economy was bursting with wealth in the 1990s, minting dot-com millionaires by the thousands, conventional companies were cutting the middle out of career ladders, leaving fewer people able to better their economic position over the decade. During the 1990s, relative mobility -- that is, the share of Americans changing income quintiles in any direction, up or down -- slipped by two percentage points, to 62%, according to an analysis of decade-long income trends through 2001 by Jonathan D. Fisher and David S. Johnson, two economists at the Bureau of Labor Statistics. While two points may not sound like much, it's bad news given how much progress might have been made amid explosive growth. Essentially, says University of Chicago economics professor and Nobel laureate James J. Heckman, "the big finding in recent years is that the notion of America being a highly mobile society isn't as true as it used to be." In fact, according to a study by two Federal Reserve Bank of Boston economists that analyzed families' incomes over three decades, the number of people who stayed stuck in the same income bracket -- be it at the bottom or at the top -- over the course of a decade actually increased in the 1990s. So, though the boom lifted pay rates for janitors and clerks by as much as 5% to 10% in the late 1990s, more of them remained janitors or clerks; fewer worked their way into better-paying positions. Imelda Roman, for one, makes about $30,000 a year as a counselor at a Milwaukee nonprofit -- barely more than the $27,000 or so, after inflation adjustments, that the 33-year-old single mom earned as a school-bus driver more than 10 years ago. Says Roman, who hopes to return to college to improve her prospects: "It's hard to find a job with a career ladder these days, and a B.A. would be an edge." What Roman faces is an economy that is slowly stratifying along class lines. Today, upward mobility is determined increasingly by a college degree that's attainable mostly by those whose parents already have money or education. "It's clear that unless you go to college, you can't achieve a high trajectory in life. Education is the key to success in America today," says Aramark Corp. CEO Joseph Neubauer. He gives scholarship money to hundreds of disadvantaged kids every year through the Horatio Alger Assn., a group of successful Americans who try to help others make it, too. ... In turn, the lack of mobility for those who don't or can't get a degree is putting a lid on the intergenerational progress that has long been a mainstay of the American experience. Last year, Wichita State University sociology professor David W. Wright and two colleagues updated a classic 1978 study that looked at how sons fared according to the social and economic class of their fathers. Defining class by a mix of education, income, and occupation, they found that sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s. Just 10% of sons whose fathers were in the bottom quarter had made it to the top quarter by 1998, the authors found. By contrast, 23% of lower-class sons had done so by 1973, according to the earlier study. Similarly, only 51% of sons whose fathers belonged to the second-highest quarter equaled or surpassed the economic standing of their parents in the 1990s. In the 1960s, 63% did. That's the pattern Michael A. McLimans and his family follows. Now 33, with two young children, the New Holland (Pa.) resident has spent the past decade working at pizza chains such as Domino's and Pizza Hut (YUM ). He made it to assistant manager but found that he could earn more, $9 to $12 an hour with tips, as a delivery driver. He and his wife, a hotel receptionist, pull down about $40,000 a year -- far from the $60,000 Michael's father, David I. McLimans, earns as a veteran steelworker. "I save every dime I can so my kids can go to college, which neither of us can afford to do," says Michael.
This matters a lot. Social and economic mobility is the key to American success, politically, economically, and socially. I cited this post in the Bellona Times a long time ago:
Midway through my much-aided private college education, the Reagan administration started making Academe a gated community. The results were apparent by the time I graduated, but I always figured, well, at least the state university systems are available. Talking to younger folks, though, I've hit plenty of anecdotal evidence that even state universities are now available only to those lower-class compeers who are willing to assume crippling -- I mean, legs-chainsawed-off crippling -- debt while simultaneously working like a dog and trying to study full-time. And reports like "Losing Ground" and "Unequal Opportunity" provide the stats: college has become an impossible choice for many Americans, no matter how many sacrifices they're willing to make.
In response, I said:
Social mobility. It is the magic glue that holds us together; it is the sense of possibility that each of us holds in our hearts, if not for ourselves, than for our children. And one of the consequences of SkyBox Liberalism is not only the ossification of class...you in your courtside chair, Mr. Nicholson, and then the neat hierarchy of wealth and fame leading upward to the corporate SkyBoxes that make this all possible, and above them, the proles in the nosebleed seats, kept in their place by the minimum-wage guards who keep everyone in their appropriate section...but the obvious "flaunt it, baby" statement of your gracious wave to the fans sitting in the rafters.
Why should you care? You should care for a lot of reasons. First, because the dynamic of Creative Destruction that keeps our economy strong is dying, replaced by Adam Bellow's genteel world of nepotism and privilege. That's not a good thing. Our economy is stronger than that of Europe and Japan because outsiders with energy and ideas can still build companies; that's harder to do in an economically and socially stratified environment. But most importantly, because it erodes the connections that tie us together as Americans.
The other [justification for managing the increasing concentration of wealth and power] is very practical and cold-hearted, and is something I hope to convince you to take seriously; to have the kind of political organization we have...where we grant legitimacy to an abstract body of laws and procedure...there needs to be a rough equality of power. There will never be a true equality of power; every effort to make it so has collapsed into madness (The Terror, Pol Pot). But one unique feature of the American system - and one of the keys to it's greatness is the ability of the small to stand up to the strong. This is important for many reasons; one of the most important is that it ties the small and powerless to the system with ties of legitimacy.
When I try and bring up these issues. I'm sometimes accused of trying to post-facto, justify the New Deal and Great Society and all of the baggage that came with them. I think that those who make those accusations operate from the mistaken assumption that the generalized prosperity and unity that we enjoyed from the 50's to the 70's was somehow a norm, and that we should take that as a baseline. It wasn't, and we shouldn't. The New Deal was (rightly or not) conceived as a way to ameliorate conditions for the poor enough to stave off a possible socialist revolution (or a national socialist one...), and the Great Society was developed in response to Harrington's "Other America" of malnourished kids. We face new challenges today, and we need to try and imagine and build responses to them; some of those may look like large government programs and some may not. But we have to somehow face these challenges, or we'll all wind up living in Neil Stephenson's book. JK Udate: This is funny - the next logical step in offshore outsourcing?

8 TrackBacks

Tracked: November 24, 2003 2:42 AM
Outsourcing, Prosperity, Equality, etc. from Now That Everyone Else Has One
Excerpt: Hey, look over here: This is NOT a football post! Some interesting economic policy ideas here. There's something that bugs...
Tracked: November 24, 2003 4:01 AM
A Few Facts from Cobb
Excerpt: I've heard it repeated that the strikers are fighting greedy corporations. But are their profits up or down? Mostly down.
Tracked: November 24, 2003 5:05 AM
Excerpt: "There is a natural aristocracy among men. The grounds of this are virtue and talents... There is also an artificial aristocracy founded on wealth and birth, without either virtue or talents; for with these it would belong to the first...
Tracked: November 24, 2003 2:40 PM
Quote of the Day from Cynical-C Blog
Excerpt: Neal Stephenson on Globalization: Once the Invisible Hand has taken all the historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity -- y'know what? There's only four things...
Tracked: November 25, 2003 8:31 PM
...the economy, stupid. from Shots on Goal
Excerpt: This is all well and good, but can we get some jobs some time soon please, and not just of the $8 an hour variety? Maybe all this consumer spending means that people will start buying more movies and watching...
Tracked: January 4, 2004 7:48 AM
It Never Ceases To Amaze Me from Deinonychus antirrhopus
Excerpt: How when something in the economy changes, people always end up predicting the worst. In this case it is the
Tracked: January 4, 2004 7:52 AM
It Never Ceases To Amaze Me from Deinonychus antirrhopus
Excerpt: How when something in the economy changes, people always end up predicting the worst. In this case it is the
Tracked: January 29, 2004 6:32 PM
Outsourcing, Part III from Deinonychus antirrhopus
Excerpt: All this talk of outsourcing is getting really annoying. Some (Armed Liberal at Winds of Change, Kim du Toit and

104 Comments

There is a competing explanation.The wages for low-skill jobs stay depressed in the USA because supply continues to exceed demand.

In plain English,immigrants from countries even more impoverished,like Mexico and Pakistan for example, are bidding down the wages in first-world countries with open immigration policies*.I don't have the numbers here,but I believe the same problem is evident in Britain and Netherlands,while relatively absent in hard-to-get-to countries such as Norway.

I'm not engaging in anti-immigration rhetoric here,mind you.It's just that these factors need to be taken into account when designing social and economic policy.Open immigration comes at a price.

(*If this is not true,why are business interests in the US lobbying to keep immigration controls loose?)

I agree that this is a real problem -- and I think it's critical to emphasize the importance of social mobility in our country. We've always had more of it than most other nations, but what we've seen since the 40's really has been extraordinary -- and there's no iron rule that we couldn't backslide a ways.

Though I'm much, much more hostile to gov't economic interventionism than I used to be, I have never put it entirely out of the picture.

Of course, the Democrats are identified with the kind of intervention that might be necessary to address this problem -- the trouble I have with that is that there's no way I would trust the present-day Democrats to implement such programs without freighting them with a crippling load of ideological horsesh*t.

It's possible the R's might rise to the occassion -- there definately seems to be more fresh thinking on their side of the aisle these days than the D side. Of course, the R's have their own big-gov't addictions, as well, but they would probably be more copacetic to the idea that gov't programs should be implemented with mechanisms designed to actually shut the program down when no longer needed, instead of persisting in perpetuity.

In any case, I am more optimistic than not.

Quite simply, there needs to be a determined effort to increase the bottom rung's marginal product of labor.

This may sound harsh--but we set a lot of kids up for failure by not having a well-developed techinical education system. Here in Pittsburgh, there's a ton of effort spent re-educating high school graduates to better align their skills with those needed by the labor market. Somehow, our education system needs to adapt, and to reward students for things other than being able to write papers on Shakespeare.

Brilliant, A.L.--you've managed to include just about everything. Globalization, production, and unionization; popular sovereignty, political legitimacy, and equality. Thanks for pulling together all these random points, and for taking such a firm stand on the need democracy has for both social mobility and economic equity. I wish more people would. Two quick points:

1) Jussi is absolutely correct to widen our focus to include the question of immigration. Wal-Mart, like just about every other powerful, low-cost producer and service provider (Tyson's poultry, the entire California agribusiness sector, etc.), has only benefitted from our inconsistent and ill-informed immigration policies, by being able to use (and often abuse) desperate, cheap labor that it, at the same time, has next to no legal or social obligations to. Unfortunately, as long as we are essentially individualistic in our economic thinking, then it will be difficult to articulate the kind of concern for the "common (economic) good" which will have to part of any overall reform (in regards to immigration as well as other issues) in protecting, expanding, and distributing what we have in "common."

2) Praktike is also correct: we have not only not invested in enlarging and preparing people for work in the blue-collar, technical sector, we have also drained that sector of dignity, treating it to consistent marginalization from not just an economic but also a social and intellectual perspective. It may well be that our post-industrial capitalist context simply can't provide large numbers of technical jobs any longer. But I'm sure we can do better than we are currently--and building (economically and socially) up those schools that proudly produce individuals trained for practical service, and thereby undercutting some of the self-importance (and economic advantages) of "knowledge work," would only work to the benefit of our society in the long-term. (And I say that as an admittedly irrelevant, or at least mostly irrelevant, academic.)

Thanks for a thoughtful post. I'm concerned about the general lack of intelligent discussion on the trade issue. On the one hand, we have lunatic anti-globalizers, whose loathing for trade seems to be based more on their psychological issues than anything to do with economics. On the other, we have absolutist free-traders, who seem incapable of understanding how their paradigm might be defective when dealing with non-free economies.

Warren Buffett's proposal, in the last issue of Fortune, may or may not be a good idea, but it deserves far more serious attention and discussion than it has received.

I agree with your concerns on social mobility, but I think there's an important factor you're not taking into account when weighing the costs and benefits of using cheap foreign labor to deliver commodity goods and services: The need for American manufacturers to stay competitive in the global marketplace. Needless to say, American corporations aren't just competing with each other, but with foreign firms as well. By increasing the prices of the products they need to manufacture goods and deliver services, we leave them more vulnerable to foreign competition.

