House Poor

In her article in Atlantic sympathizing with Neal Gabler’s bellyaching (which I wrote about before) and blaming it all on the system, Rebecca Rosen finally gets around to some prescriptions:

In a sense, the people who say rising wages would help are on to something, but the key is not getting households more money—it’s about building a different system, one in which the upside to getting ahead isn’t so high, and the downside to falling behind isn’t so low. Better wages are a symptom of such a system, but they don’t themselves bring one about. That would require systemic changes—changes to the tax code, changes to corporate-governance practices, changes to anti-trust law, changes to how schools are funded, to name a few.

from which I gather that when she was a little girl Ms. Rosen always colored within the lines. If there is evidence that the problems to which she attributes the national propensity to spend beyond our means can be remedied by changes in the tax code, vague “changes to corporate-governance practices” or “changes to anti-trust law”, or changes to the ways schools are funded, I have yet to see it. Show your work, Ms. Rosen. Quite to the contrary, I think the problems will persist as long as the financial and healthcare sectors are as bloated, out-sized, and over-compensated as they are regardless of other reforms.

How would you go about identifying the source of the problem? Among the strategies I can think of, you could, for the last thirty of forty years:

  • Identify the sectors in which wages (total wages) have risen or fallen.
  • Determine whether total real taxes paid have risen or fallen.
  • Look at the relationship between tax rates and educational outcomes (hint: there is no clear relationship).
  • Determine how much real spending on education has risen (hint: it’s three times as high as it was in 1992).
  • Look at the relationship between spending per student and outcomes in education (hint: there is no clear relationship).
  • Determine when executive salaries exploded (hint: in 1993 when the rules on executive compensation changed).

That would be a start. I don’t think the facts fit her prescriptions.

An enormous transformation has taken place in the United States. We’ve gone from a country in which it was believed that hard work and determination were the keys to success and there was at least some truth to it to a country full of people trying to win the lottery. Both the strategies and the objectives have changed.

18 comments… add one
  • TastyBits Link

    If manufacturing had continued to expand, would healthcare, finance, and education still be out-sized, or is it that because manufacturing has atrophied it’s percentage has been absorbed by these other sectors?

    Or, would it not be simpler to increase manufacturing and everything that supports it? Education would naturally decrease, and healthcare might. The financial industry needs to be restructured in order for manufacturing to increase, and as a result, it would decrease as an outcome.

  • If manufacturing had continued to expand, would healthcare, finance, and education still be out-sized, or is it that because manufacturing has atrophied it’s percentage has been absorbed by these other sectors?

    Manufacturing has continued to expand. Only manufacturing employment has declined.

    Finance and healthcare have expanded. Period. Healthcare presents the additional problem that more than half of all its revenues (probably 60%, possibly as much as 70%) derives from taxes.

    I’d be happy if we weren’t subsidizing finance and healthcare so strenuously.

  • Guarneri Link

    Those are very little known facts in your citation, Dave. I mean VERY unknown, generally. Small manufacturing is of course my playground. I hope your readers will read each and every one of them and then think about some of the positions I take, issues I highlight or questions I pose here.

    Truth and policy effectiveness are a long way from just advocating In-N-Out burger wages or worrying about the amazing, disappearing iron ore boats.

  • Guarneri Link

    I suppose I shouldn’t use the word “fact.” The very notion, say, of precision in calculating regulatory burden per employee is daunting. However the general thrust, to a great degree, of what is cited is spot on.

  • Gustopher Link

    We have done a lot to trap the poor in a multigenerational trap.

    We spend way more on education than we did in 1993, but that is mostly special ed in the public school systems — which means there are fewer resources for general students. And, we fund our schools with propert taxes, so the areas with the most problems are the least funded.

    Most public services have a sharp cutoff, and if a poor person earns slightly too much they suddenly lose a lot of benefits that they depend on. This makes those services a trap — there should be a gradual drop off in benefits, so earning more always means the person is further ahead.

    And, we have placed social burdens upon companies whose goal is to weasel out of them for a profit. Employer provided health care, for instance, where employers have an incentive to keep people below full time, and to cherry pick the healthiest and youngest employees when they do offer full time employment, to keep their premiums low, and to go with the cheapest insurance possible even if it produces poor long term results, because the employees will be gone before then. All the incentives are in the wrong spot there, and they add another layer to the trap. (I would favor either a single payer system, or a very well regulated voucher system)

  • Gustopher Link

    Also, we don’t have a national propensity to spend beyond our means, we have a national propensity to not pay the bill.

