Why Are People So Unhappy with the Economy?

Charles Morris looks for similarities between economic conditions today and economic conditions in the past as he tries to explain current dissatisfaction with what appears on the surface to be a strong economy:

Freakoutonomics, by Charles R. Morris, Commentary, NY Times: Last month saw one of the sharpest drops in consumer confidence since the recessions of 1979-1982. But those were truly dreadful times. Oil prices tripled, rates on home mortgages shot into the mid-teens, the stock market was a disaster area and unemployment rates reached double digits.

Over the past three years, by contrast, American economic performance has been almost glittering. Inflation is still low, while employment and productivity have all been rising strongly. True, ... the sharp upsurge in gas prices is adding to consumer skittishness. But the reaction still seems inconsistent with the economy's underlying strengths.

There are parallels with another historical period, however, that suggest the deeper currents of uneasiness. Pan the camera back to Pittsburgh, July 1877. The Pennsylvania Railroad yard ... is a raging inferno, set afire by angry mobs of railroad workers. A contingent of state militiamen, trapped in a burning railroad roundhouse, fight their way through the flames with a Gatling gun.

Over the next few weeks riots rage throughout the country. In Chicago, ... "howling mobs" control the city. In New York, The Sun demands a "diet of lead" for rioters. Unrest in San Francisco explodes into a vicious anti-Chinese pogrom. The same period marks the glory years of the rural Granger movement and the Roman-candle growth of the Knights of Labor. American Populism puts down permanent roots.

Historians long attributed the turmoil to a "great depression of the 1870's." But recent detailed reconstructions of 19th-century data by economic historians show that there was no 1870's depression: ... in fact, the decade saw possibly the fastest sustained growth in American history.

Employment grew strongly, faster than the rate of immigration; consumption ... rose across the board. On a per capita basis, almost all output measures were up spectacularly. By the end of the decade, people were better housed, better clothed and lived on bigger farms. Department stores were popping up even in medium-sized cities. America was transforming into the world's first mass consumer society.

But why did people feel so miserable? Partly they were confused by prices, which were dropping sharply. Farmers thought falling grain prices meant they were getting poorer, without noticing that the price of everything else was falling too. ...[T]he price differences between what they sold and what they bought ... actually racked up solid gains in the 1870's.

But ordinary people still had good reason to be terrified... Midwestern 1870's factory farms — thousand-acre spreads with 70-horse plowing teams — quickly dominated world markets but also wiped out the much smaller grain farmers... Globalized grain markets were more volatile: good weather on the Russian steppes could ruin an American grower's year...

After the Civil War, artisanal local manufacturers usually enjoyed comfortable mini-monopolies. But with the rapid spread of the railroads and the telegraph, new department stores and mail-order catalogs pressured local producers and middlemen with mass-produced goods, a precursor to the Wal-Mart era. In the mid-1880's, the Bloomingdale's catalog promised that orders would arrive within two weeks in virtually the whole of the United States, including large swathes of territory reachable only by wagon-train a decade before. The productivity shock was comparable to that from the Internet in our own day.

Before the Civil War, America was perhaps the most egalitarian society in the world. But the unbridled entrepreneurialism of the 1870's gave rise to the robber barons. Even if ordinary people were doing better in the 1870's, the yawning gap between the very rich and everybody else fanned resentments. Interestingly, wealth inequality in today's America is roughly the same as in the Gilded Age.

The sharply increased social and geographic mobility of the 1870's set people adrift from traditional sources of security in families and villages. In our own day, the destruction of employer-employee relationships, the erosion of pension protection and employee health insurance may be creating a similar loss of moorings.

If one counts only the size of houses and cars, and the numbers of electronic gadgets stuffed into rec rooms, Americans are probably better off than ever before. But as the 1870's suggest, economic well-being doesn't come just from piling up toys. An economy has psychological or, if you will, spiritual, dimensions. A conviction of fairness, a feeling of not being totally on one's own, a sense of reasonable stability and predictability are all essential components of good economic performance. When they were missing in the 1870's, in the midst of a boom, the populace was brought to the brink of revolt.

Something worth remembering as we enter the New Gilded Age.

Update: Payroll Growth Stalls With 75,000 New Jobs. See Brad DeLong and Angry Bear. As John Berry notes, a pause at 5% is still very much in play.

