As part of its series on the issues in this election, RealClearPolitics has turned its attention to income inequality. David Madland presents the progressive case while Ryan Streeter presents what I take to be the conservative case. While I think that my view of the problem is more consistent with Mr. Madland’s formulation:
Wages for the typical private-sector worker, adjusted for inflation, are still about where they were in the 1970s, even as the costs of core middle-class goods such as housing, healthcare, child care, and higher education have grown rapidly. Economic output per person has nearly doubled over the past four decades, but the vast majority of these gains have gone to those at the very top. In fact, the share of the nation’s income going to the top 1 percent is near-record levels, while the share received by the middle class — the middle 60 percent — is about the lowest ever since the government began tracking this data in the late 1960s. In 1973, the typical CEO of the top publicly traded companies made around $1.1 million, or about 22 times what the typical worker made. Today, the average CEO makes $15.5 million, or about 275 times what the typical worker makes.
I find his prescriptions wanting. They are:
- Raising wages by increasing the minimum wage and strengthening collective bargaining by unstated means.
- Infrastructure spending
- Making the tax code more progressive
- Campaign finance reform, changing lobbying rules, and easing voter registration
Paradoxically, although I disagree with Mr. Streeter’s basic position:
Do we want to live in a society in which people profit when they have new ideas, products, and abilities that others are willing to pay for? If so, then we will also have economic inequality.
To most economists and ordinary Americans, inequality is the price we pay for an economy that rewards innovation, risk, and hard work. The topic has been a recurrent theme in our recent political discourse, however, because of two things: the outsized income of the nation’s top earners and the stagnation, or tepid growth, of middle-class incomes. The question is whether we think these two trends say something bad about America, and if so, what public policy can do about them.
I thought his proposals were more likely to be effective. They are:
- High school certification paths in high-demand skills
- Apprenticeships for the American economy.
- Increased rate of new business creation by mostly unspecified means which is probably wishful thinking
My view is that our present trend on income inequality is incompatible with republican government. In other words although I have no problem with a small number of individuals earning very high incomes based on their own creativity and hard work let’s not imagine that every individual earning an enormous income is creative and hardworking. For every Bill Gates or Steve Jobs there are probably ten Angelo Mozilos.
I’m even less comfortable with a large inbred and isolated professional class dependent on tax dollars for incomes that are a many times multiple of the median income.
Rather than making the tax code more progressive why not make the tax system more progressive? In the final analysis it doesn’t make any difference what the top rate of taxation is. What matters is what the top income earners actually pay. The United States has among the most progressive tax codes of any OECD country while having one of the most regressive tax systems. There’s a simple strategy for accomplishing that: get rid of the payroll tax. That would also probably necessitate abandoning the fund accounting that has formed the heart of U. S. policy for the last 70 year.
Increasing the minimum wage isn’t a policy directed at the middle class. Practically definitionally it’s targeted at helping the poor. We’re presently in the midst of a great experiment on the effect of raising the minimum wage. We might want to see how that works out before sending it national. I suspect we’ll see some parts of the country in which the effects of a $15 minimum wage are benign and some parts in which it is damaging. That’s the beauty of a federal system. I suspect that a $15 minimum wage for Illinois would be damaging to Chicago and, indeed, for Illinois. We’re surrounded by states with lower minimum wages and most of Illinois’s larger cities are on its borders.
I wonder if it has occurred to Mr. Mayland that in the United States a higher rate of voter registration is positively correlated with the Gini coefficient (the most commonly used measure of income inequality)? I don’t have an explanation for that but it’s true.
Mr. Streeter’s suggestion that high schools start providing training leading to certification in skills that are in demand is so good it’s an outrage we’re not already doing it. It’s not perfect but it’s interesting. IMO the present emphasis on college education for all is misplaced—cargo cult thinking. Germany has had an apprenticeship program and it seems to be working there. It’s probably worth a try.
Just so I can understand your math, and using 2014 numbers since I think they are fairly accurate now, it looks like total US income was about $15 trillion. The top 0.1% cut was about $1.5 million and they account for about 10% of income (Ritholtz numbers from 2011 but easy to find) or $1.5 trillion. Total health spending that year was about $3 trillion and docs made about 7% of that, or $210 billion. Suppose docs didn’t receive any govt money. That would put them well below the world average for doc pay as a percentage of GDP and likely lead to a net outmigration and/or shortages, but just go with it. Why would that $120 billion matter more than the $1.5 trillion the 0.1% make? Assuming, more realistically, we can get salaries down to first world averages, meaning 3-4 times average wages rather than 4-6, that number is much smaller.