Bush's steel tariffs are a good example: Much of the domestic agitation over the tariffs ended up coming from the auto industry, which had to raise prices in order to take into account the higher cost of American steel relative to foreign imports. Thus, a move that was aimed at protecting the jobs of American steel workers wound up working to the benefit of Nissan and Toyota, and in doing so threatening the jobs of American auto workers. Electrical appliance manufacturers weren't thrilled about the tariffs either. I'm sure there are some fields where protectionism won't have much of an effect on the global competitiveness of American corporations, but I suspect their number is far below that of those fields that do.

I do believe that social mobility is ESSENTIAL for the wellbeing of society. (Have you noticed where social mobility has become stagnant historically that is where the bloodiest of revolutions have happened? Russia, China, France...)

However, I have to say, as someone who comes from a family without a lot of college degrees if you believe that you need a college degree to earn a good living your brain is full of horse****.

To be upwardly mobile what you do need is a good K-12 education. You need to have completed at least algebra in math class, you need to be able to write a 5 paragraph essay that is coherant.

If you have these skills you can climb the corporate ladder without a degree--it may mean starting at the bottom, but it also means that you won't have spent 4 years of your life in college.

Before we start complicating our world with more funding for higher education (which, judging by the quality of some college graduates, is not money neccessarily well spent), lets just try and get the basics right.

Does this mean more money? I'm not sure, probably NOT.

I'm living this nightmare right now.
As one of nearly forty thousand aerosapce workers let go by Boeing, I know and understand what is happening quite well.
Most of the new 7e7 jetliner is going to be built overseas, and the remainder in right to work states who made big payoffs to Boeing for the priveledge.
It's simple. I cannot compete. It's not that I don't want to.
I cannot compete with a chinese or malay who works for 75 cents an hour. By the same token, I cannot compete with a BETTER paid Japanese worker, who's government is willing to shell out billions in development costs to Boeing to get the work. Instead of pressing for government action against airbus subsidies, Boeing gets it's money from foreign governments, and gives away American jobs as a reward.
Then it takes billions in taxpayer dollars for defense contracts and has those for dessert.

The upshot of all this will be increasingly vitriolic class warfare and political division.
I fully intend to participate when not busy trying to keep my family's nose above water.
I am in technical school learning to be a cook.
It's about all I could afford under the government program for aerospace worker retraining.
It probably won't be the last time that I belly up to the government's bar for a drink. The BEST I can hope to earn is half my former wages. And at 44 years of age, thats a hit. That means working until I am DEAD.
Yes,I have given up on the idea of retirement.
I don't like taking public money, and I don't like the idea of no retirement.
But America is no longer the land of opportunity. Sure, you can get lucky, or be born that way.
But I played by the rules of the game, and the rules have changed.
This is my adaptation to those new rules.
Don't like it? I don't either. You won't like the strife and social upheaval that are bound to follow either, the kind that always happens when an underclass is created an penned in with little chance of something better.
It will be the Gen-x's and those that follow on, the ones without wealthy parents who will lead the revolt. Outnumberd and out voted by greedy baby boom geezers (think the latest medicare bill, only a hundred fold more onerous)they will get tired of low wage jobs and onerous taxation and just opt out of the society that put them in that position.
Think of that. The baby boomers facing a redeux of their own 60's dissaffection.
It's going to be interesting, but horrible.

The Wal-Mart You Don't Know

The giant retailer's low prices often come with a high cost. Wal-Mart's relentless pressure can crush the companies it does business with and force them to send jobs overseas. Are we shopping our way straight to the unemployment line?

http://www.fastcompany.com/magazine/77/walmart.html

I would attribute much of this problem to the existence of the very regulatory state which was supposed to prevent inequities and the abuse of power by the wealthy. Adam Bellow's world of nepotism exists because the game is increasingly rigged. It is increasingly rigged because our society is less and less about wealth creation and more and more about rent-seeking. This is turn is only possible because our highly regulated economy creates opportunities, in the regulatory code, the tax code, the assignment of rights to the electromagnetic spectrum, the abuse of eminent domain, and many other ways, for people to use government power for private benefit and to foreclose opportunities and thwart competition.

Nonetheless, the political consequences of worsening inequality, especially if we face a deep recession, will probably to be a "reregulation" of the economy ala Howard Dean which drives a final stake through the heart of a society which believed in meritocracy, competition and a turn in the batters box for everybody. The cure will be worse than the disease.

I'll agree that this could be a problem, but not that it has to be, or that the solution is to stop Wal Mart from charging low prices. The solution is to let those jobs go, and train the people who would have been in them for something better. If we attack it from that direction, we have an improving overall economy and a middle class which shares in it.

The problem isn't to save middle class status for grocery checkers. The problem is to put former grocery checkers in new middle class jobs.

The class warfare I saw in Steve Ramsey's post was the war of the rich in the US (a cook in the US is rich by world standards) vs. the poor overseas.

Any egalitarianism caused by immigration restrictions is a fake. It is a case of exporting class stratification. In any case, a substantial part of traditional US social mobility is the mobility of the children of poor immigrants climbing the ladder. The immigration restrictions of a generation ago stopped that in the subsequent generation and we're only recovering now.

Illegal immigration is a problem, as your first commenter noted. But if you consider yourself an optimist for humanity and not just America, then shouldn't you be glad that people all over the world have actual earnings and can help their families with income? Nike has provided jobs, usually the highest-paying, all over Third World regions where previously there was no demand for work, just subsistence farming or something similar. The best way to raise wages, in that case, is to continue pushing for economic liberalization in countries where labor is cheap because authoritarian governments won't let market forces intrude, and have a high level of corruption. Pushing isolationism as a salve for American jobs simply makes America less productive instead of encouraging entrepreneurship and real economic growth.

I have some questions for liberals.

There's all this complaining about jobs going overseas. What about the people getting those jobs? Don't they deserve them? How can a liberal criticize a process that gives jobs to those at the brink of starvation, even if it cost the job of someone who has had: free high quality education K-12, access to the best health care in the world, access to quality libraries, close proximity to the apex of the world economy.

And all this criticism of WalMart. What's wrong with low prices? I don't feel like paying high prices just to subsidize inefficient operations. If they wind up paying a lower wage to people who are more desperate for a job than the whiner down the street, so be it.

Any attempt to tilt the system to favor American workers is doomed to failure for the reasons mentioned in the previous posts: talent wasted on rent seeking, loss of competiveness due to tariffs, and just general swimming upstream against the creative energy of 6 billion intelligent human beings.

To his credit, Clinton continued the work of Reagan and Bush I in recognizing this. The Republicans seem to have rejected the Buchanans and Perots for now, but either party is susceptible to populism.

America will do well as just as long as she keeps to her core compentency: freedom.

This discussion has been going on since the Left accused Reagan of producing nothing but burger flippers. What all these "studies" miss is the huge number of people working "off the books"; independent contractors doing every skilled job you can think of. Case in point: me. Twice.

Lost my job and a friend of mine connected me with someone who was a "distributor" of glassware. Every AM I loaded my station wagon with 20 cases of glasses and I'd sell them at factories. I was making $600 per week CASH, equal to $950 or $1,000 per week. Millions of people do things like this.

Two, again got fired for telling a manager to go fuck himself and immediately made business cards as a consultant. Within a week I was pulling down $1,500 per week cash.

I don't know how big this market is, but it is not measured and it is huge. Business startups are also off the books. Out source for factory jobs replacing people WHO BELIEVE they have no skills is a real problem.

This is the reason Bush is imposing tariffs right now.

"upward mobility is determined increasingly by a college degree that's attainable mostly by those whose parents already have money or education."

What really scares me about this is that this is happening at the same time the required amount of actual education in a 4-yr degree and HS diploma is heading toward zero. I have friends who are underpaid because they don't have degrees to match their skills so I believe credentialism is a real problem. Meanwhile the people getting degrees can be completely ignorant as long as they've paid tuition and put in chair time.

I'm one budget cut away from being in Steve R's positon so I understand his worries. I don't think protectionism will fix that, just delay it. I want to work toward a better education system with more alternatives (vouchers, etc) and more opportunity for starting your own business with fewer gov't obstacles. Cooks make less than aerospace workers, but restaurant owners make more.

Note that this is a diagnosis, not a prescription. I'm not sure what the right answer is - but I am sure that it's an issue.

As far as the very real benefit to workers in other countries - absolutely that's a good thing. The issue, of course is how to get them the benefits without destroying the social cohesion of this country.

It's not all about standard of living; we could certainly live with less, if that were required.

It's an issue of a) seeing if there are ways to get there that don't require it; or b) seeing if there are ways to go through it without imploding the Republic.

A.L.

Let's not confuse the difficulties of finding roles for workers whose job skills are no longer adequate with the difficulty people without college degrees face in a job search.

Some people face both sets of difficulties and may have difficulty separating the two, but fundamentally a college degree is a credential used by many employers as a means of screening out people less likely to do the jobs they need done. Given a large enough universe of applicants, a college degree is probably a good indicator that an applicant may have the ability an employer requires. But individual applicants often discover that the education behind the degree is not relevant to the job they are applying for -- and employers willing to look beyond an applicants credentials often discover that people without degrees make excellent employees.

The older the applicant the truer this is likely to be (older applicants will have experience younger ones will not, and a college degree earned 20 years ago will weigh less compared with that than it will with a younger worker). It would be a waste and a pity to push large numbers of people through an expensive educational process just to enable them to show an employer a piece of paper; this will not help the employers or the workers, though it will continue to make the jobs of corporate human resources departments easier.

Cheap communications and relatively cheap transportation are part of the explanation of jobs going overseas. If a college education is required for upward mobility, it is also probably cheaper and in many ways better in India and China. But rather than send our kids over there, yow would think the information of a college education could be transfixed more cheaply mythos internet. I believe MIT has put many of their engineering Courses on for free. this model would seem to be one even out of work Boeing workers might be able to take advantage of.

Sorry for the bad spelling in my above post on cheap communications. I was writing to quickly for my tablet pc.

I forgot to mention that job losses at Boeing are also dueto Airbus being sold more cheaply than 7×7s. Much of this may be due to what may be illegal subsidies from Euro govts.

First of all, Wal-Mart gets a bad rap; there are other chains like it, specifically company's like France's Carrefour (second only to Wal-Mart in retail sales) and Germany's CostCo.

Second, the best way to handle these issues is competition; de-regulation and the lowering of taxes is important.

Third, if you want a social safety net, privatize it, and fully fund it like Chile's. In the long term, public, unfunded social safety net programs will only spell doom for an economy.

I can't be the only person who thinks Wal-Mart should be required to pay a living wage. From what I've heard about Wal-Mart they offer health benefits to even the lowest paid employees but charge the employee such a large amount for the health care that it's essentially unaffordable given how little they pay.

Here's an interesting article on outsourced jobs brought back to the US by Dell because of quality complaints.

Could be we need a shaking of the middle classs. A class that has grown accustomed to living on consumer debt and a fat christmas bonus just for showing up to "work."

Clue in. People forgetting that SOMEONE created the corporation. That someone was a person. That someone, history tells us, more than likely did not have a college degree nor a wealthy background.

We middleclassers have grown up as spoiled brats. Let the punishment begin. We have been undisciplined. We have been demanding. Now we are damned.

Me? No need to moan. I made the switch years ago to what my grandpa told me to do in the first place. Create my own way.

It just sucks that I now can't blame anyone else when my SUV payment can't be met...

Lindsey,

What is needed then is a health plan with a level of care that employees can afford. Any company that pays them more than they produce will go bankrupt. Ford will be headed that way because of their retirement benefits. US Social Security may follow.

A.L. - The Neil Stephenson quote at the top of this page has a serious flaw that leads the whole column astray.

It suggests that wages worldwide will basically average out by dividing current wealth equally.

But wealth is not a fixed quantity. The only way a job gets sent overseas is that those workers are more cost effective. They can get by with lower productivity for now because wages are very low. But when workers get enough money to move their community beyond sustenance, their potential is unlocked and their productivity will increase. The economic activity they generate will increase demand locally for labor in the same cycle that drove the US from 50% poverty in 1940 to a much lower levels, whereupon the Great Society removed the economic drive for many people to lift themselves further.

Stephenson forgets to account for that boost in productivity coming from the creativity and education of the the world's poor. We are now struggling through one of many cycles of innovation (seen now as job transfer) that causes disruption. As usual this cycle will lead to the bottom coming up rather than the middle class falling.