Comments

[cm]

People don't just look at today, but also form forward-looking expectations based on extrapolation from the past and present, guided by their values, mood, prejudice, etc.

I believe I sense a pretty pervasive mood of people trying to focus on the present as they perceive little positive to look forward to, or else substantial uncertainty and mostly guarded optimism that tends to smack at least a little bit of denial and make-believe.

Obviously this is rather wishy-washy, but I cannot put it better than this.

[cm]

And I think the phenomenon is broader than just "the economy", even if it manifests itself largely as such, in societies dominated by economic mechanisms. In my workplace, and from stories of others, I'm sensing a substantially reduced level of excitement and initiative-taking compared to a few years ago and prior. Which is not surprising, and consistent with the thesis. But then I did not witness the previous downturn from a worker's perspective. Maybe there is a larger cyclical component to it than I imagine.

[reason]

Where is the mention of debt and asset prices in this parallel? Surely the parallel period is the 1920s. There haven't been riots yet, just trouble brewing below the surface.

But yes a sense of security and fairness matter - if there is a recession there may well be riots I fear.

[ilsm]

The parallels between 1877 and 2007 include the acknowledgement that the human condition is changing.

In 1877 the change was in its infancy, but the industrial revolution in the heartland's great river system was becoming evident.

The change was: man was becoming urbanized even in the frontier areas, and industrialized. Man was becoming dependent on a 'corporate' system, not a natural one.

No more rugged individualism, no more doing a Davy Crockett and moving west.

There were no foreign wars, there were Indian massacres-Custer in 1876. There were huge scandals in the Grant administration.

1877 was a time of change not fully realized until 1933, when the issues came to bear out the effects of urbanized industrialization. The 1877 issue was dehumanization by urban industrailism. Quite prescient.

The 2007 issues? Are we used to being dependent? Will we continue to go toward 1984? Will we further subordinate the human spirit to the machine?

1933 is far more relevant at least sociologically.

[spencer]

Except that the great depressions was not in the 1870s-- it was in the 1880s-90s.

[save_the_rustbelt]

A Quote from today's (Toledo) Blade:

"Gordon Barry, a Toledo bankruptcy attorney, said there are a large pool of people who are losing their homes to foreclosures and who are struggling with credit card debt and medical expenses.

"I don't see the economy being that strong," he said. "There may be jobs out there but they are not the jobs that pay the $15, $20 or $25 an hour. They're the ones that pay $7 to $9 an hour with no medical coverage."

The fruits of free trade.

[James Kroeger]

Even if ordinary people were doing better in the 1870's, the yawning gap between the very rich and everybody else fanned resentments.

Here's the thing that most Rich Republicans just don't get... They know that giving themselves a greater share of the disposable income pie irritates a lot of other people; what they don't know is that doing so doesn't actually improve their economic status in any way.

When the disposable incomes of all rich people are increased in a way that preserves the 'rankings' of all rich people within the hierarchy of all disposable incomes, none of them actually experiences a real gain in purchasing power. All it really does is set off a round of inflation in those markets that serve the rich (e.g., the stock & real estate & art markets.) After bidding up prices with their extra disposable incomes, the rich still end up the same amount of mansions and yachts they would have had if they had received no tax cut at all.

Suppose, for example, more automobiles---relative to the population---were brought to the American market by the Chinese after an income tax cut went into effect. Some households would become better off in real terms because they would be able to buy cars that were not previously available. But even if the buyers of the automobiles had not received extra dollars from a tax cut, they would still have been able to afford the new automobiles because supply would drive prices down to a level that they could afford. Tax cut or no, the number of automobiles available and the number of households in the economy would still have been the same. The comparative bidding positions of all households would still have been the same.

Since income tax cuts do not actually help the wealthy to become any wealthier in real terms, the net effect of Republican tax-cutting is to "fan resentments" for no good reason. If the wealthy want to make most Americans happy with the economy---without actually depriving themselves of any of their market purchasing power---then then should agree to more steeply progressive income taxes in order to produce more public wealth.

[a]

Not only that. Ordinary people work hard for an American dream --- to get rich (or richer) by working hard. Productivity went up, because people are willing to work overtime... but then their wage stayed flat (or down).

