Mankiw: The Wealth Trajectory: Rewards for the Few

Greg Mankiw on the sources of rising inequality:

The Wealth Trajectory: Rewards for the Few, by N. Gregory Mankiw, Economic View, NY Times: If there is one thing about the United States economy in recent years that is beyond dispute, it is this: It’s a great time to be rich. ...

You see it in the daily headlines... Lloyd C. Blankfein, chief executive of Goldman Sachs, took home $68.5 million last year.... Bill and Hillary Clinton raked in $109 million. These stories are not mere aberrations. According to the economists who crunch the numbers, they reflect a long-term trend of increasing economic inequality.

The best data on the superrich comes from Thomas Piketty ... and Emmanuel Saez... They report that ... the superrich have been getting an increasing slice of the economic pie. In 1980, the top 0.01 percent of the population had 0.87 percent of total income. By 2006, their share had more than quadrupled to 3.89 percent, a level not seen since 1916.

Critics of the Piketty-Saez data argue, with some justification, that tax return data is unreliable. ... It is hard to escape the conclusion, however, that Professors Piketty and Saez are finding something real. ...

Offsetting this trend to some degree is the shrinking gender gap. Female workers started well below their male counterparts and have been catching up. But despite this equalizing force, the earnings ratio of the 90th to 10th percentiles, men and women combined, has risen 30 percent.

What accounts for rising inequality? Some pundits are tempted to look inside the Beltway for a cause, but the case is hard to make. Government policy makers do not have the tools to exert such a strong influence over pretax earnings, even if they wanted to do so.

Also, the trend toward increasing inequality has been fairly steady, despite changing political winds. The income share of the richest families increased substantially both during Ronald Reagan’s eight years in office and during Bill Clinton’s.

The best diagnosis so far comes from ... Claudia Goldin and Lawrence F. Katz... Their bottom line: “the sharp rise in inequality was largely due to an educational slowdown.”

According to Professors Goldin and Katz, for the past century technological progress has been a steady force not only increasing average living standards, but also increasing the demand for skilled workers relative to unskilled workers. ...

For much of the 20th century, however, skill-biased technological change was outpaced by advances in educational attainment. In other words, while technological progress increased the demand for skilled workers, our educational system increased the supply of them even faster. As a result, skilled workers did not benefit disproportionately from economic growth.

But recently things have changed. Over the last several decades, technology has kept up its pace, while educational advancement has slowed down. ...

Because growth in the supply of skilled workers has slowed, their wages have grown relative to those of the unskilled. This shows up in the estimates of the financial return to education made by Professors Goldin and Katz. In 1980, each year of college raised a person’s wage by 7.6 percent. In 2005, each year of college yielded an additional 12.9 percent. The rate of return from each year of graduate school has risen even more — from 7.3 to 14.2 percent.

While education is the key to understanding broad inequality trends, it is less obvious whether it can explain the incomes of the superrich. Simply going to college and graduate school is hardly enough to join the top echelons...

But neither is education irrelevant. If Mr. Blankfein had left the New York public school system and gone directly to work, instead of attending Harvard College and Law School, most likely he would not be the head of a major investment bank today.

If the Clintons had been content with high school diplomas and not attended Georgetown, Wellesley, Oxford and Yale, they most likely would not ... now be getting multimillion-dollar book deals and $100,000 speaking dates. A top education is no guarantee of great riches, but it often helps.

Maybe educational levels are like Willie Wonka’s chocolate bars. A few of them come with golden tickets that give you opportunities almost beyond imagination. But even if you aren’t lucky enough to get a golden ticket, you can still enjoy the chocolate, which by itself is well worth the price.

More from Goldin and Katz on this topic here (see also Krugman:  Graduates Versus Oligarchs, Acemoglu: The Source of Rising Inequality, Delong: Driving Forces Behind Rising Income Inequality: Tracking the Internet Debate, and Yellen: Economic Inequality in the United States).

Frank Levy and Peter Temin provide one counterargument:

Inequality and institutions in 20th century America, by Frank Levy and Peter Temin, Vox EU: A central feature of post-World War II America was mass upward mobility: individuals seeing sharply rising incomes through much of their careers, and each generation living better than the last. It therefore is problematic that recent productivity gains have not significantly raised incomes for most American workers. In the quarter century between 1980 and 2005, business productivity increased by 71%. Over the same quarter century, median weekly earnings of full-time workers rose from $613 to $705, a gain of only 14% (figures in 2005 dollars), as our recent research shows.[1] Detailed analysis of these years shows that college-educated women are the only large labour-force group for whom median compensation grew in line with labour productivity.

Since productivity growth expands total income, slow income growth for the average worker implies faster income growth elsewhere in the distribution. In the US case, growth occurred at the very top. Piketty and Saez estimated that the share of gross personal income claimed by the top 1% of tax-filing units – about 1.4m returns – rose from 8.2% in 1980 to 17.4% in 2005. Among tax returns that report positive wage and salary income, the share of wages and salaries claimed by the top 1% rose from 6.4% in 1980 to 11.6% in 2005.[2]

To place these developments in historical perspective, we construct the following ratio

The numerator of this ratio is the sum of median annual earnings of full-time workers and the value of estimated fringe benefits. The denominator is Non-Farm Business Productivity – the standard labour productivity measure - expressed as an annual dollar amount. We can think of this ratio as a bargaining power index, BPI for short, since it is the share of total output per worker that the average full-time worker captures in compensation.

Figure 1 displays this Bargaining Power Index from 1950-2005. For purposes of comparison, Figure 1 also displays the Piketty-Saez estimate of the 99.5th income percentile on federal tax returns – the median income of the top 1% of reported incomes – adjusted for fringe benefits and normalised by Non-Farm Business Productivity.

In the “Golden Age” of 1947-73, labour productivity and median family income each roughly doubled. The median compensation of full-time workers (the numerator of the BPI) and labour productivity (the denominator) grew at the same rate from 1950 to the late 1970s. Simultaneously, income equality increased as very high incomes (illustrated by the 99.5th percentile) grew more slowly than labour productivity.

In the 1970s stagflation, median compensation of full-time workers began to lag behind productivity growth, a trend that accelerated after 1980. In Figure 1, the lag is illustrated by the BPI declining from 0.6 in 1980 to 0.53 in 1990 and to 0.43 in 2005. This declining bargaining power of the average full-time worker is a useful way to describe why significant productivity growth since 1980 has translated into weak growth in earnings and compensation.

Many economists attribute the average worker’s declining bargaining power to skill-biased technical change – technology, augmented by globalisation, which heavily favours better-educated workers. In this explanation, the broad distribution of productivity-gains during the Golden Age is often assumed to be a free-market outcome that can be restored by creating a more educated workforce.