    We have really low tax rates compared to the rest of the first world. We could totally afford our government if we wanted to. Or an even larger government.

  • Guarneri Link

    “We have really low tax rates compared to the rest of the first world. We could totally afford our government if we wanted to. Or an even larger government.”

    Perhaps you could, as has become popular, show us your work. First the tax raise. Add up all the taxes labeled taxes, including sales and property. Then add tolls, permits, user fees….. Then the proposed raise. What taxes, on who, and the funds raised. Quantitative and evidence based. No hand waiving.

    I’d also note most of the rest of the first world is drowning in debt, while free riding on our defense expenditures.

  • TastyBits Link

    As a percentage of GDP, manufacturing has been declining for the past 40 years. I could not find one for 40 years, but here is one for the past 30 years: MANUFACTURING – VALUE ADDED (% OF GDP) IN THE UNITED STATES (I copied their title.)

    The 2009 uptick is against the previous downward trend. If I had the time, I could find something for the past 40 years, and it would show at least 25% of GDP. From my understanding, this does not include the ancillary services required to keep the production facilities in working condition.

    In terms of wages, manufacturing workers have increased their income several times what they were making 40 years ago, but that is a meaningless fact. Their wages are being paid in dollars which are worth less (and almost worthless) because they have been diluted with more dollars created, and therefore, they can barely afford to shop at Walmart.

    (Let us be perfectly clear. A union is not going to help when you go on strike to get a raise at the plant that shut down two years ago. Unions became obsolete in 1913, and by 1971, they were worthless.)

    Let me further clarify for anybody who cannot comprehend. I am not predicting the end of the world no the collapse of the US. The rest of the world is not only “drowning in debt”, but their central bankers are punching holes in the bottom of their ships as fast as they can. To date, the US’s idiot has been the smartest idiot of the bunch, or at least, she has been overwhelmed into inaction.

    As the 800 thousand pound dragan collapses and drags down much of the rest of the world, it is quite possible that the US economy winds up being re-invigorated – no hyperinflation, no stock market crashes, no financial system collapses.

  • As a percentage of GDP, manufacturing has been declining for the past 40 years.

    Sure. If you treble or quadruple the financial and healthcare sectors’ total revenues, other sectors, even if increasing, will decrease as a proportion of the total.

  • Modulo Myself Link

    An enormous transformation has taken place in the United States. We’ve gone from a country in which it was believed that hard work and determination were the keys to success and there was at least some truth to it to a country full of people trying to win the lottery. Both the strategies and the objectives have changed.

    That’s a bit dramatic. Melville published the Confidence Man in 1857.

  • All I can tell you is that when I was a kid there wasn’t the frenzy to get into medical school, a top law school, or a top business school that there is now among the members of the middle and upper middle class. At least not in the Midwest.

    Additionally, there wasn’t the longing to become highly compensated athletes or entertainers that there is now. For one thing they weren’t as highly compensated as they are now.

    All of these things are components of the “winning the lottery” bit I mention above.

    Also, the expectations about school were quite different. Most people were expected to attend public schools. The emphasis on college prep was nothing like it is now.

  • Modulo Myself Link

    This is pretty subjective. People weren’t nuts for mass entertainment following WWII? Teenage girls weren’t fainting on cue for Sinatra? Real values weren’t being threatened then?

    I think modern American culture goes back to the 20s, and over a period of a 100 years it has eliminated all of the small regional distinctions that established distance and space in this country. I grew up in a middle/upper-middle class family in the 80s in the middle of Pennsylvania, and that low-pressure world was far away from the suburbs and cities where people like me were being aimed at Harvard and Yale. I don’t believe it would be that way now. But overall, that’s just a final twitch of the dial.

  • People weren’t nuts for mass entertainment following WWII? Teenage girls weren’t fainting on cue for Sinatra? Real values weren’t being threatened then?

    Go back and check what movie stars and singing sensations were being paid following WWII.

    When a relatively small number of people who are highly visible start making big salaries, more people aspire to emulate them. The crush to get into med school is a post-1965 phenomenon. Docs used to be paid within 10% of what other professionals were paid. That ain’t the case any more.