And then they see executives' pays went up, even when pension funds are given up, health care benefit shrinks...

As much as we are economic expected utility maximizers, we are also animals of expecting a fair and justice in the system... Feeling is an feature of being an animal.

[NinjaPlease]

Compare annual worker turnover % of all workers employed per year and i'm sure you'll see a nice trend that increases exponentially since 1973.

Then open up the BLS and look at the new jobs predicted to be "hot fields" in the coming years, and the fields that are expected to decline. Some of the data is contradictory, but the new increasing fields include wonderful jobs like supermarket clerk, clearly globalization has brought this wonderful "knowledge job" to the forefront.

[reason]

Actually,
James Kroegers argument is a very good one and well presented. I have seen something similar consistently argued (although not in such class warfare terms) by Ross Gittins in the Sydney Morning Herald (read him you'll like him).

Of course there is something he is missing - the rich ARE gaining in relation to the very poor - and maybe they like that. If things keep going the way they are we will be back to a Victorian society - complete with live in servants.-) But then they shouldn't forget what happened in St Petersburg and Paris!

[save_the_rustbelt]

WASHINGTON (Reuters) - U.S. employers added only 75,000 new workers to their payrolls last month, far fewer than expected and the weakest gain since hurricane-depressed October, but the unemployment rate slipped to a five-year low of 4.6 percent, the Labor Department said on Friday.

Outside of the drop in the unemployment rate, however, the overall tone of the jobs report, which showed employment growth slowing for the third straight month, was weaker than economists had expected.

[NinjaPlease]

Remember who is experiencing the pain of globalization, it sure as hell ain't investors or CEOs.

[dryfly]

But then they shouldn't forget what happened in St Petersburg and Paris!

About five years ago I was 'arguing' with a conservative on the Monster Tech Job Board - it was one of the best political & economic forums anywhere at the time due to the turmoil left by the dotbomb & early waves of offshoring... that was until the corporate sponsors pressured Monster to 'tone it down' or they pull out.

Anyway one conservative poster lamented 'we lefties' all hate the rich because we are jealous... I replied:

"No, we don't hate the rich. We love the rich. They taste good."

It was a joke but made the same point. I firmly believe progressive taxes, safety nets & things that promote social mobility including excellent public education, anti-trust legislation and securities regulation are the best insurance the rich have that we - the 'hungry masses' - don't devour them. Because if forced we will do it and not even feel guilty about it later. We'll rewrite the history if we need to. Just like in St Petersburg and just like in Paris.

[Bruce Wilder]

"recent detailed reconstructions of 19th-century data by economic historians show that there was no 1870's depression: ... in fact, the decade saw possibly the fastest sustained growth in American history."

It is fascinating to me that conservatives are constantly re-writing history to "prove" their point. Yes, Virginia, there was a Depression, the longest on record (65 months - Oct 73 to Mar 79, according to NBER), with unemployment sometimes well over 15% and massive waves of bank failures regularly wiped out people's savings.

People were not just "confused" by falling prices, they were actually, and quite frequently, ruined financially by them. The economy's "spiritual dimension" wasn't the issue: the issue was risk and the redistribution of income and wealth, brought about by deflation in the face of an incredible opportunity for industrial and western development, demanding massive and rapid capital formation.

Deflation is really hard on borrowers, and adds to the "real" risks. The added risk is, effectively, a transfer to lenders, to the wealthy. Wealth becomes concentrated.

[Stormy]

"Before the Civil War, America was perhaps the most egalitarian society in the world."

I find this a very bizarre assertion. Slavery? Plantations? Need I say more? And just to push the criticism a bit further:

Is this comparison relative to other countries at that time? Or, as the drift of the piece suggests, relative to later time when the America became less egalitarian?

[bakho]

With so many Americans carrying large debt burdens (including recent ARMs) the increase in interest rates has to be having a large impact.

http://mwhodges.home.att.net/nat-debt/debt-total-component-trend.gif

Jobs for college grads this year are still slack and a lot of grads are waiting it out in temp positions until a career opportunity opens. The absolutely insane salaries in the tech sector being offered in the late 1990s have collapsed. Despite what Bush says, not every American that wants a job can find one. Plus many Americans took a huge hit in retirement savings with losses in the stock market that have never been recovered.