We argue instead that the Golden Age relied on market outcomes strongly moderated by institutional factors. Following the literature on economic growth that emphasises the role of institutions in economic outcomes, we argue that institutions and norms affect the distribution of economic rewards as well as their aggregate size. Our argument leads to an explanation of earnings levels and inequality in which skill-biased technical change, globalisation and related factors function within an institutional framework. In our interpretation, the recent impacts of technology and trade have been amplified by the collapse of these institutions, a collapse which arose because economic forces led to a shift in the political environment over the 1970s and 1980s. If our interpretation is correct, no rebalancing of the labour force can restore a more equal distribution of productivity gains without government intervention and changes in private sector behavior.

We do not challenge the existence of technology’s and trade’s effects on labour demand.[3] Rather, we argue that technology and trade’s impacts are embedded in a larger institutional story. We argue that the current trend toward greater inequality in America is primarily the result of a change in economic policy that took place in the late 1970s and early 1980s. The stability in income equality where wages rose with national productivity for a generation after the Second World War was the result of policies that began in the Great Depression with the New Deal and were amplified by both public and private actions after the war. This stability was not the result of a natural economy; it was the result of policies designed to promote it. We have termed this set of policies the Treaty of Detroit, after the most famous labour–management agreement of the postwar years.

This agreement was replaced in the 1980s (and surrounding years) by another set of institutional arrangements which we call the Washinton Concensus.[4] These new policies also originated in a time of economic distress, albeit nowhere near the distress of the 1930s. In a process similar to the experience of the Great Depression, policy-makers – unable to comprehend the macroeconomic causes of distress – instituted microeconomic changes in an attempt to ameliorate the macroeconomic problems. In both cases, the measures taken were only partially successful, and recovery came from diverse influences. The microeconomic changes, however, had durable impacts on the distribution of economic production.

These microeconomic changes were not inevitable. Different labour-market institutions within Western Europe are compatible with similar rates of unemployment, and different labour-market institutions in Western Europe and America appear to be compatible with similar rates of economic growth. Rapidly rising incomes among the very rich appear in the U.S., England and Canada (largely in response to U.S. competition.) but do not appear in most continental European countries or Japan.

Globalisation clearly does not determine institutions. Some economists and commentators have asserted that globalisation has made more than one set of institutions not viable, yet the variety of institutions that are found in Western Europe shows only very limited signs of disappearing. Finally, economic shocks do not determine institutions. The Vietnam War and the oil shocks deranged the international economy, yet countries responded to these shocks in idiosyncratic ways. The contrast between the US and Japan in the 1970s is only one example of the great diversity.

Deregulation, floating exchange rates, international capital mobility, low minimum wages and taxes, and the destruction of labour unions, were not unique responses to the oil crisis or the productivity collapse. The effects of these policies have been amplified by skill-biased technical change and, in the extreme, winner-take-all markets. But the technology did not fully determine who received the rents produced any more than technology fully determined who got the rents from the great postwar expansion; African-Americans were largely excluded from the GI Bill and other public policies by a series of political and bureaucratic actions.

The elements of the Washinton Concensus were adopted in the name of improving economic efficiency. But there is growing recognition that the current free-market income distribution – the combination of large inequalities and stagnant wages for many workers – creates its own “soft” inefficiencies as people become disenchanted with existing economic arrangements. People suffering from stagnant incomes —both here and in some similar countries—have begun to protest. Our analysis suggests that the trends in the distribution derive in part from the shift from one complex set of policies to another—from the Treaty of Detroit to the Washinton Concensus. There is no single determinant, whether education, minimum wage, capital or labour mobility, that determines the path of income distribution. Any specific measure therefore can alleviate the distress of some people, but it cannot change the overall distributional trends shown in our graphs.

The last six years of U.S. federal tax history have involved an inhospitable politics in which winners have used their political power to expand their winnings. But political sentiment does shift. Economic distress like that of the 1930s can induce such a shift. Even the smaller economic distress of the 1970s was enough to redirect American economic policy. Only time will tell if more economic distress is needed to change policy yet again.

---

Footnotes

1 Levy, Frank, and Peter Temin, “Inequality and Institutions in 20th Century America,” NBER Working Paper 13106, May 2007.

2 See Thomas Piketty and Emmanuel Saez. 2003. “Income Inequality in the United States,” Quarterly Journal of Economics, and the updating of their figures to 2005 on Emmanuel Saez’ website. Their calculations are based on pre-tax market income (wages, partnership income, interest, dividends, rents, etc.), excluding transfer payments. A tax-filing unit represents a tax return (which may be single or joint). Piketty and Saez estimate the total number of tax-filing units that would occur if all U.S. households filed federal income taxes and figures like the “top 1% of tax-filing units” refer to the top 1% of that estimated number rather than the top 1% of those who actually file.

3 Card, David, and John E. DiNardo 2002. “Skill-Biased Technical Change and Rising Wage Inequality: Some Problems and Puzzles.” Journal of Labor Economics, 20 no 4 (October), pp. 733-783.

4 This term normally is used for LDCs, but the spirit of this concept applies well to the changing institutions within the United States. We use the term here to refer to the microeconomic policies of deregulation and privatisation of the consensus, not the macroeconomic policies of fiscal discipline and stable exchange rates.

Comments

[anne]

Guy has the moral bearing of a sponge, but I in no mood to be messed with now and may decide scallop is more appropriate later....

http://ebooks.adelaide.edu.au/d/dickens/charles/d54tt/part1.html

1859

A Tale of Two Cities
By Charles Dickens

Recalled to Life

The Period

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

There were a king with a large jaw and a queen with a plain face, on the throne of England; there were a king with a large jaw and a queen with a fair face, on the throne of France. In both countries it was clearer than crystal to the lords of the State preserves of loaves and fishes, that things in general were settled for ever.

It was the year of Our Lord one thousand seven hundred and seventy–five. Spiritual revelations were conceded to England at that favoured period, as at this. Mrs. Southcott had recently attained her five–and–twentieth blessed birthday, of whom a prophetic private in the Life Guards had heralded the sublime appearance by announcing that arrangements were made for the swallowing up of London and Westminster. Even the Cock–lane ghost had been laid only a round dozen of years, after rapping out its messages, as the spirits of this very year last past (supernaturally deficient in originality) rapped out theirs. Mere messages in the earthly order of events had lately come to the English Crown and People, from a congress of British subjects in America: which, strange to relate, have proved more important to the human race than any communications yet received through any of the chickens of the Cock–lane brood.