  • PD Shaw Link

    The Atlantic has another piece ruminating on Gabler’s article: Opting Out of Coastal Madness to Live a Low-Overhead Life It hits some of the points Dave made earlier, but she’s not the most sympathetic counterpoint to Gabler, as she seems to be able to live on less, because she appears to have had more at one point, and timed the housing market well. On the other hand, she raised a child on her own.

  • Steve Link

    Kids weren’t frantic to get into the good schools when we were young and growing up in the Midwest, but we faced much less competition. The international competition has changed everything. Plus, the population has grown while the number of top schools hasn’t grown much. Kids can’t even be sure of getting into their state school.

    In 1950 the average doc made 2 1/2 times the median income. If you go back to when they made 10% more it was when they didn’t have much to offer.

    Steve

  • Kids weren’t frantic to get into the good schools when we were young and growing up in the Midwest, but we faced much less competition. The international competition has changed everything.

    Yes, there’s competition for jobs. But not jobs that are producing the fierce competition to get into “good schools”. People aren’t trying to get their kids into Harvard so they can pursue STEM. It’s for the areas in which there isn’t nearly as much competition from overseas, e.g. medicine, law, finance.

    If you have some actual evidence that the perceived importance of getting into a top school is because of overseas competition, I’d sure like to see it.

    If you go back to when they made 10% more it was when they didn’t have much to offer.

    In 1970 physicians earned within 10% of other professionals (lawyers, engineers, etc.). Now the median income for a physician is more than twice as much as an attorney. Are you seriously claiming that docs didn’t have much to offer their patients in 1970?

    The facts are really very clear on this subject. From 1965 to about 1973 physicians’ incomes increased because of increased utilization. From about 1973 to 1980 their incomes increased because they raised their prices. After 1980 the incomes rose, more or less keeping up with inflation.

  • Andy Link

    ” After 1980 the incomes rose, more or less keeping up with inflation.”

    My math is very rusty (and my math genius wife is away this weekend), but even if incomes rise at the rate of inflation, don’t they benefit from a higher baseline and compounding?

    Oh, and things that make you go hmmm…. and hmm again.

  • steve Link

    Ok, only about 5% of Harvard kids go into any medical field. (They went to med school in the 70s) They go into finance (and tech jobs also). Look at almost any current medical school or look at the faculty and you will find they look a lot different from classes in the 70s and 80s. In my med school class I think we had 4 asian kids. Now they have about 35. (National average is 21%)They have at least 5 kids of ME extraction (non-Jewish). We had zero.

    “The most obvious case in point is the huge number of elite university students who wind up working on Wall Street or in a handful of elite management consulting firms such as McKinsey & Company or Bain. In 2007, just before the global financial meltdown, almost 50 percent of Harvard seniors (58 percent of the men, 43 percent of the women) took jobs on Wall Street. That number contracted sharply during the Great Recession, but after 2009 it began rising again. Among this year’s graduating class at Harvard, 31 percent took jobs that will channel their energies into derivatives, mergers, and often destructive outsourcing. And many more tried out for such positions. According to a study by the sociologist Lauren Rivera, a full 70 percent of Harvard’s senior class submits résumés to Wall Street and consulting firms.

    Meanwhile, among Harvard seniors who had secured employment last spring, a mere 3.5 percent were headed to government and politics, 5 percent to health-related fields, and 8.8 percent to any form of public service.”

    Suppose your dream comes true. Docs make the same as lawyers or engineers. (How that happens with the extra time and school debt incurred I don’t know.) How will that affect eh rest of the country? First, you have a massive physician shortage. 27% of our docs are of foreign origin. They aren’t coming here w/o a large differential. Next, that would put about $100 billion back into the economy. Total personal income is about $15 trillion. We are talking about less than 1% of our national income. About 3.5% of medical spending. So while I will continue to agree that docs are probably overpaid, especially specialists, and need to see their pay cut some, you won’t see a lot of effect. If you want to make significant changes in medical spending, you need to look a lot of other places also. The big bucks lie with the top 0.1% who control about (IIRC) 10% of our national income, or about $1.5 trillion. Or the top 1% who control $3 trillion.

    1970 medicine? Not useless, but still pretty primitive. ICUs were still pretty new. No CT scan or MRI yet. Little in the way of catheter technology. Life expectancy was about 9 years less. A baby born more than a couple weeks premature had a high chance of dying. Maybe 200-300 pacemakers in the whole world implanted? Pulse oximeter not invented yet. Heck, plastics were still pretty primitive.

    Steve

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