Any claims that the middle class in this country is disappearing is ludricrous on its face and is obviously the result of bogus statistics. Looking for phrases like "shifting quintiles" to find cooked statistics quickly. The main problem in the real world of this country is so many people looking for big, comfy homes that they are driving housing prices up.

It isn't just workers, both high and low tech, who are affected by offshoring jobs. Many small to mid-sized American companies are really caught in a squeeze. There was piece in the WSJ last Friday, I think, about how the American tool & die business is dying because of overseas competition that might be considered monopolistic or anti-competitive if they were located in this country. How can you compete with free? To get the production business, foreign manufacturers are now offering to provide tooling for free.

I own a small custom embroidery business, www.autothreads.com. In the embroidery business, in the US contract embroidery might cost $0.35-0.75 per thousand stitches if you were making a couple hundred shirts, depending on the level of local competition. On large jobs of thousands of pieces, you might be able to find some sweatshops in LA or NYC that would do it for 0.17/k. I've seen overseas companies quoting prices as low as 0.07/k. At those prices, the machines, which are expensive, need to be run 24 hours a day by operators making very little money to be profitable. How can I compete with someone charging a fifth or sixth of what I charge?

By not competing with them. I focus on custom and highly personalized items and use the fact that the process is computerized to do custom work efficiently.

In any case, though, the US economy is being hollowed out by stockholders insisting on profit growth. It's no longer good enough for a company to turn a profit. Those profits must be ever growing. All the 'millionaires next door' mom & pop stockholders are watching their stock prices being propped up by the unemployment of their neighbors.

ronnie schreiber,

Well, first of all, the US (and the EU) needs to rid itself of its anti-monopoly laws. They are anti-competitive in nature, and harm national economies.

"It's no longer good enough for a company to turn a profit."

Are you some sort of socialist? Capitalism leads to capital maxizimation. And if overseas workers benefit from this, which they surely are, as those factory jobs that you disparage allow them to make much more than they could in a rice paddy, that is all the better. And to be frank, if your idea of progress is to force American, European, etc. companies to stay at home with "low-skill" jobs, then I don't want to be part of your future.

A couple of thoughts come to mind on this debate. If companies are willing to ship the jobs overseas, why aren't they willing to expect their money to come from those companies? I don't know of any companies that expect to turn profits from their sales in India or China. They expect the US consumer to do that for them. They need to start expecting those other countries to be profitable markets. Another thought, why is it that it is okay to drive down wages for most of us, yet executive compensation continues to skyrocket? Why not outsource a few of those positions? That is where the big savings will be.

Having gone to less than half what I used to make, I will not be buying any new consumer goods, Walmart or otherwise, any time soon. No new cars for me, no new appliances, no new nothing. I don't yet know if I can continue to make payments on my extremely modest home. I went back to school 7 years ago. I still owe for that training, yet can't find a job with those computer & supervisory skills.

The only reason that jobs are outsourced is economic benefit to the company doing it. Make it unprofitable for them to do it and US workers will suddenly look more attractive. We need to compete on a level playing field here and penalize companies that outsource jobs and still expect US workers to somehow provide them with profits.

Steve Ramsey said "Instead of pressing for government action against airbus subsidies, Boeing [...]"

As I seem to remember, Boeing did, and the government tried, but failed. "Blame the French!" (and Brits, Germans, etc. who are part of the Airbus consortium)....

Many companies including Boeing are "up against a wall", fighting foreign government subsidies, low cost production (e.g. the Japanese have been furiously outsourcing/setting up foreign factories), etc. etc. We don't play by the rest of the world's rules (e.g. bribery, essentially unlimited immigration, etc. (at least to a large extent)), and there is a price to be paid for this.

Mr. Ramsey's comments about the intergenerational conflict being set up between the Boomers and those later are well taken. But there are two additional factors than need to be considered that may or will make things nasty for the Boomers:

"Present consumption must by definition come out of present production".

What the retiring Boomers consume will have to come from someone's production at the time. Taxing the younger generations to penury isn't going to help them in that.

Related is "The Greater Fool Theory":

It's also a fact that to liquidate financial assets, you must find a "greater fool" than yourself to sell them to. If there isn't a strong demand for the savings of the Boomers when they try to cash them in, the prices of their assets will drop, and things will get ... ugly.

(Note that we can't really predict the latter, although it argues for significant national strength including military; a stable and "hard to kill" country is a desirable place to put your assets, like Switzerland in times past (which rather than having an army is an army)).

I would add to Jon Cohen's comments that poor communities that move beyond sustenance will be buying more products from developed nations; we all make something (or things) better than others.

Harold,

Yes, in America, everything is pristine, everyone is honest, there is no bribery, and everyone lives like on the show "Leave it To Beavers." America has high subsidies on its agricultural products, much to the chagrin of African producers (America's cotton subsidies have been very damaging to a lot of African economies), it has illegal tariffs on steel, and is about to start a trade war with China in the area of textiles. Your Fed Chairman just the other day warned of creeping protectionism in the US. Not that the EU, etc. also don't have subsidies on agricultural produce, and tariffs and bans on products, but Americans play as much by the world's rules as any other country does.

Terri Pittman,

Actually, India and China are fast growing markets for sellers of goods; which is why European car companies are proceeding like mad to sell things like cars, TVs, etc. there. US car companies as far as I can tell are well behind the likes of Renault and VW in those markets; and of course there are Japanese car sales there too. In fact, China's car buying boom is especially large; which has the ever worrisome environmental crowd all afraid.

Terri,

"Make it unprofitable for them to do it and US workers will suddenly look more attractive. We need to compete on a level playing field here and penalize companies that outsource jobs and still expect US workers to somehow provide them with profits."

In other words, you want to practice socialism.

Jon Cohen -

First, you're right that the path out of here is increasing prosperity elsewhere; if other economies hit a 'light off' point, we'll all do very well indeed.

The problem is simple, getting to that point without demolishing the middle-class economy here. Again, I haven't got a clue about how to do it (but I'm reading a lot and hope to be more clueful at some point soon), but that seems to be the high-wire we're facing.

And my issue isn't that the middle-class are more strapped or have a flat or declining standard of living - it is a) what the political and consequences of that decline are if it is perceived that the 'investor' class isn't flat or declining and is in fact profiting from the forces that are flattening the middle class; and b) the increasing stratification of our society as it becomes harder and harder to bridge the widening gaps between classes.

A.L.

Lexington Green: "This is turn is only possible because our highly regulated economy creates opportunities, in the regulatory code, the tax code, the assignment of rights to the electromagnetic spectrum, the abuse of eminent domain, and many other ways, for people to use government power for private benefit and to foreclose opportunities and thwart competition."

You left out the two prominent examples of patent and copyright law. As a computer programmer, I am keenly aware that software patents are stiffling progress in one of few fields left that will only increase in prominence as we continue to build our electronically-connected society. The USPTO is aparently critically inept at understanding the nuances associated with technological innovation that cannot be seen by the naked eye or grasped by hand. (Either that, or it is being paid off behind the scenes, but we all know about Hanlon's Razor, right?) This is leading to overly-broad, blatently-obvious patents that are being used to bully both large and small corporations into submission. If the losing companies can continue operation after multi-million dollar settlements, you can bet that they "pass the savings along to you!"

I’ll not go on a rant about social issues, but don’t overlook them. We welcome folks from south of the border because they work hard, a lot harder than native born. Part of the reason is that they had dads at home who instilled in them the virtues of manliness, of working, leaving their moms free to work even harder, thereby instilling in their offspring a respect and appreciation for women.

Native-born oafs are the result of single-parent (predominantly female) households thanks to the double-barreled scattershot of illegitimacy and divorce. Look at the trash coming out of middle-class families (regardless of race). Lots of young men are supported in part by their hard-working, single moms well into their twenties; if there was a dad involved, he's off with a cutie, a bottle, or some other bad habit.

The result is that the guys can’t finish college or hold a job that requires too much diligence, sweat, or perseverance. Oh, and they don’t respect women too much at all.

Enough of the rant.

The Free Market system ideally should be able to handle the Walmarts of the economy. The money saved by American consumers + the money that returns to the USA from India/China/elsewhere should create jobs to enable the cycle to flourish.

The problem: The Free Market system doesn't punish free-riders like India, China, and Japan that don't buy American goods and services - and instead sit on vast amounts of dollars. Ultimately, those foreign currency reserves should damage those economies, but... they aren't Free Market oriented so they don't suffer.

So what do we do? Develop our own hybrid that incorporates most of the elements of the Free Market system but protects the producers at the expense of the consumer. Any idealistic Free Marketer should gag at that, but the realists out earning livings under pressure from foreign competition know that it's the only way for us to survive this game of running faster to stay in place....

The best thing that could possibly happen to us is for us to lose all of our jobs making the stuff we've been making, and have them replaced with jobs making personal skycars, commercial passenger spacecraft, ant-aging pills, and so on.

The second part will happen if we engage in massive regulation to remove barriers to the production of all the futuristic stuff we were promised as kids.

Then the foreigners will take those jobs away and we'll move on to personal spacecraft, orbiting habitats, Belt mining operations, and so on.

Repeat as necessary until we rule the Universe, or at least that part of it that isn't already claimed by sentient beings. That should keep us busy for a while.

"Talking to younger folks, though, I've hit plenty of anecdotal evidence that even state universities are now available only to those lower-class compeers who are willing to assume crippling -- I mean, legs-chainsawed-off crippling -- debt while simultaneously working like a dog and trying to study full-time."

If you aren't expecting your income to increase enough to pay off the loans you're taking on to go to college, then college is a losing investment for you. Just like you'd never take out a loan to buy a factory whose revenues wouldn't justify paying off the loan, you shouldn't embark on a college education if the higher income isn't high enough that you're better off even after paying back the loan.

If, instead, you take on that college education and someone else is paying for it, then that someone else is covering your losses and making a losing investment in your education. Not a smart plan, overall.

If you want less pointless credentialism, the solution is very simple: let employers hire according to their own judgement alone, without answering to anyone about why they hired this person over that person, or a person of this race over a person of that race. If you demand justification for hiring decisions, then employers will in turn demand credentials from their potential hires in simple self-defense.

Also, employers must be allowed to use IQ tests. Having been forbidden to use cheap IQ test that take about an hour or so, they've been resorting to demanding that their potential employees take an "IQ test" that costs thousands of dollars and requires four years to complete - a college education - and thereby wasting years of everyone's life.

A.L.,

Actually we do one other thing better than anyone else - start businesses.

I wrote a piece on it. And how Congress has decided to add a handicap to the process. Perhaps you can prevail on Joe to run it.

==================================
Scott. We send them pieces of paper they send us stuff. I don't see tthe problem.

Simon

Now would seem like a good time. As you'll notice, other than Saturday I have not been mosting much for the last week and a bit. Time's a bit tight.

Simon
Then you don't understand the parameters of the problem. As HL Mencken said, "For every problem, there is a solution that is simple, neat, and wrong."

Regards,
Scott Kirwin
www.itpaa.org

We are now at the bottom of the business cycle. It would be a serious mistake to extrapolate the trends since the recent bubble burst. Our middle class is not disappearing, but there is some adjustment needed at the individual level as the US economy finds its footing again. I know that the pain of moving to find work, etc. is real, but no one ever promised us otherwise. We enjoy the prosperity in this country that we do because our social contract calls for that flexibility from us all, rich and poor alike.

Clinton's campaign in 92 was based on the idea that Reagan and Bush were destroying the middle class, the 80s only benefited the rich, blah, blah. Later we found that the recovery had been well underway by then. The subsequent boom and bubble was bound to happen regardless of whatever tinkering happened to the tax rate because it was due to technology.

The question before us is whether the world economy will support our standard of living while the rest of the world catches up through job transfers. I submit that the continually housing cost around the major metropolitan areas is evidence that the market still pays for proximity. The costs of doing business with partners overseas are still high enough that Americans can benefit from being close to the centers of wealth creation.

What do we need to do to maintain those centers? Not only providing education to Americans, but also by keeping immigration of talented entrepeneurs and engineers into this country open and the protect the financial rewards to them from excessive taxation. By keeping our talent pool up we maintain our edge. The downside is that it may take longer for those immigrants homelands to catch up.

Great post, A.L. Me, I'm most worried about what happens when wages start dropping faster than retail prices. And that's not even going into potential deflation spirals (e.g., Japan).

I'm not an economist, but I've been around for quite a while and I think what you're all talking about is just the normal cycle.