France, less favoured on the whole as to matters spiritual than her sister of the shield and trident, rolled with exceeding smoothness down hill, making paper money and spending it. Under the guidance of her Christian pastors, she entertained herself, besides, with such humane achievements as sentencing a youth to have his hands cut off, his tongue torn out with pincers, and his body burned alive, because he had not kneeled down in the rain to do honour to a dirty procession of monks which passed within his view, at a distance of some fifty or sixty yards. It is likely enough that, rooted in the woods of France and Norway, there were growing trees, when that sufferer was put to death, already marked by the Woodman, Fate, to come down and be sawn into boards, to make a certain movable framework with a sack and a knife in it, terrible in history. It is likely enough that in the rough outhouses of some tillers of the heavy lands adjacent to Paris, there were sheltered from the weather that very day, rude carts, bespattered with rustic mire, snuffed about by pigs, and roosted in by poultry, which the Farmer, Death, had already set apart to be his tumbrils of the Revolution. But that Woodman and that Farmer, though they work unceasingly, work silently, and no one heard them as they went about with muffled tread: the rather, forasmuch as to entertain any suspicion that they were awake, was to be atheistical and traitorous.

In England, there was scarcely an amount of order and protection to justify much national boasting. Daring burglaries by armed men, and highway robberies, took place in the capital itself every night; families were publicly cautioned not to go out of town without removing their furniture to upholsterers' warehouses for security; the highwayman in the dark was a City tradesman in the light, and, being recognised and challenged by his fellow–tradesman whom he stopped in his character of "the Captain," gallantly shot him through the head and rode away; the mall was waylaid by seven robbers, and the guard shot three dead, and then got shot dead himself by the other four, "in consequence of the failure of his ammunition:" after which the mall was robbed in peace; that magnificent potentate, the Lord Mayor of London, was made to stand and deliver on Turnham Green, by one highwayman, who despoiled the illustrious creature in sight of all his retinue; prisoners in London gaols fought battles with their turnkeys, and the majesty of the law fired blunderbusses in among them, loaded with rounds of shot and ball; thieves snipped off diamond crosses from the necks of noble lords at Court drawing–rooms; musketeers went into St. Giles's, to search for contraband goods, and the mob fired on the musketeers, and the musketeers fired on the mob, and nobody thought any of these occurrences much out of the common way. In the midst of them, the hangman, ever busy and ever worse than useless, was in constant requisition; now, stringing up long rows of miscellaneous criminals; now, hanging a housebreaker on Saturday who had been taken on Tuesday; now, burning people in the hand at Newgate by the dozen, and now burning pamphlets at the door of Westminster Hall; to–day, taking the life of an atrocious murderer, and to–morrow of a wretched pilferer who had robbed a farmer's boy of sixpence.

All these things, and a thousand like them, came to pass in and close upon the dear old year one thousand seven hundred and seventy–five. Environed by them, while the Woodman and the Farmer worked unheeded, those two of the large jaws, and those other two of the plain and the fair faces, trod with stir enough, and carried their divine rights with a high hand. Thus did the year one thousand seven hundred and seventy–five conduct their Greatnesses, and myriads of small creatures—the creatures of this chronicle among the rest—along the roads that lay before them.

[ken melvin]

More Mankiw BS. He can't be this dumb.

[ken melvin]

Lovely Anne. Thanks. For reasons known only to cod, I get the stories of "A Tale .." and "Les Miserable" all mixed up in my memory.

[esb]

Anne, the first paragraph there is one of the most interesting ever penned at any time in history and has become even more interesting as the Bush/Cheney Administration has progressed (or retrogressed).

My "significant other" just pointed out to me that it could become even more interesting were the following words to issue from the mouth of Chris Matthews early in the morning of the first Wednesday after the first Tuesday after the first Monday in November, 2008 ...

"having won Pennsylvania, John McCain has been elected the 44th President of the United States."

(One can only imagine the look on the dear boy's very expressive face.)

[OhNoNotAgain]

My, oh my. What a crock. A college education ? Really ?

Greg might change his tune if his college education was subject to the pressures of global wage arbitrage like non-college-educated workers. Try living in the US on 30-40 grand a year, Greg, and see how you like it.

[anne]

Really, stunning passages; I understand the worry which I deal with by being angry.

[gordon]

"It was the best of times (for the 99.9th percentile), it was the worst of times" (for everybody else).

[gordon]

Here's a puzzle: why doesn't the EPI's "Agenda for Shared Prosperity" get more mentions in discussions like this? Aren't the authors thought to be academically respectable? Is the EPI somehow politically incorrect?

[evagrius]

Education is the key, but it's not the kind Mankiw touts.

The real education is the secret of sycophancy, when to use it, when to seek it.

[save_the_rustbelt]

I can see the truth in his hypothesis of the education slowdown. Problem is, should we get education speeded up again, just what would we do with everyone.

And just how far can we go with education? We can certainly never have an all white-collar world, we need many skills.

Those with the more practical skills are entering an era of immense insecurity, risk sharing and flat earnings.

How do we fix that?

[dissent]

NYTimes today.

The nation’s political leaders — Democrats and Republicans alike — have argued that education and training are a route back to middle-class wages for those who have fallen out. But the demand isn’t sufficient to absorb all the workers that the leaders would educate. Even now, roughly 15 percent of college-educated workers find themselves in jobs for which they are overqualified, the Economic Policy Institute reports, and many of these jobs pay less than $20 an hour.

link
http://www.nytimes.com/2008/04/20/weekinreview/20uchitelle.html?ref=business

[Bruce Wilder]

Greg Mankiw: "Government policy makers do not have the tools to exert such a strong influence over pretax earnings . . ."

Liar, liar, pants on fire!

I know this is the conventional wisdom, even among economists, who are not to the Right of Attila the Hun, but it is absolutely unsupportable nonsense -- nothing really but prejudice and bull excretions.

[Bruce Wilder]

km: "More Mankiw BS. He can't be this dumb."

He's a very smart man, who chooses to be stupid. It pisses me off.

[john c. halasz]