Vocational high schools sound like an outrageously good idea to you. Unfortunately, at least in our area, they have not been popular with students or parents. Unless you wish to emulate Germany where you sort kids out by 4th grade (5th?) and tell them what they have to do, how do you plan to make them popular? Also, it is not exactly clear to me why the taxpayer should pay for those skills rather than the employer who will use those employees. Corporations take the money they used to spend to train people and give it to management or shareholders. The taxpayers then pick up the slack and pay to train future employees. How is that system superior and how will it reduce inequality?
http://ritholtz.com/2011/10/forget-the-top-1-look-at-the-top-0-1/
Steve
Because it’s generated politically rather than from the workings of the market.
Just to ensure that I’m understood as should have been clear from my remarks in the post I have problems with the enormous incomes being drawn in by top managers, particularly in the financial sector. Basically, I think the evidence is convincing that a much smaller financial sector would serve us better than the present one does. It’s become a self-licking lollipop.
But I’m not completely comfortable in deciding how much the Michael Jordans or the Steve Jobses should be earning, either.
It may seem like I’m picking on the healthcare sector but I don’t see it that way. It’s an exemplar. The epitome. The largest single sector recipient of subsidies. The U. S. healthcare sector receives something between 50% and 70% of its revenues from government in one form or another. How much of that is actual product and how much is froth I can’t tell. I think the evidence is pretty good that total wages in the sector would be at last 30% lower than they are now without all of the government spending.
BTW, when comparing physician salaries here and abroad keep in mind that those are endogenous factors not exogenous ones. High salaries here drive wages up around the world, at least for internists.
It might help if we hadn’t been subjected to 25 years (at least) worth of propaganda.
Why is the taxpayer paying to prepare kids for college? My non-snarky answer is that not every kid is a good candidate for college and at least some of those might be good candidates for skilled trades-type jobs. I don’t think that putting all of our eggs in the college prep basket is a good strategy but we’ve been doing it for decades.
I endorse this enthusiastically. Not everyone should go to college. Not everyone can handle college. And we actually do need plumbers and carpenters and machinists. Nothing but snobbery makes college superior to trade school or apprenticeship. I have never had the thought, “Damn, we really need a philosopher!” I have often had that thought about plumbers, handymen, carpenters, etc…
I’m watching my daughter – a natural in the kitchen, a possibly talented artist, good with her hands, hard-working – struggle with and have her self-esteem crushed by, being pushed through STEM courses she will never use.
I got a D in geometry. I pretty much never feel the absence of geometry in my brain. But man, I wish I knew some basic carpentry or could run an extra electrical circuit to my garage. The man or woman who can do that job well is the equal of a lawyer or accountant as far as I’m concerned.
@steve, I went to a high school with a strong vocational program. Probably about 25% of my 1,000 student class attended, but they made the programs available to students in neighboring districts, so it was a big program with a lot of resources and took about about one-third of the campus. They had staff responsible for reach-out to the community to determine skill needs and job opportunities. No, it did not require some forced decision at 4th grade; student choice as Freshman — the opportunity to try a class that they may find interesting and useful. I was in the vocational center maybe only one or twice in my life, and it looked pretty cool.
The program is hurting because politicians and lost funding. Illinois’ stated educational policy is to make everybody college-ready. No child left behind redirects resources away from anything else.
PD:
It’s a real mistake, and a really unintentionally cruel mistake, to create expectations which do not match well with actual humans, and don’t even have the excuse of being necessary for our society. You are absolutely right that kids will find their own level, given the opportunity.
We just do unnecessary harm to kids in pursuit of grand educational theories that are all about politics and barely at all about the kid or society’s needs or education itself. I’m glad we have people into French Literature, but seriously, we don’t need all that many of them. It’s amazing how few times I’ve thought, Gosh, if we only we had a French Lit major. But can a poor schlub get a damn handyman? Seriously? It’s just a couple of light fixtures and the hood over the stove. I’m not asking anyone to invent FTL travel here.
There is no unreasonable expectation so cruel that somebody won’t start profiting by it and that’s the case with the push to attend college. Consider the increase in educational loans:
That’s what underpins Bernie Sanders’s and now HRC’s proposed “debt free education”. There’s some proportion of that debt that belongs to people who dropped out and another portion that belongs to people who should never have been in college to begin with and yet another portion that belongs to people whose debt will always exceed their ability to pay. That drags down the rest of the economy.