Americans lost a lot of ground in the past few years and enthusiasm for the current economy probably won't recover until losses from the recent past have recovered.

[JRossi]

Why are people so unhappy with the economy? Once basic needs are satisfied, happiness in not an increasing function of consumption. It is rather an increasing function of the gap between reality and expectation. If your own income is stagnant and you see you rich (or apparently rich) people all around you, in the media or in person, your own happiness will suffer.

[calmo]

Good to have these historians (Bruce and spencer) on board to keep the other historian honest, no?
There is the view that we can't really appreciate history until later and 130 years later may not be later enough.
I find the parallels histrionic ['Freakoutonomics' lets us know in advance I guess.] (Watch out for conditions that give rise to labor unrest that will create situations where the militia have to burst through some flaming inferno with Gattling guns blazing.) And with others (ilsm, reason...) not sure that Morris has picked the right period. He has certainly glossed over debt, the current "booming" economy, and the various forms of arbitrage that characterize the latest stage of capitalism.
No, Morris is not a history major ... a marketing major maybe --consumers are not happy (last month anyway) and from this canon comes this conclusion: Next month could well be the revolution if we don't get our spiritual medicine.
Well, I'm not about to order my Gattling gun. The unhappiness detected in the consumer confidence poll needs so much better examination than Charles provides.

[anne]

There are several problems, among them a persisting relative lack of domestic investment by saving rich corporations and a failing fiscal policy which continually emphasizes tax cuts for the wealthiest above a federal-state revenue sharing plan for infrastructure development. Beyond this, always, there is the terrible draining spending of $10 billion a month on the tragic war in and occupation of Iraq. Imagine what we might have done and could do with the resources we are using in such tragic manner. Imagine.

[calmo]

Yes, imagine what we could do with $10B/month: fund the entire AIDS budget (UN was asking for $2B?) putting an end to the rising 22 Million death toll and taking a large step to putting Africa back on its feet. Wouldn't that be a legacy?

[anne]

What a devastating comment, for our legacy with be otherwise.

[anne]

"Before the Civil War, America was perhaps the most egalitarian society in the world."

A foolish and hurtful passage.

[NinjaPlease]

""Before the Civil War, America was perhaps the most egalitarian society in the world.""

i can agree with this, before the Civil War America did not have organized police forces to enforce private property laws, and there wasn't a 100,000 man privatized army defending those in power.

Don't kid yourself, they have learned from Paris and St. Petersburg, they have a private army the size of our volunteer army, the irony is that our taxes fund it.

[Richard]

I think I agree with the gist of the author's point -- that concerns outside of the economy modify a person's view of the state of the economy -- without agreeing very much with the example given.

For my money, it is the dawning awareness of the Other that is behind a fitful mailaise in this country. The realization that we use up a good half or at least a healthy third of the world production but make up only a twentieth of the population. The Other wants some of the cash on the table AND wants a seat at the table, and that is unnerving to some. And this awareness affects domestic politics (in the form of immigration) as well as international politics.

[Emmanuel]

I think that any one of us can explain why people are unhappy with the economy without resorting to the author's dubious historical comparison:

(1) Consumer spending nowadays is fueled by dissavings. Spending more now means that sacrifices have to be made in the future for today's excesses;
(2) Boding ill for the future, household median income has been falling or stagnant in virtually every year of the Bush 43 administration;
(3) The jobless rate tells us nothing about the quality of jobs created. As STR would point out, good manufacturing jobs are being relentlessly depleted--quite a few are being replaced by McJobs;
(4) Contrary to the author's assertion, inflation is on the upswing, "core inflation" figures notwithstanding that strip out food and energy while leaving out housing ownership costs.

It's becoming all too obvious that GDP is a rather limited indicator of overall progress. Sure, consumers can spend their hearts out now with no regard for their future well-being or that of their children. Sure, the government can spend a bazillion dollars yearly on weapon systems that are of limited use to the general public (and of which there are already too many). Both boost GDP. Both plunge consumers and the government into more debt.

I'd like to see more movement on refining indicators like the "triple bottom line" of economic, social and environmental outcomes. I'd also like to see a "quality of jobs" index that looks at how desirable the jobs that are being created are compared to those being destroyed. Unfortunately, I don't think either possibility is forthcoming, unless more people demand such changes. Make no mistake--this economy is el crappo deluxe.