A big store comes to town. At first the clerks are all very helpful, the stock is neatly stacked on the shelves, then more and more items and services are offered and the small store owners give up and close.

Time passes and customers start to complain that the big store help is surly and doesn't know the stock or where to find items the customer wants, so a hardware store opens provides personalized service and appeals to the more upscale customer, etc. Soon other speciality stores open and thrive. It starts in upscale neighborhoods and then moves on down to the middle class towns.

The big stores add groceries to appeal to more customers, but the groceries aren't as appealing or fresh looking as the neighborhood supermarket everyone was accustomed to. Another cycle will surely start it all over again. The only certainty is that change will occur.

The inner city slums never even get the big stores or the big supermarket chains. It doesn't pay for them to build in the poorest neighborhoods, so the very poor survive on price gouging and defective merchandise from their local markets.

The drug war has proved you can't stop people from trading. Don't even try.

Supply and demand tend to equalize. Even in labor.

The only way to bring the poor up is to make them more productive.

Most of the A.L. rant seems to be nostalgia for the buggy whip factories of yore. Just like farm labor - it ain't coming back.

Whew. Now that we are back in reality what are we going to do about it?

The soundest thing is to take stock of our strengths and weaknesses and see if we can't capitalize on our strengths and minimize our weakness.

We have been through situations like this before where the competition got really rough. Remember the car wars? The Dynamic RAM Wars ? The world was coming to an end. Except it didn't.

Very little dynamic RAM is made in the US of A these days. No point. It is not very profitable. America is constantly abandoning low profit lines and continually taking up new high profit lines.

There are fifteen or twenty private companies making commercial space transportation. One or
two of them will be successful.

We got biotech going like gang busters.

There are organic LEDs about to come to the market.

There are products complicated and simple that have yet to come to the market.

Within a few years camshafts in auto engines will be a thing of the past. Valves will be controlled by coils of wire and computers. Auto braking is moving from hydraulic to electrical. Steering too.

We need to design new stuff and sell it. Let the Chinese sweat in factories making it. Good for us. Good for them.

You see Marx was correct. Capitalism squeezes the profit out of any product. I say that is a good thing.

Whining over a lost era is a fools game. And we are no fools here.

I wanted to get comments on whether anyone thinks unions contributed to our current situation? Wal-Mart is certainly a factor but could unions also shoulder some of the blame?

Dear AL:

Once again a very thought-provoking post. There seem to be two central questions:

1. Is there a problem?
2. What to do?

In answer to the first question I would suggest that you can measure the severity of the problem by measuring the unemployment rate of engineers, computer scientists, mathematicians, chemists, and physicists (biomed is so heavily regulated that it's difficult to use employment figures to prove anything). These are the people who create the new ideas that turn into the industries of tomorrow. Conversely, measure the unemployment rate of lawyers and MBA's, the native guides through "the system". Neither create anything--they just "work the system". Hmmm. Looks like a problem to me.

In answer to the second question, there appear to be only two satisfactory answers: either a) create a situation of really free trade (no tariffs, duties, copyrights, patents, licensing, certification, etc.) i.e. level the playing field or b) regulate and tax the winners (copyright and patents holders, members of protected jobs and professions, etc.) to the benefit of the rest of us. Folks, a) ain't gonna happen and no sane person would want it to.

I was about to post an encomium on how Indiana has a network of commuter colleges, but then got to my alma mater's page and found out that tuition comes to $2139/semester for a new student taking a full load of courses, $2850 when including fees ($170) and books. For four years of study, a student would expect to pay $22,800.00. The same course of study cost about $7,000.00 fifteen years ago.

I'm not sure that the numbers add up. When I took Japanese at Purdue Calumet, the class size was six which would result in a revenue of $2,264.40 from tuition and a similar amount in state subsidy. Of the $4,500 coming in, $1,350 would go to the (adjunct) instructor, leaving $3,150 to university to spend as it pleased. Without the state subsidy, the markup would be a mere $914. Every additional student would represent a pure profit of $360.00.

I know that there are research costs, but Purdue Calumet is a commuter campus and the professors' main responsibility there is to teach students. A typical full professor has one class with 50-100 students, two with 15-25 students, and a grad-level course of 6-10 students. One hundred students bring in over $75,000/semester including state funding, and $150,000/year is beyond the dreams of avarice for most full professors.

The proceeds of endowments and grants beyond the state subsidy are not mentioned in this discussion, mainly because I do not know what sort of endowment Purdue Calumet enjoys.

One would think that such a markup would motivate a swarm of competition. Yet somehow Purdue Calumet's education is the least expensive education of reliable quality even when the state subsidy is added in! There are plenty of places that will offer a semester's worth of "instruction" for $5600 (or whatever amount coincides with the maximum student loan available!) that leaves the student as ignorant as when she enrolled.

Somebody from the university world, please enlighten me.

Scott,

Please explain how China loading up boats and sending us stuff in exchange for pieces of paper is a bad thing.

In the old days terms of trade like this were called reparations and were thought to be a net advantage to those on the recieving end. I guess Germany ought to have been happy to send France reparations at the end of WW1. Stupid Germans. Didn't know what was good for them. And the French? Stupid of them to ask for all that free stuff. You have to ask yourself what governments in those days were thinking? Well certainly not the same thoughts as Scott.

Manufacturing like farming will no longer support the masses it once did. Improved productivity locally along with external competition is the cause. The farming jobs are not coming back. No Congressional program has done a thing to increase farm sector employment. Zip. Nada. The USDA still has lots of jobs though. In fact some think there are now more USDA employees than farmers. How did that happen?

Marx was right. Capitalism drives costs and profits towards zero. What Marx did not see was that whole new ranges of needs and wants would take the place of the commodities. If Marx didn't need a computer why do we?

A.L. I'd just liked to point out a few things that were alluded to in the above posts:

First, you're correct in saying that the current middle class is disappearing, but you're incorrect in postulating why, or rather you have only part of the story. Competition from other nations and companies that can find cheap access to labor is killing manufacturing sector jobs, and in some respects jobs that provide services (such as technical support jobs). The result is that businesses are trying to find new ways to make money in the US, the one place that they seem to always have an edge in is in R&D. Let me give you an example of that, the silicon wafer industry in the US is non-existent currently. So what do manufacturers do when they want an integrated chip or circuit? They fund the DESIGN of the chip that they wish and then they send that design overseas to be printed on silicon wafers where the cost for manufacturing those wafers is cheaper.

This outsourcing causes the shift that we're currently seeing, to compensate for that we're seeing more people turn to education as a stop-gap in terms of trying to gain new skills or knowledge.

If theres any way to combat this kind of trend it would be to develop either new manufacturing possibilities, develop niche markets, or keep designing an researching new systems that are so totally new that they make the old type of systems obsolete. In every case the problem that hurts the most is that there is a large chunk of the population that has to relearn new skills or find new ways to adapt and that takes time.

I seldom make two responses in a forum like this, I try to make statements that stand on their own and let them lie.
But valentine, I had to ring in with this:
Just days ago, my former employer, Boeing, announced the outsourcing of R+D to India.
No, I'm not making it up.

Steve,

The question is what do we do about it? Which is to say how do we lower our costs enough to compete?

My answer is to turn every garage and basement into an R&D center. Lets go on an invention binge.

Dave,

Too much regulating and taxing of winners and they will go elsewhere.

There is an area in Switzerland that is making taxes regressive. The more you earn the lower the marginal rate you pay.

The question then is: do we want all our big earners to move to Switzerland? Or would we prefer to attract them here? The top 1% in America pay 30 to 40% of all taxes. Do we really want to send them to Switzerland?

M Simon..I don't think your reparations analogy works. When Germany was required to send trainloads of coal (for example) to France, they did not receive "pieces of paper" in return.

Today's "pieces of paper" are dollars, which are used to purchase other pieces of paper--treasury securities, stocks, bonds, etc. All of these represent claims on wealth and on future income production.

The fact that something is a pice of paper--or the electronic equivalent thereof--does not mean that it is valueless.

Steve, that doesn't surprise me, I live in San Jose, CA and one of the things thats irritating a lot of people here is that a lot of companies are outsourcing things software ENGINEERING and DESIGN to places like India. But the complaints don't stop there, apparently in their haste to get a better bottom line managers of such companies are finding out that the standards they expect in industry in the US (regarding protocol for timeliness of project completion, manpower usage, and even the whole design aspect) are not usually the same (okay in some cases that would be the understatement of the year). What we're seeing in that area is that after a lot of this outsourcing of design and engineering theres a lot of conflicts over the final product and after revisions have to be made and additional consultations the costs come to as much or more as if it were outsourced to a US firm or done by US employees.

M. Simon, we're reaching that point only now, hopefully we can speed it up. Let me give another example to illustrate, in the software/computer engineering side whats considered something of a holy grail of programming and design is if we can make modular components of programming so that even a 8-10 year old can put them together to make new programs, throw a GUI interface to make it nicer and thats what we'd like to see. We're only now seeing businesses and industry attack this through a lot of modules that are industry standard and best of all..some of these modules can even be accessed on the web.

I happen to know that the subject of this post is something that's been on A.L.'s mind for some time -- we discussed it at the reception after Dave "Redwood Dragon" Trowbridge's wedding in October. His core idea -- as expressed in that conversation -- was to watch what happens, not to the rich or the poor, but the median.

I'm in an awkward position, because I'm in that "10% of sons" who did much better than their fathers in the 1990s. And I did it without a degree.

But I may yet have to drastically reinvent myself. Many current service-sector and information-technology-related jobs will go the way of agricultural jobs in the first half of the 20th century and manufacturing jobs in its final quarter. They'll be replaced with something that doesn't exist yet. (For an idea of what that might be, read http://reason.com/9606/Fe.TURNER.shtml [~4,600 words; reading time ~20 minutes].)

It is not going to be easy, especially on the more stereotypical IT guys. But we can't stop the world. Lifetime employment in the same career, let alone for the same employer, is utterly unrealistic.

Additional stressors include: an uncompetitive and therefore failing public education system (see also Karl Gallagher's comment); actuarially problematic entitlement programs; and protectionism, which always, always backfires; the turning away, by the present Administration, of the roughly consistent pro-market policies of its predecessors all the way back to, and including, Jimmy Carter.

I will not be among those who accuses A.L. of "trying to ... justify the New Deal and Great Society and all of the baggage that came with them." I applaud his call for us to do some serious thinking. Of all the mistakes we cannot afford, a failure of imagination would be the worst.

Very interesting discussion going on here. A good friend of mine works for Albertson's (Jewel Food Stores) in Chicago and was shipped out to California to man one of the stores during the lock-out. He was not happy to do it, and he found the entire exercise to be pointless. Wal-mart is coming, and if Albertson's (and the rest of the traditional grocery stores) don't get a handle on their health care costs, they are doomed. He is not even concerned about competition from Jewel's traditional competitors. Only Walmart. There is plenty of blame to go around but I find that in general, unions have to be the most short-sighted entities on the face of the planet. Will the last union member please shut the lights off when the store/warehouse/plant closes?

The middle class squeeze is real. I happen to be one of those that has been through: reverse discrimination("Please don't tell anyone sweetie, but I cannot hire you, you are the wrong color." Lucent), Japanese management techniques (quality circles wipe out all of middle management, ConAgra), bankruptcy (Big-box retailers roll in, ColorTile), and now I am getting hit by: illegal immigrants driving wages down by half and internet sales taxLESS competition on material sales.

I have been out of college for 13 years and now have to start on my FIFTH career!! I am about as Conservative Republican as you can get, and am currently stocking up on weapons. After the REVOLUTION, I am going to get mine! I have HAD IT!

How in the Hell am I supposed to plan for my retirement, when I cannot even plan for next month? Change I can handle, having my life turned upside down on a daily basis is something else entirely.

I want GWB and Treasury to drive the dollar so stinkin' low that an imported car, tv set, computer, or ladies bra would cost as much as a five bedroom house. ENOUGH with the cheap imports. They're great if you already got yours, but they are killing those of us who don't.

Just curious, how does someone who believes that the middle class is disappearing explain an 8.2% GDP growth rate? Who's buying all that stuff?

C'mon, Jon ask a hard one.

If ten of us are the economy, imagine that two of us represent 40% of the activity, four of us represent 40% of the activity, and four of us represent 20% of the activity - that's not radically off from the current income/wealth distributions (I'm blending the two because wealth drives spending as does income).