Well, the "skill-based technological change" thesis perhaps deserves a second hearing in inverted form, which strips it of its attachment to the fallacious marginal-returns-to-factors-of-production account of distribution, still beloved by neo-classical economists inspite of its lack of theoretical cogency and empirical explanatory power, while bracketing directly institutionalist accounts of income distribution. To whit, the increasing substitution of capital for labor through technical change. The IT revolution especially would seem to have successively increased the flexibility and applicability, while decreasing the costs of capital goods, which increases their substitutability for labor in all kinds of ways. And while IT does tend to pay a wage/salary premium to those that develop and maintain the systems, that's probably the smallest part of growing income differentials, (and subject to substitutions of its own). Though further productivity-enhancing technical change inevitably decreases the size of the manufacturing work-force, even as it increases distributable productive surpluses, IT enabled still more extensive changes. For one it enabled sucessive waves of down-sizing of middle management cadres, whose administrative functions and analytic skills could be increasingly substituted for by IT systems with ever decreasing costs and increasing capacities, which only served to enhance the power/control of top management and their access to the manipulation of revenue flows. And changes in corporate organization were further extended by IT in terms of reorganization of vertically integrated supply chains through "outsourcing" and other cost-cutting measures, whereby top management retained and increased control over oligopolistic rents, while minimizing and displacing corporate costs, creating "virtual" corporations organized around planning, design, branding and marketing-distribution, while squeezing costs onto market competition that they nonetheless dominated. The globalization of financial flows, which emerged as the first result of the IT revolution, through its combining with telecom technology,- (and the burgeoning over-financialization of the global economy would have been virtually inconceivable without the deployment and sucessive improvement of those technical means),- led on to strategies of MNC global "platforming" and labor arbitrage, which depress and deplace costs, not least wage costs, onto market competition, while enhancing both rent-yields and strategic market power on the part of corporate oligopolies, resulting in the seeming paradox that high-tech, productivity enhancing means, at least as far as the official statistics tell, become married to increasing deployment of cheap, low-productivity labor. The effects on the wages/salaries of the broad working population of these developments in the U.S. are all to obvious, as they become increasingly exposed to risks and "competitive" pressures on the market for their labor, on which increasingly they become dispersed and lacking in bargaining-power, as dominant corporations increasingly manipulate and control the structure of market "opportunities", while at the same time bearing the burden of keeping up with rapid technical change, which further exposes them to the risks and costs of shifting structural change between productive sectors and segments. (That the rising costs of tertiary education are also increasingly borne by the idebtedness of those who are so "educated" only adds hot spice to the sauce). The upshot is that whereas there are and will be sectoral booms and production bottlenecks that drive-up wage/salary premiums to effected technical workers and such workers are certainly better off than the former working-class, experiencing in aggregate some increase in income over the course of time, they too are increasingly subject to the prospects of substitution for and commoditization of their labor services. No, the upshot is that gains to technical developments have not for the most part gone to those who design, develop, implement and maintain technical systems, but rather to those who control the "choke-points" in the revenue streams that result from such technical deployments. And those prime beneficiaries are those involved in the organization of the extraction, divying-up and recycling of rents, which is determined not by specific educational or professional advantages, but by positional ones, in reference to corporate and financial structures needed to mediate the process. Thus the differential between educational and professional groups, ("castes"), is probably a good deal less than the differentials within such groups. One proxy by which to test this account emprically might be to look at the incomes of M.D.s over time, which I'd guess generally cluster around the second and third percentile, and which I'd guess have shown a marked tendency to rise compared to the work-force median, as well as a tendency to boostering through increasing and often unnecessary or excessive medical specialization, but which I'd also guess represent an ever-decreasing factor in the rise of medical costs, which, if not exactly or unambiguously productivity enhancing, certainly represent an increasing investment of capital goods into the health care/medical industry, and with that the possibility of extracting further rents. Another proxy might be to look at the differential among lawyers' incomes over time, since a chronic oversupply of lawyers ensures that many are not terribly well-paid, but the "winners" through corporate and financial work are not only essential to the rent-extracting process, but often occupy top official positions in it, through interlocking corporate boards, political lobbying/regulatory capture, and the like. Gathering accurate empirical data on income distribution is not easy, which is why Saez-Piketty has been so readily and easily subject to sophistical attacks. But a kind of economic thinking that ignores or reduces production systems and business organization, displacing their effects onto the "autonomous" operations of markets, might be significantly obscuring much of the real story.

[donna]

Let them eat chocolate?

[Francois]

It's obvious the Mankiw hasn't read David Cay Johnston. Nor will he do so, since it could blow away his entire belief system. A very unpleasant experience for anyone, but lethal to any neocon.

"Government policy makers do not have the tools to exert such a strong influence over pretax earnings, even if they wanted to do so."

That is a BIG lie Gregory. If the Go-vermin is hell bent in destroying unions, what the hell do you think will happen to the workers' wages and working conditions?

Any idea laser-brain?

[BJ Feng]

"And those prime beneficiaries are those involved in the organization of the extraction, divying-up and recycling of rents, which is determined not by specific educational or professional advantages, but by positional ones, in reference to corporate and financial structures needed to mediate the process."

It seems that you are arguing technology has allowed capital to substitute for certain forms of labor, not really unprecedented or unusual, but it has also created new structures that unfairly concentrate power which is being used to extract rents, much as a monopoly would. What can be done to, either prevent these chokepoint from forming or stop capital from extracting rents based on this unfair advantage?

I think we're just experiencing a traditional shock due to the huge supply of labor that only recently entered the global capitalist marketplace. The supply of labor more than doubled in a matter of years, it's natural that the wages paid to labor should stagnate or decrease under the circumstances. What we have is not a permanent situation but a temporary one, unfortunately those caught up in this extraordinary time period will suffer lower returns on their labor. However, any "fix" will also have to be temporary if this is the case.

[ndd]

"Dear Prof. Mankiw:

"Thank you for your comments regarding the value of education and readiness to participate in the technological revolution.
"I am sure that the workers in the below story in the Dayton Daily New are thankful for that education that has allowed them to become an essential part of that revolution:

LexisNexis plans to eliminate up to approximately 250 jobs between now and early 2009 at its suburban Dayton campus, according to a company announcement Monday, April 14.
... to outside suppliers, part of a total of 290 positions whose work will be turned over to outside suppliers between now and early 2009 in order to cut costs.

Those reductions will affect data collection, conversion, editing and business systems operations, LexisNexis said. The cuts are necessary in order for the company to remain competitive and make investments to meet customer demands, management said.

http://www.daytondailynews.com/search/content/oh/story/business/2008/04/14/ddn041408lexisnexisweb.html

"Lexus Nexus will be providing severence money and job placement assistance, of course, presumably contingent upon employee non-disclosure of offshore outsourcing details and cooperation in facilitating the offshoring to India - i.e., training their replacements in India.
"As you have so ably pointed out, without their extensive education, these workers would be in no position to reap these severance rewards. Kudos for putting your finger on the exact salient fact."

[bakho]

No set of rules for running an economy are every perfect. Some benefit more from the rules than others and end up very wealthy. This means that the rules are in constant need of improvement or some redistribution must occur to fix the inequalities that result from the rules.

There needs to be a balance between motivation and distribution. Our current rules are very good those at the very top but are failing those in the middle and bottom in too many ways.

[anne]

Gordon:

"Here's a puzzle: why doesn't the EPI's 'Agenda for Shared Prosperity' * get more mentions in discussions like this?"

Economic Policy Institute (EPI) reports are carefully and soundly prepared, and I pay attention to them and they do deserve more mention. Center on Budget and Policy Priorities (CBPP) as well.

* http://www.sharedprosperity.org/overview.html

[anne]

http://www.sharedprosperity.org/reports.html

April 17, 2008

Offsets and the Lack of a Comprehensive U.S. Policy: What Do Other Countries Know That We Don't?
by Owen E. Herrnstadt

February 28, 2008

Do subprime loans create subprime cities? Surging inequality and the rise in predatory lending
by Gregory D. Squires

February 13, 2008

Building energizing prosperity: Renewable energy and re-industrialization
by George Sterzinger

The importance of manufacturing: Key to recovery in the states and the nation
by Robert E. Scott

Renewing U.S. manufacturing: Promoting a high-road strategy
by Susan Helper

[Sampling....]