[boomer]

Put yourself in the shoes of a middle aged blue collar worker. Either your kid is not smart enough to go to college or you can't afford it. You've held onto your job at the local utility (lucky you) but what is Junior going to do?

[Lord]

Even if ordinary people were doing better in the 1870's

A pretty big if. Just because GDP or even GDP per capita rises doesn't mean even the majority of people are better off. Only real median incomes approach that and even they don't address long term issues such as failing pensions, duration of unemployment, and other hazards.

[me]

Or put yourself in the shoes the 2700 Heinz workers fired, or 5,000 Sun workers fired, or 16,000 Intel workers gonna be fired, or Delta pilots who agreed to another pay cut. And that is just this week.

[bakho]

Or workers at Delphi. Or property owners in Kokomo.

http://www.indystar.com/apps/pbcs.dll/article?AID=/20051113/BUSINESS/511130384/1003

[anne]

Since January 2001, there have been 2.6 million jobs added in the economy. But, think how low this number is for we should be adding 150,000 jobs a month to keep up with population additions to what should be a healthy labor force. Suppose we added only 100,000 jobs a month, we would have created 1.2 million jobs a year or 2.6 million in 2 years and 2 months. But, we have gone 5 years and 4 months. Where then are the missing workers?

Brad DeLong has repeatedly wondered about the missing workers, and Mark Thoma has noted the problem as well, but I find no satisfying answer.

[anne]

Savings rich corporations are investing too little in our economy for some curious reason, and too few jobs are being created, and the answer rests with the structure of the domestic economy and economic policy rather than with trade or our international investment.

[anne]

Labor costs are rising just fast enough to cover inflation. Productivity is robust. There is slack in the labor market, but growth is not robust enough to increase the demand for labor. Again, why?

[calmo]

M&A (not to mention private buyouts) occupy center stage for companies rather than plant improvements.
Upper management know their priorities:
maximizing their remuneration;
maximizing the shareholder's stake;
maximizing the customer's satisfaction;
maximizing the worker's efficiency.

Although Charles thinks happiness is important and worth beating a drum about (I mean is Charles happy with this Revolution Warning or what?) [The self perception of a veritable One Man Rescue Squad for the languishing masses keeps this man smiling, no?], workers' happiness does not come into it.
It just does not pay. [It is another sly rationality test, people. 'Are you happy?' is sly for 'Are you stupid or are you exploiting the stupid?'] (Now some people will just say that that is so cynical. This is your chance to go for the jugular by letting them know that you could expand at considerable and persuasive length should they be able to advance you the very worthwhile fees.)

[anne]

http://flagship2.vanguard.com/VGApp/hnw/FundsByName

Vanguard Fund Returns
12/31/05 to 6/2/06

S&P Index is 4.0
Large Cap Growth Index is 1.0
Large Cap Value Index is 7.1

Mid Cap Index is 6.3

Small Cap Index is 8.9
Small Cap Value Index is 9.0

Europe Index is 15.1
Pacific Index is 6.4
Emerging Markets Index is 8.4

Energy is 17.1
Health Care is 2.9
Precious Metals is 28.4
REIT Index is 10.7

High Yield Corporate Bond Fund is 1.7
Long Term Corporate Bond Fund is -6.3

[anne]

http://flagship2.vanguard.com/VGApp/hnw/FundsVIPERByName

Sector Stock Indexes
12/31/05 - 6/2/06

Energy 13.5
Financials 5.9
Health Care -1.7
Info Tech -1.7
Materials 9.9
REITs 10.8
Telecoms 12.9
Utilities 5.1

[MarkedExcess]

Anne: Regarding the missing workers. Is it possible that they are simply unemployed and are WAY undercounted by the unemployment statistics (which would account for much of the discontent of "the little people" even thought GDP is rising)?

What are the unemployment statistic rules? Aren't part time jobs counted as full time jobs? Aren't people removed from the calculation after 6 months of unemployment?