Imagine that the top two increase their activity by 25%. The next four reduce their activity by 5%. The next four increase their activity by 15%.

What's the aggregate change?

40% * 25% = +10%
40% * -5% = -2%
20% * 15% = 3%

Aggregate change = +11%

In reality it's more complex as a) we're dealing with slowly inflating dollars, which mask declines in puchasing power, and most middle-class hosueholds have assets which they can spend down (typically through refinancing houses and HELOC's) as wll as debt which they can assume which allows them to keep spending.

But it's silly to look at aggregate GDP figures and opine about the health of one layer of the income pyramid.

A.L.

Good discussion going on ... I've been in I.T. since 1980, and have seen the trend that has lead up to this uncertain economic future for America's I.T. community.

This is also being discussed on Good Morning America's forum (http://boards.abcnews.go.com/cgi/abcnews/request.dll?MESSAGE&room=abcnews_gma&id=185123) ... I'll not repeat my postings there, but you can read them for yourself ... I go by TulsaDavid there.

A few related topics being discussed there are:

http://boards.abcnews.go.com/cgi/abcnews/request.dll?MESSAGE&room=abcnews_gma&id=185123
http://boards.abcnews.go.com/cgi/abcnews/request.dll?MESSAGE&room=abcnews_gma&id=183475
http://boards.abcnews.go.com/cgi/abcnews/request.dll?MESSAGE&room=abcnews_gma&id=183450
http://boards.abcnews.go.com/cgi/abcnews/request.dll?MESSAGE&room=abcnews_gma&id=183446
http://boards.abcnews.go.com/cgi/abcnews/request.dll?MESSAGE&room=abcnews_gma&id=183441

A.L. -

Thank you for your hypothetical numbers. Now please explain which number in the US Census Historical Income Tables - Income Equality (table is linked) is a bad number.

For those not interested in looking at the real numbers, the table shows CPI adjusted household income by quintile.

Anyone who looks at the soaring income levels across the scale and can find bad news because of some bogus statistical manipulation of quintile percentages is quite simply engaged in class warfare.

Now what I would like to do next is account for how the massive immigrant into this country affects that table. What we see is a powerful economic engine that takes a stream of people into the country at the bottom level and gives them the opportunity to rapidly increase their wealth.

Jon, I'm on some deadlines today, but I'll toss out the stats in this Calpundit post as an appetizer.

A.L.

Dammit, Jon, you're going to make me miss my deadline!! (I couldn't help but do a quick analysis on your numbers...I'm not an addict, really, I can quit at any time...)

First, this is a bad measure of true spending power, as it simply sets the threshold at which one joins a decile, as opposed to, say, the aggregate income or median of the decile itself. I'll look for some better numbers, but probably not until tomorrow. It also doesn't address my core issue which the % of the population which can be termed 'middle class'.

But quickly, the % increase in income by decile from 1977 - 2001 was:

top 10%: 49.8
next: 44.5
next 34.4
next: 20.3
next: 19.9
next: 19.9

And the median for 2001 was $62,800, while the median for 1977 was $48.560 - an increase of 29.3%

So you'll note that the bottom half of the population fell behind the aggregate level of income growth - they lost ground.

Given that the two big determinants of class mobility are the ability to move to better housing and the ability to afford a post-secondary educatiom, it'd be very interesting to map these against housing cost spreads among neighborhoods and against increased in educational costs.

Back to you, Jon...

A.L.

I'm not it's wise for me to step into this debate between AL and JC, but what the hell:

1. Income inequality is measured by the Gini coefficient. Since 1968, and since 1981 in particular, it has risen, with a leveling-off period during the 90s. These are incontrovertible facts.

2. From those commies at the Census Department:

More highly-skilled, trained, and educated workers at the top are experiencing real wage gains, while those at the bottom are experiencing real wage losses making the wage distribution considerably more unequal. Changes in the labor market in the 1980s included a shift from goods-producing industries (that had disproportionately provided high-wage opportunities for low-skilled workers) to technical service industries (that disproportionately employ college graduates) and low-wage industries, such as retail trade.

3. At the same time, however, the poverty level has actually increased in real terms: " there is an impressive body of empirical evidence from the United States, Britain, Canada, and Australia
showing that successive poverty lines developed as absolute poverty lines show a pattern of getting higher in real terms as the real income of the general population rises."

4. Technology, and concomitant productivity increases, have driven this real increase in the poverty line, as well as a gradual overall decrease in poverty levels since 1959.

5. At the same time, poverty levels have risen recently from 11.7 to 12.1 percent. Strangely, this rise took place in suburbs and not in cities or rural areas.

6. According to the Federal Reserve Bank of San Francisco, "while inequality unquestionably increased and the size of the middle class declined during the 1980s, the decline occurred through disproportionate increases, rather than through large-scale reductions in economic well-being," as this graph sort of shows. I'm not sure I trust this graph, but it's the only relevant one I could find right now.

7. The real cost of living has greatly declined over time.

In short, the real problem seems to be price increases in important, Rawlsian sort of things like college education and health care. And these affect the middle class as well as the poor.

A.L.

I'll try keep this brief so the two of us don't miss our deadlines and migrate to the bottom quintile.

Your Calpundit link appears to show the exact same numbers I did. But the graph there used bright colors and fuzzy lines and depends on a trick based on the fact that big numbers look like they increase faster than small ones.

Your second post makes a more subtle point.

Is the bottom falling behind because those jobs are going to India, or is the top quintile taking off, like The Bell Curve predicted it would.

Are you more concerned about how many people can afford X sq ft of house (ie. middle class) or how jealous they are of the top quintile? The raw numbers I cited suggest the middle class is increasingly well provided for. My taxes suggest that the poor are quite well provided for. In an environment like that, what does it matter how rich the rich are?

Neil is a moroner. He needs to pull his face out his still warm pizza long enough to count up the number of noble prizes won by Americans over the last few decades. Can he say scientific research? How about satellite launches? IIRC the USA still puts up 66% of the Launches and 80% of the tonnage. I would also submit that the US military is more efficent at killing enemies and sparing civilians then anyone else in history.
919

Can someone answer two simple questions? When GM starts manufacturing cars in China and finds that they can build them cheaper over there, whats going to stop them from building all there cars over there in the future and ship them back to the USA. Whats going to stop all merchandise from being made overseas period and imported back?

Matt - that day is already there. A lot of the parts that are assembled to make 'American' cars are made in India or Mexico.
We WILL lose Manufacturing jobs. The question is whether this is a bad thing. After all, a majority of Americans used to work in Agriculture a couple hundred years ago. Those jobs went away but it was accompanied by a HUGE increase in the standard of living.

I think one of the key points here is that many on the left perceive the process of outsourcing enriches stockholders and CEOs in the 1st world who are already wealthy.

This is another reflection of the fact that class-envy is the original sin of the Left, equality run amuck. Racial and religious chauvinism, of course, are the orginal sin of the Right, fraternity run amuck.

The potentially powerful thing about the anti-globalization movement is that it blends class-envy and chauvinism.

On a less macro level of analysis, economic growth only occurs through change. Change is almost always painful for someone. Automobiles put horse and buggy makers out of business. Mechanized agriculture meant the consolidation of farms. Textile mills relocated from New England to the South, etc etc.

International trade is only one of the many ways that change occurs. The sensible response to economic change is to cushion the blow to the losers, not to prevent the change.

The huge standard of living was a direct result of moving from agricultural to manfacturing sector which pays better. If we move manufacturing, information technolgy,telemarketing,engineering overseas will someone tell me what kind of equal paying jobs are going to replace them.

"The huge standard of living was a direct result of moving from agricultural to manfacturing
sector which pays better."

Actually, the huge standard of living increase was the direct result of technological change that enabled us to have all the food we need and a whole bunch of manufactured goods through the efforts of the same people that once could only deliver the food (most of the time) and little else.

"If we move manufacturing, information technolgy,telemarketing,engineering overseas will someone tell me what kind of equal paying jobs are going to replace them."

Jobs making stuff that isn't being produced today by anyone. Loosen the regulatory environment, and investment in "World of Tomorrow" products will increase, bringing jobs and a better standard of living, much like the massive hemorraging of jobs from the agricultural sector did.

Ideally, we need to lose every job we have now, and replace those jobs with brand new ones, so that we can have all the stuff we have now plus lots and lots of new stuff.

The issue is the increasing isolation of capital markets and equity wealth from wage-earning wealth. There is a growing - call it a Chinese Wall - separating the two kinds of wealth.

We were taught in the Reagan era that supply-side economics demonstrated a ‘trickle down’ effect as increased availability of capital translated into increased investment opportunities, which in turn translated into more jobs. What we see happening instead is that increased capital (typically through the ‘tax cuts for the wealthy’ agenda) feeds directly into the capital markets by financing any multitude of underwriting opportunities, but typically a merger and acquisition. When companies are combined, the phenomenon of entrepreneurial synergies is all too often an anxiously awaited event that emerges with all the coyness of a debutante, but one event is as predictable as ants at a picnic and that is job losses due to elimination of redundant functions and technology-driven increases in operational efficiency. The new and enhanced company is consolidated, stream-lined, and sold, all at a very tidy profit for those whose major source of wealth derives from the capital and equity markets.

What happens when jobs are created? A previous poster summarized an all too frequent situation in which new skills are suddenly required. So the enterprising gear up with new skills only to find themselves unemployed yet again at the end of the cycle. In the meantime, let’s assume the clever enterprising employee attempts to invest in equities. One can only hope that the mutual fund and equity markets have been sufficiently cleaned of the corruption that currently makes the markets inhospitable and downright dangerous to non-institutional investors. As it is now, equity investment by a ’little guy’ is about as safe as a Vegas crap shoot.

This is not about education or even retraining. I wish it were because the solutions would be easy. This is about a very unhealthy aspect of the capitalist system that some are mistakenly tolerating as an inevitable consequence of competitive market economies. The consequence may very well be inevitable but it need not be tolerated. There used to be such a concept as ‘labor rights’ and I believe the old concept needs to be dusted off, resurrected, and redefined to provide some protection and some stability and some civility within a system that I do not trust to function without some form of externally imposed constraints. Socialism? How about some of Thomas Paine’s Common Sense?

I was raised in a third world country that for many years had an official UN standard of living that ranked it as one of the least developed countries (LDC) in the world. That standard of measurement was primarily monetary. Recent adjustments in that UN standard to account for quality of life and other non-monetary factors (i.e. political & social stability, life expectancy, subsistance food production and the like) raised this country's official standing substantially and out of the LDC status. My life and the life of others in that country may have not been as materially rewarding as life in the US but my observation was that consumption beyond what was really necessary to maintain food, shelter and health was not necessary to a happy and productive life.
The problem in the United States is that generally the public and individual perception of the quality of life is inexticably tied to a montary valuation of their worth, be it in accumulated material possessions and wealth or, for most of us, the increasing wage earning capacity. This perception of quality of life drives the private sector to increase consumer angst through advertising so that more unnecessary materials are purchased. It drives the Federal Reserve to interfere with a consumer's normal desire to reduce purchases in economic hard times by slashing interest rates to encourage consumer purchases through debt financing. It drives labor unions to decry outsourcing to foreign countries and seek protection. What Americans need to understand is that many of the countries in the world are growing powerful economically and politically and have a right to expect a fair distribution of the world's resources. Any closing of the outrageous gap between the haves and the have-nots of the world could not help but reduce the political and social tensions apparent now. This means that in the future Americans may not enjoy all of the material benefits that came with being the sole economic superpower after World War II. If individual Americans adjust their lives to a lowered future expectation of material wealth and demand that our government use its economic and military might in futherance of an orderly tranfer of economic opportunity throughout the world while maintaining food on Americans table, a roof over their heads and healthcare then there is a positive future. It will take courage and imagination to see it through.

"but one event is as predictable as ants at a picnic and that is job losses due to elimination of redundant functions and technology-driven increases in operational efficiency. The new and enhanced company is consolidated, stream-lined, and sold, all at a very tidy profit for those whose major source of wealth derives from the capital and equity markets."

And the end result is that the same goods and/or services are produced with fewer workers. Multiply that throughout the economy, and let new companies making new things get organized and take advantage of the workers freed up from their previous tasks of making the old stuff, and we all end up better off.

"So the enterprising gear up with new skills only to find themselves unemployed yet again at the end of the cycle."