[linusk]

Very disingenuous!

It is obvious why the great American Middle class is dying. What it does not explain is why the rich are getting fabulously richer.

By referring to the Clintons, this partisan hack makes a show of going beyond party lines - ignoring some great discussion on this blog on change in earnings of people at various income levels in Republican and Democratic Administrations.

[me]

I would never recommend a college education in this day. The return on investment just isn't there. A plumber or electrician sounds good. I see too many college educated ex-knowledge information workers mowing other peoples lawns.

[Real Person from the Real World]

At least the article acknowledges that a degree is no longer automatically a ticket to higher pay. Heck, I know a sharepoint guy, who is worth $80/hr to a vendor, and will be working at $140 at a company, who only has a highschool education. Get into the right line of work, and lack of higher education is no barrier to making money. On the other hand, education is expensive, and it is getting so that the school you go to, may be the real factor. A Harvard ed, sure helps some prople make a big noise, without knowing much.

[Donald A. Coffin]

The declining compensation-to-productivity ratio tracks all too well the delcining percentage of workers covered by union contracts, especially in the private sector, from around 38% in the late 1950s to around 8% in 2006. That decline has been steady and consistent--no, Reagan's assault on the air traffic controllers wasn't all that important, except symbolically. The rate of decline was about the same in the two decades before that as in the two decades after.

The decline in bargaining power is real, and, for my money, the leading institutional cause is the decline of unions.

The decline of unions is in part--but only in part--a result of changes in the legal and regulatory environment. (It's happened around the world, although not as dramatically in some countries; for one example, check out Canada. Or Germany the one-time primary bastion of unionization.)

I would not consider someone seriously dedicated to a progressive/liberal/left economic agenda who is not trying to figure out how to revive unions.

[anne]

Germany
France
Ireland
Sweden
Switzerland
Norway
Spain
Denmark
Netherlands
Australia
Japan

...

The point is that a middle class can be well cared for, and is being well cared for in country on country and the reasons are obvious and range from universal health care and nearly free university education to employee protections and relative bargaining strengths.

That Japan and Germany cared so well for a middle class through different economic difficulties last a decade should be cause for examination and congratulations. That America does not have near the health care insurance system of Taiwan should astonish and shame us, but is routinely turned from politically.

[boris]

health care insurance system of Taiwan

One expects that the well employed middle class in the US prefers US health care to Taiwan's insurance system.

If the difference between the two are ignored, or pretend that both are somehow long term compatible, then sure go ahead and wallow in shame.

[anne]

The difference is that the health care insurance system of Taiwan, as health care in Taiwan, is comprehensive, beloved and superb and a wonderful model for us, a wonderful model especially for middle class America. Duh.

http://krugman.blogs.nytimes.com/2008/04/14/watch-frontline-tomorrow/

April 14, 2008

Watch Frontline
Edited by Paul Krugman

"Sick Around the World": *

"Four in five Americans say the U.S. health care system needs 'fundamental' change. Can the U.S. learn anything from the rest of the world about how to run a health care system, or are these nations so culturally different from us that their solutions would simply not be acceptable to Americans?

"Frontline correspondent T.R. Reid examines first-hand the health care systems of other advanced capitalist democracies–UK, Germany, Switzerland, Japan and Taiwan–to see what tried and tested ideas might help us reform our broken health care system."

* http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

[anne]

America of course is the sort of country that cannot afford to protect the health of 3.8 million needy children for the cost of a couple of needlessly tragic weeks in Iraq. Taiwan can afford such protection of children, and the health of Taiwanese children and adults shows the results as does our health show the problems of our increasingly faltering insurance system.

[Competition]

boris..."One expects that the well employed middle class in the US prefers US health care to Taiwan's insurance system."

We'll never know if Taiwan medical is not allowed to open up branches in the US, staffed with their personnel. Give citizens a real choice, real competition, and you will find out what they really prefer.

[boris]

needlessly tragic weeks in Iraq

Wonder how long Taiwan would last as a country without US protection?

Do you believe that the tragic weeks in Iraq would come to and end upon our departure? I don't.

[Steve Salmony]

A CLARION CALL FOR CLIMATE ACTION

Press release19-04-2008

Fisher people demand justice for climate refugees

South Indian fishing community conference on Climate change and
Fisherpeople's livelihood was held on 17th April 2008 at Rotary Community
hall,Nagercoil, Kanyakumari district. This event was organized by
TamilnaduFisher workers Union (TFU), Kerala Independent Fish workers
Federation(KSMTF) and Voices from the Margins (VFM).

Mr. T. Peter Dass, President,Tamilnadu Fish workers Union (TFU) delivered
welcome address and he pointed out that fisher people are facing sea erosion
as a result ofclimate change. This public event is recognized as the first
one organized by the affected community against Climate Change and fisher
people have decided to launch public protest for their sufferings as a
result ofclimate change.

Mr.M.Pakkirisamy, district revenue officer inaugurated this workshop and in
his Chief Guest address said that sea level is rising in the last pastdecade
at an unimaginable rate of increase. Sea level is expected raise 5 meters in
the next 50 years and it is going to affect the fisher people.There is a
need to change the consumption pattern to avoid the expansion of the hole in
ozone layer.

Mr. K.P. Sasi, activist film maker wondered what the government is doing to
stop the carbon emission? There is a need to change the production process
of the industries, agriculture and the energy systems. Nothing is done so
far to the people affected by climate change and marginalized people who are
becoming refugees as a result of ecological impacts thrustupon them.

Dr. A.D.Shobana Raj, ecological researcher highlighted the factthat the
coastal Kanyakumari district has 56 km long coast with apopulation density
of 1500 per sq.km; and the coast line is vanishing. 80% of the water
resources in the coastal area have become saline and peopleare facing water
crisis because of the intrusion of sea water. 132 coastal sea weeds have
disappeared in the last 10 years. If the global temperature rises 2 degree
Celsius then it will have impact on micro organisms leadingto several
contagious diseases affecting coastal people.

Dr. S.P.Udayakumar social activist demanded that our energy consumption
pattern should change. The solution for climate change lies in shifting our
energy sector from fossil fuel dependent sector to renewable energy. Our
transportation pattern should move towards effective and efficientpublic
transport system rather than promoting cars which will lead toincrease in
carbon emission and vehicular pollution.

Mr. Sathya Sivaraman,journalist & film maker stressed the need to pinpoint
who emits more carbon and who should pay for carbon credit. USA is
responsible for 25% ofcarbon emission and it should take the responsibility
in compensation to the victims of carbon emission and climate change. The
relationship of Human species to Earth should be the equivalent to child and
mother, but this species has taken up the role of the destroyer of the earth
and other species. Carbon emitting industries should be changed and if this
is not possible all such industries should be closed.