[anne]

http://www.msci.com/equity/index2.html

National Index Returns [Dollars]
12/30/05 - 6/2/06

Australia 11.2
Canada 12.9
Finland 23.1
France 17.1
Germany 16.0
Hong Kong 6.6
Japan 5.7
Netherlands 12.2
Norway 33.0
Sweden 14.7
Switzerland 12.5
UK 14.3

[anne]

http://www.msci.com/equity/index2.html

National Index Returns [Domestic Currency]
12/30/05 - 6/2/06

Australia 8.5
Canada 6.1
Finland 12.3
France 6.8
Germany 5.9
Hong Kong 6.7
Japan -0.2
Netherlands 2.3
Norway 18.2
Sweden 2.9
Switzerland 3.0
UK 4.0

[anne]

"Before the Civil War, America was perhaps the most egalitarian society in the world."

Again, this is a racially charged comment and is as such inherently offensive.

[missing]

anne:do the 6 or 7 or 8 million illegal immigrants

count ?

[Cloudy]

Some of the missing workers are in the grey economy. Immigrants of course traditionally work for cash (often from other immigrants) but quite a few Americans are joining them. Contract workers find it easy to avoid payment of taxes. Many persons earning a full or p/t income from sales of goods or services over the internet (E-Bay, etc.) don't report it. Drug sales, etc. don't get reported. And don't forget the numbers of homeless and those imprisoned.

[sunlight]

Why are so many people unhappy about the economy? Because real median wages have fallen every single year of the Bush Administration, even as the aggregate GDP number has gone up. The average person has indeed gotten worse off every year. He is the one who is seeing things clearly. The writer of your artful piece of sophistry is simply wrong. Pure and simple.

[calmo]

U B right sunlight. The writers (not us) of these pieces who are whining about this lack of happiness (not like your mother who wants to know, [needs chromosomily to know], that you are happy...and will move mountains to achieve that end, that mindlessly stupid goal: making her kid happy) in the participants of our economy, are missing the real picture for the stats. (It happens if you sit behind a screen all day.)[Microsoft calls this personal development.]

Could be there's a whole bunch of stuff in Happiness that is not covered by Being better off/worse off that economists like to measure as its proxy.
What is this thing called Happiness, love? Well, for starters (and contrary to the Pythonesque 'we were poor then, but we were happy'), it ain't cheeze whiz sandwiches for lunch.

[Lord]

Where then are the missing workers?

They have decided their time is more valuable than the compensation offered for the poor jobs created.

[cm]

Lord: I'm not so sure that is universally so. Yes, I do know a couple who have figured out a low-maintenance (in terms of daily expenditure) yet happy lifestyle, and are very particular about prospective jobs. (A recent large problem was securing affordable medical insurance to prevent being thrown off the tracks by accident, but that hurdle has been taken.)

But there are many who will not even be considered for jobs that employers have a hard time filling, for reasons of age and other discrimination. For "soil-bound" service jobs, a good number requiring little specific skill or occupational training, there is ample supply, and pretty much everything else in the private sector is being outsourced and/or offshored.

At work (and from acquaintances) I keep hearing from hiring managers that it is difficult to find suitable candidates for open positions, and as a result positions are not filled and projects under consideration are not done, or are pushed out.

Based on my experience, I refuse to believe this is because hiring managers are not considering qualified candidates or are discriminating. Who knows, maybe I know only from people who work in industries/companies that people avoid. OTOH who will reject a good paycheck for perhaps not exciting, but not too bad work?

One thing that I suspect, and have pointed out before, there may be a failure in the job-matching mechanisms, either because of discrimination or sheer incompetence in staffing dept.'s or procedures.

One thing I know from Germany which may or may not apply to the US is that some journalists researching this referred candidates looking for a software eng job to employers complaining they cannot find people, resulting in the response, "yes, but not with this asking salary". And supposedly the salaries asked were not out of range.

[James Killus]

Thank goodness that someone noticed the effect that deflation has on borrowers.

I've been wondering lately if macroeconomic theory might be well applied to subsets of an economy. It's pretty obvious, for example, that stuffing money into the pockets of those who cannot or do not consume all of their wealth can cause asset price inflation. But what about the other side of society? In the 19th century, for example, there was a "farm economy" and an "industrial economy" and it's clear that the latter siphoned a huge amount of money away from the former. Would this cause a "liquidity trap" in the farm economy? I suspect it did.