Well, yeah. Why should we expect to do the same old thing throughout our working lives, especially when we don't expect to be stuck with the same old goods and services at retirement that were on the shelves when we were 18? (Or at least we shouldn't!)

If you want new products and services, then the people making them will have to do different things than they were doing when they were making the old stuff.

"There used to be such a concept as ‘labor rights’ and I believe the old concept needs to be dusted off, resurrected, and redefined to provide some protection and some stability and some civility within a system that I do not trust to function without some form of externally imposed constraints."

We don't want stability - "stability" is just another word for "the same old crap", the same products and the same services, and none of that technological development that we once rightfully regarded as the best way to alleviate misery that mankind has ever come up with.

Remember that our lives depend on rapid technological progress - our bodies will fall apart in less than a century and kill us unless we find a way to fix them or replace them. Stability is a death sentence; technological progress might grant us a reprieve if we let it.

"If individual Americans adjust their lives to a lowered future expectation of material wealth and demand that our government use its economic and military might in futherance of an orderly tranfer of economic opportunity throughout the world while maintaining food on Americans table, a roof over their heads and healthcare then there is a positive future."

Can't let that one pass. One of the reasons why America is the globe's economic powerhouse is that we refuse to lower our expectations of material wealth. It's the same answer to Armed Liberal's comment about the fact that we can easily live with less -- of course we CAN, but we DON'T WANT TO.

And economic opportunity isn't "transferred" -- that would imply that economic opportunity is a zero sum game. Economic opportunity can be INCREASED (and it is) through investment and, yes, mobility.

Regarding an earlier comment about the
predictive nature of the Bell Curve, I believe
the axiom "The cream always rises to the top"
applies irrespective of one's academic credentials.

There will ALWAYS be those who have and use their innate "common business sense" to get ahead and they will economically and politically rule the masses.

However The Bell Curve also posits that IQ and EQ are more heritable traits than learned ones.
It is not how poor you are, it is rather how smart you are to begin with that will generally determine your eventual economic and political status.

To put it bluntly (leftist, rightist, centrist elitism intended), the "teeming masses below" are too stupid and too nascent to get their tushes off the couch (or dirt floor) and get on with making it up the economic ladder.

Human history is rife with examples where a physically or numerically less powerful group has used wits and intelligently applied technology to rule large masses of people.

Our modern technology will only exacerbate
the problem, where the smart and technologically sophisticated can now simply eliminate or totally subjugate those who are are unable or unwilling to adapt.

"I am smarter and have better weapons than you,
therefore I will make and apply the rules...and there's nothing you can do about it."

Darwinism his now reached the pinnacle of expression, where now the elite ( That's means ME he he he ) can prevail simply due to the fact I can use my superior smarts and superior technology
to subject you to my whims.

Dangerous Thoughts, n'est ce pas?

America must now be very, very careful lest small numbers of very smart people with large egos and megolamaniacal tendencies who have unrestricted access to very sophisticated technology suddenly bring about a "Shock and Awe" strategy upon those of us who wish only to live simple lives and enjoy simple pleasures.

The point of all this is that our American society has produced such intense social, economic and political competition that the very fabric of American life has been ripped into two very irreconcilable pieces. Those who have innate ability have been pushed to every higher levels of accomplishment and realization while those who do not have that mostly heritable trait have been more and more marginalized and will continue to be marginalized until soon there will be two entirely separate species of humanity; the ever larger-brained one and the modern equivalent of the Neanderthal. Guess who wins ...

Kim -

Remember, I'm the liberal who likes creative destruction. But my ongoing issues are twofold; one is that a financial revolution is accompanying the current technical one, and that the consequences of that are significant and lasting - and second, that it won't do us a lot of good to create a dynamic economy if it tears the polity apart in doing that. In fact, it won't happen, and I'll back Schumpeter's prediction, that the government will clamp down on innovation instead. Both of those outcomes are a disaster, in my book.

A.L.

Henry -

Meet Adam Bellow; you both seem to share a viewpoint.

As a product of elite opportunity, let me give you my insider view: My peers from Beverly Hills High School were quite advantaged, and did inherit certain favorible characteristics (an amazing concentration of attractive girls was the consequence of rich fathers marrying beautiful women). And no one is suggesting that we should handicap them.

But I think you're way wrong when you suggest that we live in a meritocracy, and that, as you put it:

"However The Bell Curve also posits that IQ and EQ are more heritable traits than learned ones.

It is not how poor you are, it is rather how smart you are to begin with that will generally determine your eventual economic and political status."

That's an argument which is simply objectively false - if it were true, the income mobility studies I show would look far different.

And if your heritability arguments you are making are genetic (hence irreversible), rather than cultural (hance malleable), I'd like to introduce you to Mr. Lysenko...

A.L.

About Dell rcalling work back due to quality problems:

If you read the complete official Dell statement, the customers had problem with heavy accents and quality of support. I've been in IT field my whole life and also have had to seek telephonic support provided by local workers. I can assure you that they also work from the scripts provided to them and most of them are totally unable to solve the actual technical problems. However they do not have heavy accents and they are usually smart enough to handle themselves in such a way that you just get frustrated and get off their back. That is the only difference between local and foreign support workers. I think the key to outsourcing is to make sure you get at least the same quality (which you do since mostly foreign workers are more qualified) at considerably lower cost to make it worthwhile. And I hear, they are already working on their american accents !!

"and second, that it won't do us a lot of good to create a dynamic economy if it tears the polity apart in doing that."

It won't do that unless the snake oil salesmen manage to divert the peoples' attention away from the fact that even the "poor" can afford more goods and services than ever before, and the fact that the main things that they aren't getting in increased abundance (education, health care, housing, and police protection) are either operated or heavily regulated (badly) by the same people that are trying to paint the folks that are delivering the goods as the nefarious forces behind their remaining problems.

Maybe that snow job will be successful, but if so you certainly can't blame the people opposing them.

"That's an argument which is simply objectively false - if it were true, the income mobility studies I show would look far different."

That's not self-evident. If intelligence is heritable, and intelligence also helps determine income, then that implies that your parents' intelligence helps determine whether you grow up in povery and also determine your own intelligence. Thus, in a pure meritocracy, if intelligence is heritable, you'll see a correlation between your income growing up and your own income at adulthood.

AL - How can you claim that one's mobility is not determined by how smart one is?

The mobility table at the bottom of http://www.bos.frb.org/economic/nerr/rr2002/q4/issues.pdf says that 53% percent of those in the top and bottom quintiles stayed put. The middle quartiles are broadly spread out. It takes particular behavior to achieve the top or bottom quartile, and that behavior appears to stay constant over a decade.

To me the growing gap between rich and poor is simply the greater opportunity to use ones wits to make big money. If you are a brighter factory worker than the next guy, you could become a supervisor. If you are a brighter engineer, you get to join the better startup and make 10 fold the money. Factory jobs are being lost here because it takes a certain amount of money to hire a factory work, and many people here have better opportunities than factory work. If that were not so the US would have massive unemployment or falling incomes, which we do not.

Our culture can deal with greater income inequality if it does a better job of teaching that money doesn't buy happiness. Nearly everyone in the US has enough money to have reasonable comfort, decent entertainment, and the chance to improve their own lot.

to Armed Liberal:

I should point out that "The Bell Curve"
indicated only that IQ was a heritable trait.
EQ (Emotional Intelligence) is a whole different matter altogether.

Statistically, those with high measured IQ's tend to have greater academic, political, economic and social levels of achievement. This does NOT preclude the fact that two really smart prople can produce some very dumb children. i.e. Paris Hilton (dumb accidental porno-producing progeny of Smart Hotel Empire Founder)

It also true that smart people don't always get ahead... as one also needs the other side of the equation EQ which gives one the ability to "read" people and convincingly empathize/sympathize with them.

We in fact do live in a meritocracy. Those who are smart and can "read" people (i.e. many politicians, small business prople and even actors) do in fact get ahead of the rest
irrespective of random events or one-in-a-million
odds.

However, this 21st century marks the tipping point where those already in power can permanently keep that power because they have access to sufficiently powerful technologies that will make any resistance futile and irrelevant.

We MUST guard against this by using our collective group power to overthrow those oligarchs and elitists who do not have our best interests at heart before they become so powerful that they in effect become like gods, toying with us and crushing us like the ants we are.

;-) ;-) ;-)
To counter this threat, I therefore propose that you the proletariat let me become your saviour and let ME assume the throne of monetary success and political intrigue that I so richly deserve. Allow me to wallow in material excess and let my thirst for power corrupt me absolutely.

For your support I will grant ye wretched poor, ye hungering masses yearning to breathe free, cheap bread, crappy wine and a media circus.

You should read this article written at the behest of the President and Chief Executive Officer of the Federal Reserve Bank in Dallas. The question is "What is more valuable, money or the things you exchange it for?"

http://www.dallasfed.org/research/ei/ei9801.html

This article discusses whether we should organize our society for the benefit of the consumer, or the benefit of the producer. It is an excellent article that fully addresses the questions asked in this post.

Here is the article in full:

The Dallas Fed has an active economic education program, focusing on high school teachers of economics. Whenever I address a group of teachers, I invariably find myself extolling the virtues of Frédéric Bastiat as the greatest economic educator of all time. I tell them that if Bastiat isn't their patron saint, he should be. To increase familiarity with Bastiat, I asked my colleague, Bob Formaini, to write this short primer.

— Bob McTeer
President and Chief Executive Officer
Federal Reserve Bank of Dallas


Frédéric Bastiat: World-Class Economic Educator

Current policy debates are, with few exceptions, echoes of past intellectual disagreements. As scholars learn from experience, very little is new in the history of ideas: just when you think you have found the original roots of an idea, its origin can usually be pushed back even further with more research. One example is the always divisive "free trade versus protectionism" debate. Even after centuries of discussions, books, movements, elections and treaties centered around precisely this topic, we still witness vast outpourings of rhetoric, both pro and con, whenever any new trade-related policy (the ratification of NAFTA, for example) becomes the issue of the moment. A sense of historical perspective can be valuable in these instances, because all the arguments we are likely to hear on both sides of this issue have probably been made before.

One of the most famous participants in the debate between those who favor free trade and those who do not was Claude Frédéric Bastiat (1801-50). Born in Bayonne, France, Bastiat spent the major part of his life farming, studying and in contemplation. In 1848, as revolt and political turmoil engulfed France (for the second time in 50 years), the king, Louis Philippe, was forced to flee for his life. France was then in a position similar to America's after its successful break with Great Britain: it had the opportunity to build a new government—and, hence, new public policies—virtually from scratch. As a delegate to the French Assembly from Mugron, Bastiat found himself directly in the middle of this great undertaking. Because of his recently published writings on political economy and his widely known association with the English Anti-Corn-Law League led by Richard Cobden and John Bright, Bastiat was, by 1848, a well-known defender of the general policy called laissez-faire ("allow to do").

Proponents of laissez-faire seek minimal or no government regulation of markets, and Bastiat stood strongly for that tradition. He had seen what burdensome government regulation and taxation had done to his birthplace many years earlier, as well as the serious effect they had on France's economy during his years of reflection. But the revolutionary government gathered in Paris in 1848 shared many of the same weaknesses that had plagued the French Revolution and that had led to the political terror that followed. Political demagogues of all persuasions played a prominent role in the crafting of policies, and their payoffs to special interest groups, usually the producers of manufactured goods, often led to outrageous inefficiencies. Bastiat was usually outvoted and sometimes ignored by this fervent collection of communists and socialists, followers of every fashionable anti-free trade thinker of the period. Using clever examples directed to ordinary people, he nonetheless stood firmly by his principles and passionately argued the need for political freedom and its necessary corollary, the freedom to trade without arbitrary government restrictions.

Bastiat did not wish merely for cessation of unnecessary restrictions on commerce. He argued also for freeing the political prisoners languishing in French jails for having done nothing more than express or publish their opinions. Even though most of these prisoners' political opinions were in sharp contrast to his own, for Frédéric Bastiat, laissez-faire meant not just the freedom to trade goods and services but also the freedom to openly trade ideas.

Bastiat was at his very best when creating simple, powerful examples to refute the economic fallacies he believed underlay his protectionist opponents' arguments. One justifiably famous example is his Petition to the Honorable Members of the Chambers of Deputies (see box entitled "A Petition"). Bastiat's chosen strategy was to take his opponents' arguments and apply the rhetorical technique of reductio ad absurdum. This technique involves pushing an argument to its logical extreme; if absurdity results, then it becomes hard for anyone to continue to believe in that argument. Bastiat's Petition is one of the great reductio examples in all of economics, but it was only one of many he effectively employed.