After the people's response, Mr. T.Peter president KSMTF demanded that
chemical farming practices, polluting industries and carbon emitting
lifestyle should be stopped since the fisher people are the most affected
bythe climate change. Today, this public event is organized with the
conviction that the affected communities can not remain in halls but there
is a need to launch mass public protest not just for their survival alonebut
for the entire humanity locally, nationally and internationally.

In the concluding session Mr. S.M.Prithiviraj, Convener, Voices from the
Margins explained how the marginalized farmers of the Tamilnadu are affected
by climate change in recent heavy rains as a result unusual low pressure in
Arabian Sea. Fisher people are affected by changes in pattern of fish catch,
reduction in fish wealth, and loss of working days as a result of climate
change and tidal waves and their houses are washed away by intruding sea in
many places of South India. Why should the fisherpeople pay for the impacts
of climate change entirely created by other vested interests? The conference
ended with a resolution questioning the polluting industries, chemical
farming practices, non-renewable energy sectors,carbon emitting life style
and the need for taxing the polluters to paythe price for ecologically
affected fisher people and other marginalized communities.

Press release issued byTamilnadu Fisher workers Union (TFU)
Ph:09443294198
Kerala Independent Fish workers Federation (KSMTF)
Ph:09447429243and
Voices from the Margins
(VFM)Ph:09843080963____________________________________

Steven Earl Salmony
AWAREness Campaign on The Human Population, established 2001

[Bruce Wilder]

boris: "Do you believe that the tragic weeks in Iraq would come to and end upon our departure? I don't."

Not exactly.

What I think it that the U.S. occupation functions to
1.) provide an economic basis for Iraq. Virtually, the entire economy of Iraq rests on U.S. expenditures there, and almost everyone is, effectively, an American economic dependent. (Iraqi GDP, at $50B is, tellingly, a fraction of U.S. expenditures on the war.)
2.) prevent the on-going civil war from reaching any conclusion. American military power prevents any of the contenders from winning. We aren't even willing to let the nominal government win, because the government of Iraq is allied with our declared enemy, Iran and we will not permit direct Iranian intervention.

American withdrawal will have two effects: by removing economic support, it will focus Iraqi minds on resolving the civil war, and getting the oil flowing. I don't expect a peaceful resolution, but I do expect it to be short -- less than 2 years, certainly, with only some sporadic all-out fighting.

The American Occupation, through bungling incompetence and corruption, has devastated Iraq. Fully 40% of the population is subsisting near famine. So, a two-year civil war (understanding that the actual fighting will be sporadic) without much outside economic support is going to be pretty horrible. And, it will be the fault of the U.S. and George W. Bush.

[Aaron]

I live in Taiwan, and the healthcare system is not "beloved." People routinely have to buy their own insurance for things like cancer coverage because the national healthcare system doesn't do well with that. The quality of the doctors is poor as well, with supposed "experts" see you for 30 seconds and misdiagnose you. Also, because its "free" everyone visits the doctor for even minor colds. Despite having laws requiring doctors to not also operate as pharmacies, the practice is still widespread, and the government had to reduce coverage for many pills as they were over prescribed. Not to mention if you want anything that's not on the list, you have to pay privately anyways...The final kicker is that in an attempt to reduce the amount of medicine prescribed, you cannot get more than 2 days medicine at a time. That means you have to repeatedly visit the doctor to get your 2-day prescription refilled. Ridiculous and wastes hours and hours of productive time since you cannot schedule appointment times, either.

[Cynthia]

Perhaps Mankiw's brain isn't all that mushy, but his fairy-tale ending is so dang mushy that it makes me wanna gag:

"...even if you aren't lucky enough to get a golden ticket, you can still enjoy the chocolate which is well worth the price."

[anne]

Aaron, please do set down a reference on Taiwan's health care insurance system. A precise reference.

http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/interviews/reinhardt.html

April 14, 2008

http://commentisfree.guardian.co.uk/ian_williams/2007/10/taiwan_gets_healthy.html.printer.friendly

October 7, 2007

Taiwan Gets Healthy: America should look to Taiwan as a model on healthcare.
By Ian Williams - Guardian

[zinc]

IMO, the changing composition of business in America, from industrial production to service economy, is important in understanding the declining wage and standard of living for most Americans.

Industrial production labor makes more income than retail and the required skills are higher. In addition the job and wage multipliers for industrial jobs are greater.

Steel mills, primary and secondary automobile manufacturing jobs, general manufacturing, resource production are all high value added jobs that spin off a greater number of higher paying support positions. These are the positions that have been targeted by corporations and third world governments for off-shore production. At the same time, America's NIMBY attitude toward heavy industry has facilitated the move. Thirdly, labor productivity has complemented the on-going reduction in higher value added blue collar jobs.

Slack in the labor markets does not have to be complete to put pressure on wages and benefits. A few extra percent of unemployment in the US is sufficient to create downward momentum on un-skilled positions. In addition, the US government has maintained a de-industrialization policy for the past 30 years, favoring capital over labor.

The accumulation of wealth by the administrative and marketing arms of the platform corporations is a logical outcome. The slack in the labor component has reduced the market power of labor and facilitated the accumulation of wealth to management.

Workers are not the only ones losing their pro-rata share. Shareholder returns have also been reduced by managerial and financial agency costs.

IMO, the US is rapidly losing it's wealth as a result of these trends. I think it time to reverse the trends in favor of a better income distribution and encouragement of domestic production.

[anne]

What I wonder is whether there is any health care system anywhere that could offer any chance of borrowing any portion to improve on America's healthcare system in any way? Why have I found the healthcare systems in France and Ireland so remarkably simple and inexpensive to use? How have I missed all those Irish-French bodies strewn about the streets for want of care?

Imagine if I even thought to mention how healthy the Japanese always seem to be. Do Americans ever have anything to learn from anyone about anything?

[save_the_rustbelt]

Question for discussion:

Suppose we arrange for a ten year "surge" in education, similar to what happened after WWII with the GI Bill.

What would be the result? What other measures would have to be taken?

[john c. halasz]

Mass industrial employment won't be coming back with reindustrialization, which would be highly capital intensive to compete with foreign labor costs. And reindustrialization in both import-competing and export-producing markets will be necessary, if we're not to default on our massive external debt. But even highly automated industrial production would bring with it lots of fairly well-paying support-services jobs, provided surrounding social and regulatory conditions are sufficiently effective to compel a distributive sharing of producer's surpluses. Reducing the onerous costs of tertiary education would be worthwhile, but not of itself sufficient. Worker transition programs, perhaps with subsidies targeting on-the-job training and sector-specific skills education as sectoral transitions require, might be in order, on an ongoing basis. In general, a much more robust social safety net to relieve the stresses of ongoing sectoral transitions and structural unemployment will be needed. But it is not nearly enough to revive remnants of old industries, much of which will never come back in any form. New industrial sectors and opportunities must be discovered, which suggests an industrial policy to promote them, not excluding public funding of R&D with the administration of licensing rights retained on behalf of taxpayers.