These days, the farm economy is part of the industrial economy, but there is certainly a portion of the economy that consists of low wage earners, and I suspect that it operates as a semi-contained entity, with its own mulitplier effects etc. It's been noticed that Walmart workers can only afford to shop at Walmart, but also, low wage earners tend to spend more money in their local neighborhoods. Again, in past decades (but especially the last few years) money is being removed from the low wage economy.

This might explain the failure to find increased unemployment with increases in minimum wage. If the increase in total money put into the low wage economy with an increase in the minimum wage (an inevitable result of inelastic demand for low wage workers), the resultant stimulative effects (in macroeconomic terms) of the additional money might well offset any putative reductions in the demand for low wage labor. This might well apply all the way up to the "living wage."

It's makes more sense than "supply side tax cuts" anyway.

[Robert]

JK said :

Since income tax cuts do not actually help the wealthy to become any wealthier in real terms, the net effect of Republican tax-cutting is to "fan resentments" for no good reason.

A Said:
As much as we are economic expected utility maximizers, we are also animals of expecting a fair and justice in the system... Feeling is an feature of being an animal.

After reading everyone's comments on this thread, the two comments above were those I found most poignant. There is doubtless much truth in others obserervations and anecdotes, but the feeling of dissatisfaction is, IMO, driven by the stress ('a' calls it 'feeling') and incredulity (feeling of injustice) created by a dramatically increasing skewness in the distribution of wealth and income, coupled with modern media facilitation of financial voyeurism. When people are all in the same boat (relative differences are narrow), even greater problems are tolerable. But when people feel [rightfully so] that they are being royally shafted by events and "the system" and that structure that should be working to ameliorate the situation is actually exacerbating it, well, this creates meaningful frustration and resentment.

I would quibble with JKs assertion that "the rich" don't get richer in real terms insofar as asset prices that rise so dramatically during the "boom" part of the cycle DO propel the real wealth of the rich since they are the dominant asset owners. Perhaps JK is correct over the coure of the entire business cycle, for after inflation sets in, and money becomes tighter, asset prices would tend to reverse much of their real gains.

[calmo]

Lord, I'm not sure that is universally true... [Tell me your brain needs to know about those dots people. Tell me you have the composure to keep to the straight and narrow path cm was clearing...Am I getting too old for this? (I could go to disposables maybe..)

Please use smaller weapons cm, honest to pete...think of the victims of this onslaught --those of us with early incontinence onsought need your forebearance.

[pgl]

Matt Yglesias takes on the notion that there was only a short recession in 1873. Over at Angrybear, I note young Matt has taken an effective swipe at Friedman's 1968 Presidential Address.

[cm]

calmo: We all know that economy of word, and good judgement at which degree detail becomes irrelevant to the discusison at hand, are not my strengths. I'm sure in a performance statement my rhetoric skills would be described as "he was constantly striving for best results".

[cm]

OTOH perhaps I should take your comment as a compliment, to the effect that my presentation is so suspenseful and interesting that you have to hold off going to the bathroom. Sorry for any, well, inconvenience.

[James Kroeger]

I would quibble with JKs assertion that "the rich" don't get richer in real terms insofar as asset prices that rise so dramatically during the "boom" part of the cycle DO propel the real wealth of the rich since they are the dominant asset owners. Perhaps JK is correct over the coure of the entire business cycle, for after inflation sets in, and money becomes tighter, asset prices would tend to reverse much of their real gains.

I should probably explain. Because markets work, when all of the wealthy receive a big gift of disposable income, none of them will enjoy an increase in the purchasing power of their disposable incomes because all the extra money they get will be used to bid up prices in those markets that serve the rich. This means not only luxury markets, but also asset markets. A bull market is really nothing more than a round of price inflation that occurs in some asset market (e.g., the securities markets, the real estate market, and the art market). What it costs to be rich goes up dramatically.

We often speak of 'The Inflation Rate', but the truth is that different income groups can and do experience different inflation rates. It is not only possible for two different income groups to experience different rates of inflation; it is also possible for one income group to experience robust inflation while another income group is experiencing disinflation or even deflation. A variation of this is what happened in the 1870's and also during the last couple of decades.

In order for a wealthy individual to become wealthier in real terms, she needs to improve her comparative bidding position within the hierarchy of national income/wealth distribution. That means she needs to increase her disposable income more than her peers. It is exceptional achievement that is rewarded by the marketplace. Our market economy guarantees that the collectivist schemes that the Republicans are always selling to the wealthy are all ultimately doomed to failure.