As indebtedness goes educational loans are practically perfect since they’re not dischargeable in bankruptcy.
Agri-News article says the nation faces a critical truck driver shortage of 160,000 CDL certified drivers, one of the reasons is LOW PAY. Trucking deregulation in the Reagan years pull out the teeth of the unions, they’re still around, but powerless and trucking firms, while desperate for drivers will not raise pay to attract them. Does this make sense to anyone?
Oh, about student loans, if you have good credit, you can cash advance about 40,000 dollars on 15-20 credit cards, pay those student loans, and then file chapter 7. Takes discipline though.
I wonder what the operative definition of “desperate” is?
PD- We had a very strong vocational program in my high school also. It has shrunk (Indiana) just like ours here (Pennsylvania). My impression from talking with school board members who actively try to promote the vo-tech program, is that the lack of interest comes from students and parents. Besides parents pushing their kids to go to college, there is a strong perception that the kids in vo-tech are the poor students who can’t do much else, and that they are the “bad seeds”. Unfortunately, looking at the number of fights, drug arrests and students getting expelled, there is a bit of truth to it. Just spending more govt money on this isn’t likely to change much I think. It would require a cultural change. Either that, or maybe you need a third track and don’t call it vo-tech. Continue to dump the crappy kids in the current program and the good ones who don’t want college into the new 3rd one. Still, you will have to convince the parents.
Another issue is the one Gray brings up. We keep hearing that there aren’t enough trained people, but then we keep finding out that companies don’t want to pay people. Corporations don’t want to train people or pay them. We now have taxpayers doing both (often in the form of food stamps).
“Why is the taxpayer paying to prepare kids for college? ”
We shouldn’t. We should pay to have them educated. Let students and parents decide if they want college. At any rate, I don’t see much equivalence between using public monies to make sure corporations can pay their executives more and paying to make sure kids have an education that leaves them adequately prepared for future education if they want.
“I think the evidence is pretty good that total wages in the sector would be at last 30% lower than they are now without all of the government spending.”
So how much would not paying $60 billion a year affect our economy as opposed to the $1.5 trillion going to the 0.1%? (Of course this reduction would mean FMGs would stop coming here and we would have shortages.) I just don’t see your numbers making that much difference. As I hope you know I have said many times that I think we overpay specialists in particular. I think physician pay should be on the table, while remembering that it is what docs order that causes the big costs. (You also keep forgetting that private insurers pay a lot more than does the govt.) If we reduce doc salaries by 30% you are still going to have massive inequality and still have the top 0.1% making so much money that they can effectively control our politics and our economy. You would reduce total health care spending by 2%, maybe, but it won’t change our dynamics at all.
Steve
Go back and check your arithmetic. $60 billion is not 30% of total healthcare sector wages.
I have another question for you. What percentage of the national income should the present top .1% of income earners be earning and how would you make that happen?
I wonder what the operative definition of “desperate†is?
Too strong a word maybe, but the back of every truck on the highway advertises not, “ship with us” , but instead, “join our team”,
some times offering a one-time hiring bonus.
There are billboards on the highway imploring drivers to switch companies.
Article was about income disparity, other reasons for driver shortages are homeland security mandated backround checks, D O T mandated drug tests, D O T mandated health requirements.
In other words they are shrinking the pool of eligible drivers.
Deserate? I think a lot of companies that used to value employee retention no longer do at all, if fact, expect high turnover rates keeping wages and benefits low. Driver shortages don’t put pressure on the C E O, but on middle level managers or supervisors who either have to pick up the slack themselves or walk away.
Going long here but “walk away” gave me an idea for handling wealth disparity, we all need to Walk Away from shopping centers, theatres restaurants, clothing stores Apple stores, ect.
Do you think income inequality is discussed at Amish dinner tables?
Student loans are not limited to academic expenses. They are supposed to be, but nobody is auditing your spending. If you max out the parent and student and can get as many scholarships, grants, and other help, student loans are another way to augment income. It might not be the best way, but it is a way.
“$60 billion is not 30% of total healthcare sector wages.” (Missed this.) No, this is just the doc portion. From your writings you have always seemed to emphasize that you are more concerned about hose in the 1% range, 200k-400k, than others, which is where docs live. The following does not describe nurses.
“I’m even less comfortable with a large inbred and isolated professional class dependent on tax dollars for incomes that are a many times multiple of the median income.”
Steve
As is the case in higher education the tremendous growth in healthcare payrolls is less due to practitioners than to administrators. As the head of Mayo once put it “Too many people making too much money”.