[anne]

STR

"Suppose we arrange for a ten year 'surge' in education, similar to what happened after WWII with the GI Bill."

Actually the surge in higher education began during the Depression when public college-university education could be almost costless, but the subsidizing of students through the GI Bill added to enrollments everywhere and allowed for a corresponding growth in facilities. There was spending on military related research during the World War and the growth in facilities was further spurred by spending to improve science education in competing with the Soviet Union. There was spending simply to build research facilities to study writing coming from the Soviet bloc and China.

[anne]

I would like to have a federal-state revenue sharing program in which spending was expressly meant for public tuition reduction and facility expansion where necessary should enrollments be strainings. As for additional spending on private education, the problem becomes how to reconcile the cost differences between private and public schools and even among private schools.

But, increasing the attraction of public colleges and universities and access to the education strikes me as an unalloyed good.

[Icarus]

Public tuition for college is already incredibly low in the US...these are simply convenient excuses, which is the modus operendi of the populists.

The 'value' of US middle class labor has simply gone significantly down over the past 2-3 decades. The 'value' of someone's labor is just the cost to replace it, and when we're dealing with semi-skilled, or unskilled work, once globalizaiton takes hold, labor is easy to replace.

The techno-managerial elite in the US aren't quite as easy to replace (yet)...As much as we may disparage the Harvard degree, the ROI is quite clear...and it's great. Going to a top 20 US college is an invitaiton to the elite class (not a guarantee, but an invitation, given certain behavior)...

The US should get used to the idea of a shrinking middle class...the globe simply doesn't need them.

And, I don't know if the word "unfair" applies. What's happening is emminently 'fair', as it usually reflects the true value of labor. The results may be horrible, for the masses, but it still can be 'fair'.

[James Killus]

In every job that I have seen in the past decade or so, every single holder of that job has been overqualified and overeducated.

I think that education is a fine thing and a general good for the country. But the managers who make business decisions for the country have been deliberately dumbing down the jobs that are available, in order to make sure that there is always an oversupply of overqualified people to take them. Then, when said managers make demands on their underlings that are far outside the skill set of the job title, there is still some possibility that the work will get done, albeit, at far below the rightful market rate of that skill.

Managers make these demands because their own skill sets are far below what would be necessary to exercise the powers that they have arrogated to themselves (for example, they routinely make health care decisions for their employees that can have life or death consequences, without the slightest idea that they are, in fact, making such decisions).

I can't think of any downside to dropping a few zeros from executive compensation levels. Anyone who thinks that this would result in a decline in managerial talent has not made an honest assessment of existing managerial talent.

[anne]

http://heapol.oxfordjournals.org/cgi/content/abstract/18/3/316?ck=nck

2003

Impact of separating drug prescribing and dispensing on provider behaviour: Taiwan’s experience
By YJ Chou, Winnie C Yip, Cheng-Hua Lee, Nicole Huang, Ying-Pei Sun, and Hong-Jen Chang

In many Asian countries, physicians both prescribe and dispense drugs. This practice is hypothesized to have caused high drug expenditure and widespread prescription of antibiotics in Asia. Recently, Taiwan implemented the separation policy on an experimental basis. This paper’s objective is to empirically evaluate the impact of Taiwan’s reform to separate drug prescribing and dispensing on drug expenditure and total health expenditure....

[This is the only useful discussion I can easily find on prescription structure effecting Taiwan's healthcare system. A matter that would seem to be readily corrected with pressure.]

[Icarus]

Killus...

The pay of executives is important, only symbolically. There are simply too few of them for their numbers to really make a dent for the larger masses.

That said, outside of the situations where execs can actually pay themselves, do they not deserve the market value of their services? What does Steve Jobs deserve for turning Apple around? Is it any different than what Michael Jordan deserves for turning the Bulls around?

You can argue that the janitor or the peanut vendor deserve a piece of the pie...but, perhaps they don't. They can be easily replaces, with another $7/hour employee, and only are worth that much. Jobs/Jordan are quite difficult to replace, and their compensation will reflect that.

You can then argue that this is unfair...the problem is, the market, and the consuming population seem to disagree.

[Icarus]

The US already spends too much on education. Money/spending is not the answer (a statement which is anathema to the populist groundlings).

The US spends $9000/student year. This is a lot of money, and we should actually be reducing this number.

The issue is parenting. Parents simply don't invest properly in their children, hence they raise the next generation of quasi-literate and semi-skilled indolent class. People with no capacity to parent, have children, and the populists blame the central government for not providing more handouts.

[wjd123]

I'm trying to reconcile these to pieces of information.

From Gregory Mankew's "The Wealth Trajectory: Rewards of the Few."

The best diagnosis so far comes from two of my Harvard colleagues, Claudia Goldin and Lawrence F. Katz, in their forthcoming book “The Race Between Education and Technology” (Harvard University Press). Professor Goldin is an economic historian, and Professor Katz is a labor economist who briefly worked in the Clinton administration. Their bottom line: “the sharp rise in inequality was largely due to an educational slowdown.”

According to Professors Goldin and Katz, for the past century technological progress has been a steady force not only increasing average living standards, but also increasing the demand for skilled workers relative to unskilled workers. Skilled workers are needed to apply and manage new technologies, while less skilled workers are more likely to become obsolete.

For much of the 20th century, however, skill-biased technological change was outpaced by advances in educational attainment. In other words, while technological progress increased the demand for skilled workers, our educational system increased the supply of them even faster. As a result, skilled workers did not benefit disproportionately from economic growth.

But recently things have changed. Over the last several decades, technology has kept up its pace, while educational advancement has slowed down. The numbers are striking. The cohort of workers born in 1950 had an average of 4.67 more years of schooling than the cohort born in 1900, representing an increase of 0.93 year in each decade. By contrast, the cohort born in 1975 had only 0.74 more years of schooling than that born in 1950, an increase of only 0.30 year a decade.

Because growth in the supply of skilled workers has slowed, their wages have grown relative to those of the unskilled. This shows up in the estimates of the financial return to education made by Professors Goldin and Katz. In 1980, each year of college raised a person’s wage by 7.6 percent. In 2005, each year of college yielded an additional 12.9 percent. The rate of return from each year of graduate school has risen even more — from 7.3 to 14.2 percent.

From "The Wage that Meant Middle Class."

The nation’s political leaders — Democrats and Republicans alike — have argued that education and training are a route back to middle-class wages for those who have fallen out. But the demand isn’t sufficient to absorb all the workers that the leaders would educate. Even now, roughly 15 percent of college-educated workers find themselves in jobs for which they are overqualified, the Economic Policy Institute reports, and many of these jobs pay less than $20 an hour.

save_the_rustbelt, and anne,

I would think that Goldin and Katz would argue that if we increased the number of those with higher education we would just depress the wage gains to be had from technology.