[cm]

James Kroeger: There is an oversimplification in your article -- when more taxes are collected, even if the relative bidding positions of taxpayers are preserved, the government's bidding position is advanced. The government will not usually bid significantly for the very same goods that taxpayers are bidding for, and thus not compete with them much on those (for example, it will probably bid on more office supplies, equipment, construction services, etc., but not on "consumer products").

It will also hopefully put more money in the pockets of the poor who will then compete for more products/services, and its aggregate bidding will lead to reallocation in the economy as the relative profitability of sectors with government bidding rises.

That's probably largely desirable, unless the reallocation is towards more military expenditure, "correctional" facilities, and "wars" on more things.

[Lord]

Based on my experience, I refuse to believe this is because hiring managers are not considering qualified candidates or are discriminating.

Hiring managers usually have the option of bypassing HR if they want. They have the option of reducing their requirements if they want. They have the option of adjusting the work to fit the applicants if they want. If they are simply not filling positions, it is simply because it isn't that important anyway, not because they couldn't find someone.

No doubt there are some good jobs being created more recently, but if these are in the wrong location or have the wrong requirements, it is no wonder they can't be filled. I calculate the cost for me to move would be upwards of 100K in taxes alone, even if I wanted to. And who thinks moving for work can be justified when most work is project based and will last perhaps 2 years. Jobs can be crummy in pay, crummy in work, crummy in location, or crummy in duration. Just because someone wants to hire someone that works for their competitor and can't, doesn't mean they can't fill their position.

[cm]

Lord: The idea is that HR/Staffing is the hiring manager's "outsourcing partner" for recruitment, and managers are not allowed the time to do their own recruiting because it's taken care of, "efficiently", by the "experts".

But of course I have to agree that at some level, presumably the organization's, they are not very serious about actually doing the grunt work to find people, or doing it competently.

Aside from the moving expense aspect, perhaps from a low-growth industry perspective there is little reason for people to move into virtually the same job for virtually the same pay, or for outsiders to try and move into an industry with little promise of advancement, career wise as well as intellectually.

Your point about poaching from competitors is spot-on. Few companies want to invest in bringing somebody up to speed, except in offshoring locations. The result is a merry-go-round where moves of people within an industry net out to approximately zero.

[James Kroeger]

cm:...even if the relative bidding positions of taxpayers are preserved, the government's bidding position is advanced...

I actually addressed the point you are making, cm, in a section of my Progressive Income Tax article. Here's a couple of paragraphs:
Any time the government wants to reallocate resources, it can do so through the marketplace by simply outbidding private sector suppliers for the resources it needs. Most of the time, this is done indirectly. For example, if the government uses contractors to provide for its needs, it can pay them a high enough price that they are able to outbid civilian producers for the materials and skilled labor that are needed to produce the tanks and soldiers that the government wants. The offer of higher wages or superior benefits would persuade individuals with the needed skills to leave their civilian jobs for jobs in the war industry.

With fewer inputs available, civilian suppliers would be unable to produce as much output as they had previously. All else equal, if fewer cars and appliances are available, their market prices will increase until some lower income earners are priced out of the market. That is the moment when taxpayers actually make a sacrifice. In a full-employment economy, increased government spending will---in the long run---inevitably force some taxpayers to give up some private consumption in real terms. We note that it is not the loss of disposable dollars to taxes that imposes a sacrifice on taxpayers; it is the government's spending [that causes the reallocation of resources] that does it.

I think we are in agreement, yes?

[cm]

James Kroeger: Yes.

[Barry Ritholtz]

Glittering Economy? This guy is frighteningly clueless, and has little grasp of what is hasppening beyond the official gov't stats, it is truly astonishing.

There are so many false statements / errors of fact / analytical errors in his OpEd that one does not know where to begin.

I guess I just have to go to my favorite quote: "Before the Civil War, America was perhaps the most egalitarian society in the world"

You know, except for that little slavery thingie, it was all equality all the time.

What an assclown.

[anne]

Sorry, not to have found the questions about missing workers. I will comment further on a suitable thread, but I am puzzled and worried about the decline in the labor force, and, as Brad DeLong, I do not well understand what is happening in this regard.