When it was proposed in the Assembly that it would be economically profitable to interrupt a railroad line at Bordeaux because such a stop would stimulate trade there, Bastiat suggested that this hypothetical effect might well be extended to the entire length of the railway:

But if Bordeaux has a right to profit from a break in the tracks, and if this profit is consistent with the public interest, then Angoulême, Poitiers, Tours, Orleans, and, in fact, all the intermediate points...ought also to demand breaks in the tracks...for the more there are of these breaks in the line, the greater will be the amount paid for storage, porters, and cartage at every point along the way. By this means, we shall end by having a railroad composed of a whole series of breaks in the tracks, i.e., a negative railroad.1 (Bastiat's emphasis)

Bastiat's conclusion from the following analysis is as trenchant today as when he first penned this essay in 1845:

Whatever the protectionists may say, it is no less certain that the basic principle of restriction is the same as the basic principle of breaks in the tracks: the sacrifice of the consumer to the producer, of the end to the means.2 (Bastiat's emphasis)

Bastiat predicted that, like the first French Republic after the revolution, the Second Republic was also doomed to fail because of its economic policies. In fact, after his untimely death in 1850, France turned once again to a dictator—Louis Napoleon—to "fix" the mess the Assembly had made. A second wonderful opportunity to build a democratic and capitalist country had been squandered—destroyed by false arguments on the effects of trade restrictions (see box entitled "The Effects of Tariffs on a Nation's Wealth").

Yet through all the debates and political turmoil, Bastiat's counterarguments remained effective. With neither hostility for his adversaries nor nostalgia for the overthrown monarchy, he repeatedly turned his opponents' words against them in revealing the emptiness of their arguments. Bastiat argued primarily that those voting for protectionist policies were voting for scarcity over abundance. How is it ever possible, he asked, that the average person and, presumably, the nation can prosper by restricting the supply of precisely those things people need?

Allow me to emphasize this point, at the risk of repeating myself. There is a fundamental antagonism between the seller and the buyer. The former wants the goods on the market to be scarce, in short supply, and expensive. The latter wants them abundant, in plentiful supply and cheap. Our laws, which should at least be neutral, take the side of the seller against the buyer, the producer against the consumer, of high prices against low prices, of scarcity against abundance.

They operate, if not intentionally, then logically on the assumption that a nation is rich when it is lacking in everything.3 (Bastiat's emphasis)

The protectionists answered such arguments by appealing to the fear that foreigners would take away the nation's money by "flooding" France with their goods. This fear was a result of two centuries of the popularly accepted mercantilist doctrine in Europe. Mercantilism claimed that physical money was wealth, and when one traded goods for money, the person surrendering the money "lost wealth" in the exchange. What was assumed to be true for individual trades was, by extension, assumed also to be true for the nation as a whole. "Trade deficit phobia" was a common theme during this period. The primary reason Adam Smith wrote his great 1776 work, An Inquiry into the Nature and Causes of the Wealth of Nations, was to refute mercantilism. Bastiat often found himself repeating Smith's arguments 75 years later. And we are still having this debate nearly 150 years after Bastiat's death!

Bastiat met the main mercantilist argument as follows:

But, you say, if foreigners flood us with their products, they will carry off our money! Well, what difference does that make? Men are not fed on cash, they do not clothe themselves with gold, nor do they heat their houses with silver. What difference does it make whether there is more or less money in the country, if there is more bread in the cupboard, more meat in the larder, more clothing in the wardrobe, and more wood in the woodshed?4 (Bastiat's emphasis)

Like Adam Smith, Bastiat believed that there was "nothing so foolish as discussing the so-called balance of trade." Mercantilists are well represented in mythology by King Midas, the monarch whose touch turned everything into gold. Although Midas amassed a large amount of gold and became very wealthy, he eventually starved to death. A nation might do the same: accumulate large amounts of gold and silver while its citizens remain paupers and go hungry. Which do people want: money or goods and services? If you have any doubt, try eating a plate of twenty dollar bills.

The confusion between money and wealth is an old and stubborn problem. Bastiat saw the distinction clearly, while the protectionists, relying on the old mercantilist doctrine that money is wealth, failed to grasp the consequences of this view. Bastiat makes a simple but powerful point that we would do well to remember when examining, say, our own national income statistics:

Similarly, restrictive measures, while reducing the abundance of things, can raise their prices to such an extent that, if you will, every person is, in monetary terms, just as rich as he was before.

Whether an inventory shows three hectoliters of wheat at twenty francs, or four hectoliters at fifteen francs, the result will be sixty francs in either case; but, are the two quantities the same from the point of view of their ability to satisfy wants?...

Man does not live on nominal values, but on commodities actually produced; and the more he has of these commodities, regardless of their price, the richer he is.5 (Bastiat's emphasis)

This simple observation is very easy to overlook, especially today when we have at our disposal so many statistics concerning national incomes (expressed in nominal values) and trade volumes. But it remains an essential insight of economic theory, as true today as when Bastiat wrote it in 1845. He never lost sight of the simple truth that the purpose of production is consumption. He therefore saw no reason to have the laws of France lean on the side of producers, especially since producers are, as all people ultimately must be, consumers as well. However, even today many so-called "economic experts" argue that production should be encouraged while consumption should be discouraged! "Encouraging investment" means, ipso facto, increasing future consumption. But why is future consumption preferable to present consumption? The implicit assumption is that some people know best what the correct mix of investment and consumption ought to be, and they have the right to try to impose this mix on the nation. But why is it better to force people to invest today rather than consume when the ultimate purpose of investment is future consumption? Bastiat wanted to let individuals decide how much they wished to save and invest and how much they wished to consume today.

Bastiat did not confine his thinking and writing to political economy. Much of his writing addresses questions in political theory and examines the proper arrangement of the relationship between citizens and their state. One of his books, The Law, is both easy to read and comprehend and, like so much of his work, it shines with gems of wisdom on almost every page. One policy in which governments routinely engage and that greatly troubled Bastiat is income redistribution, or what he termed plunder. He addressed this topic often, and his thoughts have great merit today:

There are only two ways of obtaining the means essential to the preservation, the adornment, and the improvement of life: production and plunder....[W]hat keeps the social order from improving is the constant endeavor of its members to live and to prosper at one another's expense....I will go still further. When plunder has become a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.

Plunder not only redistributes wealth; it always, at the same time, destroys a part of it.6 (Bastiat's emphasis)

(from The Law)
But how is this legal plunder to be identified? See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime....our present-day delusion is an attempt to enrich everyone at the expense of everyone else; to make plunder universal under pretense of organizing it.7

As Bastiat saw it, many of our laws and regulations are merely legal plunder, an attempt of all to live at the expense of all. Logically, this is simply impossible. Bastiat wrote that "the state is that fiction by which we all seek to live at one another's expense." A great deal of wealth has been sacrificed in many nations in an ongoing and failed attempt to square this particular circle.

Although Claude Frédéric Bastiat was not a pathbreaking, theoretical economist, much of his wisdom remains as true today as when he first wrote it. Therefore, it is particularly appropriate to conclude with Bastiat's own words:

Government offers to cure all the ills of mankind. It promises to restore commerce, make agriculture prosperous, expand industry, encourage arts and letters, wipe out poverty, etc., etc. All that is needed is to create some new government agencies and to pay a few more bureaucrats.

We must wait until we have learned by experience—perhaps cruel experience—to trust in the state a little less and in mankind more.

Heavy government expenditures and liberty are incompatible.8 (Bastiat's emphasis)

And Bastiat's final warning:

Woe to the people that cannot limit the sphere of action of the state! Freedom, private enterprise, wealth, happiness, independence, personal dignity, all vanish.9 (Bastiat's emphasis)

— Robert L. Formaini
Senior Economist

A Petition

From the Manufacturers of Candles...To the Honorable Members of the Chamber of Deputies

Gentlemen:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry....

We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price: for the moment that he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly that we suspect he is being stirred up against us by perfidious Albion, particularly because he has, for that haughty island a respect he does not show for us. [This reference is to England and its often foggy weather.]

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

First, if you shut off as much as possible all access to natural light...what industry in France will not ultimately be encouraged? If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth. If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and the rapeseed....Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true for shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honor of France....It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman...whose condition would not be improved by the success of our petition.

—From Economic Sophisms, 56–60.

The Effects of Tariffs on a Nation's Wealth

The honest peasant took his cask of wine to the nearest town and there met a Belgian and an Englishman. The Belgian said, "Give me your wine and I will give you fifteen parcels of yarn in exchange." The Englishman said: "Give me your wine and I will give you twenty parcels of yarn in exchange, for we English spin at a lower cost than the Belgians." But a customs officer who was there said, "My good man, trade with the Belgian if you wish, but my orders are to prevent you trading with the Englishman."

"What," cried the countryman, "you want me to be content with fifteen parcels of yarn from Brussels when I could have twenty from Manchester?"

"Certainly: Do you not see that France will lose if you received twenty instead of fifteen?"

"I find that hard to understand," said the vineyardist.

"And I find it hard to explain," replied the customs official; "but it is a fact; for all our deputies, cabinet ministers, and journalists agree that the more a nation receives in exchange for a given quantity of its products, the poorer it becomes!"

—From Economic Sophisms, 61–2.

On Restricting Machines to Promote More Employment of Labor

In Bastiat's time, as in ours, the fallacy that technology destroys jobs was prevalent in public debate. The French government (among others) routinely passed legislation that "promoted labor" by restricting the use of capital. All such schemes are, ultimately, self-defeating if the goal is increased production and wealth, although such restrictions can benefit narrowly defined interest groups.

"To get at the root of this problem, one need only remind oneself that human labor is not an end, but a means. It never remains unemployed. If it removes one obstacle, it turns to another; and mankind is rid of two obstacles by the same amount of labor that used to be needed to remove only one....to maintain that a time will ever come when human labor will lack employment, it would be necessary to prove that mankind will cease to encounter obstacles. But in that case, labor would not be simply impossible; it would be superfluous. We should no longer have anything to do, for we would be omnipotent...."* (Bastiat's emphasis)

The story of a Western engineer observing the construction of a railroad line in China provides a modern example of this same fallacious thinking: "You ought to use explosives to clear the way instead of all those men with shovels," the engineer informed the Chinese manager.

"If we did that," the Chinese manager responded, "many would be thrown out of work."

"Ah," replied the Westerner, "I thought you were building a railroad but, given your goals, you should take away their shovels and give these men spoons!"

—From Economic Sophisms, 18–19.

"If you aren't expecting your income to increase enough to pay off the loans you're taking on to go to college, then college is a losing investment for you. Just like you'd never take out a loan to buy a factory whose revenues wouldn't justify paying off the loan, you shouldn't embark on a college education if the higher income isn't high enough that you're better off even after paying back the loan."

That is a very ignorant statement as far as you're stating that the ONLY reason people go to college is to make more money and you're ignoring the people who choose to work with people in education or social instances, who choose to work in natural resources, and many other careers where the pay scale is minmal and continues to be so even after years in the chosen field.

Valentine,

I'm aware of the modular programming problem. The problem is that our bare metal hardware and software is not conducive to modules.

Useful modules ought to be short and clean.

Because of the cost in cycles of pipeline flushes etc. Modules tend to get a bunch of stuff added to reduce the number of subroutine calls etc. Of course the more stuff added the less general.

It would be nice if calls took only one cycle and returns cost nothing at all. It would be nice if a context change only required changing two or three pointers instead of thrashing the "stack". It would be nice if it was efficient to have a pipeline only one level deep (that ran efficiently) so a loop end didn't cost a lot for a pipeline refill and pipeline predictors were not needed (because the cost of a miss was only one cycle or even zero cycles a lot of the time).

Well it is too late now. We are stuck with the garbage we have.

Despite that advances are being made. Humans!

praktike,

According to historians Will and Ariel Durant income inequality increases during times of productivity and technological advances. According to them since democratic capitalist systems allow the most advances they will have the widest disparities in wealth.

The question then is: if the cost of the poor advancing at 5% a year is the rich advancing at 10% would you be against the advance? Would stagnation al la Vichy be better?

The only way to empower the poor ever found that works over the long term is to continually do more with less. Should we stop that process? Now? Later?

Fer instance only 3% of Americans work on the farm. It used to be 80 or 90%. Should we work to bring all those farm jobs back?

Automated machinery is destroying the skilled trades. Should we outlaw automated machines?

I note also that steel manufacture has made the art of flint chipping all but obsolete. Should we outlaw steel knives so that skill is not lost forever?

Think of all the flint chippers now out of work.

Something must be done to slow the erosion of our technological base.

"Those who have innate ability have been pushed to every higher levels of accomplishment and realization while those who do not have that mostly heritable trait have been more and more marginalized and will continue to be marginalized until soon there will be two entirely separate species of humanity; the ever larger-brained one and the modern equivalent of the Neanderthal. Guess who wins ..."

So what do we call the movie Planet of the Apps?

Ann: " ... but one event is as predictable as ants at a picnic and that is job losses due to elimination of redundant functions and technology-driven increases in operational efficiency. The new and enhanced company is consolidated, stream-lined, and sold, all at a very tidy profit for those whose major source of wealth derives from the capital and equity markets."

Ken: "And the end result is that the same goods and/or services are produced with fewer workers. Multiply that throughout the economy, and let new companies making new things get organized and take advantage of the workers freed up from their previous tasks of making the old stuff, and we all end up better off."

Ann: The only thing missing is the ‘new’. Too often the ‘new’ and ‘better’ jobs fail to materialize. One example is NAFTA - the 200,000 (or 2,000,000 depending on which number you believe) replacement jobs in the U.S. did not materialize. Furthermore, the replacement effect is still a fundamentally qualitative component of the markets. Any attempt to quantify expected replacement jobs requires econometric gizmo-wizardry.

Ann: "So the enterprising gear up with new skills only to find themselves unemployed yet again at the end of the cycle."

Ken: "Well, yeah. Why should we expect to do the same old thing throughout our working lives, especially when we don't expect to be stuck with the same old goods and services at retirement that were on the shelves when we were 18? (Or at least we shouldn't!)

If you want new products and services, then the people making them will have to do different things than they were doing when they were making the old stuff."

Ann: The point here is equity (as in fairness). Why is the wage-earner the perennial heavy lifter? At what point does fairness demand that some of the cost and some of the responsibility for ‘adjustments’ be shared among wage-earners and shareholders of capital wealth? Surely it is not inappropriate to relate compensation to responsibility for managing change, especially when the change is nearly always driven by capital and equity markets, not the wage-earner wealth, which goes primarily into consumption. My original point was that wage-earner wealth is becoming increasingly isolated from shareholder wealth in capital and equity markets. Why should the wage earner have to scramble if he has less access to equity wealth?

Ann: "There used to be such a concept as ‘labor rights’ and I believe the old concept needs to be dusted off, resurrected, and redefined to provide some protection and some stability and some civility within a system that I do not trust to function without some form of externally imposed constraints."

Ken: "We don't want stability - "stability" is just another word for "the same old crap", the same products and the same services, and none of that technological development that we once rightfully regarded as the best way to alleviate misery that mankind has ever come up with.
Remember that our lives depend on rapid technological progress - our bodies will fall apart in less than a century and kill us unless we find a way to fix them or replace them. Stability is a death sentence; technological progress might grant us a reprieve if we let it."

Ann: I disagree. Reality has to have a half life long enough for humans to observe and react. If not, we are cognitively irrelevant. Taken to it’s extreme incarnation, the concept of change - with no intervening periods of stasis - or what I call stability - is not a viable system for individuals or for societies. (In an epistemological sense, pure change has no information content because there is no pattern. Change must be viewed in a context that includes stasis in order to be relevant to human beings.) No one is making a Luddite argument against technology or against change, but the argument is for managed change in the service of people and not vice versa.

TO: M. Simon

A Point that needs to be raised regarding the quote:

"...the fallacy that technology destroys jobs was prevalent in public debate."

Humanity has now reached the point where it is no longer a fallacy that technology will destroy jobs. I am a prime example in that I create technology that in fact does destroy many jobs (MAchine Vision Recognition Systems). The software I design is getting faster and faster and much more "intelligent" every year and this march of the machine will rise (within 50 to 100 years) to such a point that humanity is in real danger of producing fully autonomous creatures that WILL have the ability to both physically and mentally outclass us all. We won't be just automating ourselves out of a job but possible out of existence if we are not careful. I have become a semi-Luddite, believing that it is wise to recognize that unrestricted technological advance can very realistically cause the reduction of the human race into a dystopia envisioned by the movie "The Matrix" - i.e.enslaved by machines, but too dumb to know it.

It's not the same technology that is killing our jobs. It's companies sending our jobs to China, India, Brazil to get it done cheaper. We can be taught the new technology.

M. simon, I would respond, but I have no idea what you're critiquing in my post. You seem to be responding to something someone else said.

All I did was point out some numbers from such communist sources as the Federal Reserve Banks of Dallas and San Francisco, the American Enterprise Institute, and the Federal Government.

Basically, the gist of my post was that poverty in the US is declining, albeit it's on the uptick in recent years. I also said that medical care and education were more expensive now than in the past. These are facts.

I agree completely with you all, and have a suggestion as to how we might resolve this problem with poverty and lack of economic mobility. The reason why there are no more blue collar jobs in America is simply that we no longer make anything. We have no more factories, we no longer sell anything. Each month the US has an average deficite of 40 billion dollars in trade. This is because of foreign cheap labor in other countries. One way to resolve this is to institute a tariff on countries based on how much they sell us and how much they buy from us. We could put a tax on foreign made goods so that goods made here (where we must pay for environmental damage, government restrictions on business, wellfare, employee benifits) can compete with them. This tax would be based on how much the country sells and buys from us, China for example has a deficite of 100 billion dollars a year, they would have a very high tax, whereas a country such as Costa Rica with only a 25 million dollar deficite would have a very low tax. In order to lower this tax, they could either sell less to us, or buy products from us to cover the deficite. Depending on the difference of how much the sell and how much they buy the tax on the imports go up and down. This would do many things, it would encourage industrial growth in America, prompting factories to re-open. This would create new job opertunities, stipulate the economy, and increase economic mobility. It would also allow the government to lower say, income taxes. With the money from the taxes many things would be possible for the Government to do. Increase funds to education, lower taxes, increase wellfare for the elderly. There are also some negative effects from this, such as price increase on many goods. But, as it was said before, which is more important: being able to buy things cheaper, or having a job to be able to buy things? We need these tariffs, with our laws we cannot compete with the cheap labor offered by other countries, bit by bit we are selling America.

Cyrus Van Norman

Arnold Kling has an outstanding article about the "trade deficit" issue.

Apparently, it's really a savings deficit. Which, given America's abysmal savings figures, makes sense.

Cyrus,

It is unfortunately not unusual to find someone propose that a trade war and massive inflation will "fix" the US current economic condition, which is 8.2% annual growth on top of a purchasing power that is *1/3 greater than other leading developed countries*. I must agree that your prescription would quickly "solve" our trade deficit, but it would occur at price that few would be willing to pay.

The fact is, there is a full-employment level of unemployment in this country. The US economy briefly when below that level in the recent boom. During that time it was quite difficult to find qualified people, and the result was billions were wasted on such innovations as internet-ordered dog food.

There are many fine people out of work at any given time, but that is unavoidable in a dynamic economy, which is what is responsible for our enjoying a standard of living that is the envy of the world (especially the Muslim world).

When I look at the purchasing power comparison of the US to the rest of the world (linked above), I wonder how the rest of the world could possibly buy as much from us as we do from them. There are apparently Americans who see that business going outside the country and feel somehow entitled to that trade, in spite of the fact that they are not offering the best price.

The fact that other countries see fit to handicap themselves in competition with the US by imposing severe regulations on themselves is no reason for us to do the same.

What is interesting is that America's 50/60 boom was almost entirely presged on the extraordinary 'kick start' of the European economy with the Marshall plan. The contrarian notion is that by giving away money you create it. This type of leadership is all but dead in our modern economy - we have an electorate who focus exclusively on whether they can have enough to retire, rather than one which says if we give 'them' (i.e the rets of the world) a leg up then we in turn will generate new opportunities and a more generic global prosperity. The hedonism of the 60s is wreaking its havoc - the extraordinary thing is that it is the very rebels who as teenagers/early 20s then that are now the middle aged, unimaginative and 'stick in the mud' self centered bureaucrats that they once criticized. Unfortunately they also have all the money!
The answer - stop thinking only about oneself and see whether one can improve the lot of another. Believe in God and not in men. Do the contrarian thing - "Give away all that you have, and come follow me" Jesus Christ!

Ann, I agee with your point on managed change. If we just let technology move at lightning speed unchecked you will never be able to retain people fast enough to hold down a decent paying job. Also, If we are on the verge of eliminating the blue collar worker in the near future there will not be enough service sector jobs available ever to pick up this entire displacement according to Charles Handy The Age of The Paradox.

But the ability to retrain people to do the new jobs is itself a limiting factor on the rate of technological change. If people aren't yet retrained to do the new jobs, they won't get done and the technological leap will have to wait until people are retrained.

If you let the government "manage" change, the managers will soon be managed by incumbent vendors, whose vested interest is to prevent change, not manage it. Then we end up with travesties such as everyone using groundcars 100 years after the Wright Brothers' flight.

Ken, If we are moving into an unchartered territory and you say that the people aren;t trained yet, how can they be when knowone knows what these new jobs are yet. To let techology move at its own pace changing the job landscape without any regard to how these changes are going to effect the society is flirting with disaster.

RE: comments by Matt & Ken on managed economies.

This is where the economic rubber meets the intellectual road. I do not believe that the current body of economic thought speaks very well to transitional issues as economies mature and evolve. We are even today relying on the ‘invisible hand’ theory to guide economic thought. We are exposed to a great deal of chatter/discourse regarding the necessary ‘dislocations‘ and ‘retraining‘ that are invoked in moving from industrial to service economies. We also hear the continuing drum beat of ‘bureaucracies as burdens’ because the economic power of money will always trump the political power of principled action, which, we are learning, is still but a glimmer in the eyes of the hopelessly idealistic.

So it appears from recent experience that we are ‘left’ to conclude that man is not perfectible, but markets can be tweaked. I am 70% to 80% comfortable with that - relative to the financially wasteful and philosophically disappointing performance of government in service to business. I believe, however, that life is sacred, and moving logically from that premise, life is more than a well-greased system of institutional markets, but it is a civilized way of existence that embraces a set of values - otherwise I am no different from the robot that will soon replace me in the factory line or wherever. These values dictate the providing of security and assistance to alleviate the harsh realities of market failures, which we know from recent experience, do occur.

I believe there is a way that the markets can be ‘regulated’ to ensure that people have access to both economic prosperity as well as civilized existence. I don’t think it is wise or even possible to separate the two. So the remaining question is the mechanics of making it happen. Equity (as in fairness) is a subjective concept. Economic transactions are not. And so the bridges must be built very carefully - but they must be built! I do not support a pure market economy that functions without constraints to protect people from the harsh realities of risk and failure that come with a market system. In the meantime, I fully support the old bureaucratic warhorse to provide some counterpoint to a market economy subject to rapid change in the absence of a stable maturity, which may never arrive. It is one area in which I am more than comfortable driving my father’s Oldsmobile.

Calling for a way to make it unproductive to ship jobs overseas is not the same thing as calling for socialism.

Consider companies that hire temps, instead of full time employees. They do it because temps are accounted for differently on the bottom line, than are regular employees. That's governed by the GAAP. That's something that could be changed without extra regulation.

It would be interesting to look into some of these outsourcing companies and find out if they get any special tax breaks. That's the sort of things that could tip them away from outsourcing.

Has anyone done a recent study of how much taxes (federal, state and local) add to the cost of maintaining a payroll in the US? I wonder if we really had small government, not only in Washington but at the state and local level as well, if the pressure to move jobs out of the US to save money would be as great. I believe that a lot of the the pressure that keeps employee pay from rising is coming from the increasing load of government both in direct taxes and in unfunded mandates on the company. How much is it costing the company to enforce EEOC mandates and other government regulations? Also the biggest gains in government costs recently have been at the state and local level. So many cities now have rapid transit (a clear oxymoron) that adds to the cost of local government without really adding any benefit to most citizens.

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