[Andrew]

What does Steve Jobs deserve for turning Apple around? Is it any different than what Michael Jordan deserves for turning the Bulls around?

Ah, the irony. Steve Jobs, who was awarded millions in stock options at a board of directors meeting which never took place.

Jordan, who was paid millions by an industry granted anti-trust exemption. An industry which would never be in the black but for the $2 billion a year (and growing) in government subsidies handed out to professional sports.

[Icarus]

Andrew...

Can you elaborate on the govt subsidies the NBA receives?

[Andrew]

There is both a book and a blog on the subject called Field of Schemes. In addition to the most recent blog topic being about NBA subsidies, you may just type 'NBA' into the search engine and enjoy.

[Bruce Wilder]

Icarus: "Public tuition for college is already incredibly low in the US...these are simply convenient excuses, which is the modus operendi of the populists."

I just checked estimated student budgets for the University of Michigan, Ann Arbor, and the University of California at Los Angeles, and both schools estimated in-state costs for a year at around $23,000. About one-third was tuition and fees at UCLA, and about half was tuition and fees at Ann Arbor. That puts the out-of-pocket cost of a college degree at about $100,000 (assuming that you can finish in 4 years).

[Bruce Wilder]

Narratives concerning the determinants of income distribution are surprisingly elastic. "Technology" and "skill" are quite vague terms. Technological determination of wages is often assumed, but never proven, even as a logical proposition.

An serious and honest socio-economic analysis would certainly include "rents", and discuss the relationship of education to class.

I think we are going to be waiting a long time for serious or honest.

[gordon]

Donald A. Coffin and others might enjoy reading the paper "Unions and Wage Inequality" (.pdf) by Card, Lemieux and Riddell - I've liked to this paper before. And there is an interview with Card from 2006 on this blog.

[Icarus]

Bruce Wilder...

UCLA for example, has an in-state tuition of roughly $6500 per year. You should, as a student, be able to live on $1000/month (sharing a room, buying used text books, etc, etc). This may sound like bare bottom existance for some, but, it can be fun, productive, and even exilerating.

20k/year can be enough...80k in 4 years. Work part time during school...20 hours/week, lets say (during the school year), and 40 hours/week in the summers, or offtime. You should be able to make something like $13k/year with that general formula. You now need a bit more...maybe $4-5k/year. From Pell grants, loans, or even working for 2-3 years and saving...all are options.

Plus, this is a UC costs. Cal States are even less.

If there's a will...one can get a degree. The issue isn't cost...the issue is the will power, and preparation of the potential students.

[Icarus]

Andrew...

Just perused the site...thanks.

Yes, the questions of funding stadiums, and the deals made between cities and teams is interesting. But, I don't think it falls under the subject of govt subsidies, or, in the case of baseball...a protective clause of monopoly existence.

Cities and NBA teams negotiating falls under the rubric of market activity. Theoretically, both benefit. The city of Seattle is sueing the Sonics to stay...why? Well, it's because the deal they signed must be great. The Sonics want out...probably because Oklahoma City is dangling something better. Let the market rule, right? (as long as opting out of a deal is legal, which the suit will uncover).

There's no subsidy here...it's negotiation, and getting a stadium is a bet a city is making on encouraging economic activity, and as well to get a brand imaged.

[Joe]

What has caused the increase in inequality. Well what has changed in the last 30 years? Several things, but a major change has been the size of business enterprises over the last 30 years. When I was a kid there were several stand alone pharmacies run by a person with a pharmacy degree. Or consider the stand alone book store in the shopping center in my town. There were several regional department stores in the Philadelphia area and how about the fact that banks were confined to doing business in one state. How does the phenomenom of change in size of business enterprises and the implications for labor not explain alot of the increase in income inequality. It seems to me to be self evident. Therefore Krugman is correct in that it has been a change in social policy or more explicitly the power equation. Sometimes, it seems, academic economist get lost in abstract theories so as to miss a the world right in front of their face. How they could have missed the implications of the emergence of all those national big box retailers is certainly puzzling.

[BJ Feng]

I'll have to disagree with you on the subsidies for professional sports, they are subsidies, regardless if they are meant to attract development or anything else. Most studies show that the subsidies do not produce the expected result and really aren't worth the cost to the people. I'm ok with such subsides as long as they are approved by the residents, sports provide branding, a sense of community, etc., and if residents want to spend their money that way, then fine. But most deals aren't subject to approval by the public and politicians really don't care very much about the money they spend because they can always plead poverty and raise taxes. However letting a team like the Sonics go could be very unpopular and he might lose the next election.

As for college, you're right, it's very inexpensive. I know several students who put themselves through UCLA completely by themselves thanks to available loans, but mostly due to work on campus. Student jobs are available, and they can be fun too as you get to meet other students and socialize with people you might not otherwise meet. Plus you can choose your schedule and plan around classes, and work as little or as much (unless you run into overtime, managers try to avoid that) as you want. I set my work hours to fit between classes on campus so that I wouldn't have to walk back home for a 3 hour gap, or after light day with only one class.

The students I came into contact with all had roommates and such, but they still had enough money for beer and outings, just not fancy restaurants all the time or expensive clothes. College is very affordable to all.

[Andrew]

There's no subsidy here...it's negotiation

Perhaps there is no subsidy if you make up your own definition of the word.

-Subsidy:
1. Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.
2. Financial assistance given by one person or government to another.
3. A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction.

In just the first example on the website, Oklahoma is absolving the Sonics from paying payroll taxes and spending $121 million in tax dollars to upgrade the Ford Center, on top of the $89 million cost of originally building the arena just five years ago.

That is a subsidy. And it is far from unique. Last year, the Sonics had an operating income of -$5.7 million before taxes and interest on debt. See for yourself, Forbes does an annual team valuation. Sports teams are money losers without heavy tax subsidies, which transfer money straight into the pockets of overpaid athletes and folks like Steinbrenner, Paul Allen, and Bush Jr. who can lobby the right officials to milk taxpayers for 'free money'.

I agree with you on one thing, though. This is a perfect example of the 'free market' at work. Let the market rule, right?

[Lafayette]

Article: In 1980, the top 0.01 percent of the population had 0.87 percent of total income. By 2006, their share had more than quadrupled to 3.89 percent, a level not seen since 1916.

Pickety-Saez data is well worth looking at when graphed historically. See for yourself, here.

You will note that the top 1% has garnered anywhere from 8 to 18% (with a mean of 12-14%) of the wealth generated annually since 1916. One might even conclude (easily, from its relative constancy) that this period represents the same data over a period a hundred years earlier - a sort of backwards projection.

I.e., it's always been that way ... such is the American dream of rags to riches. The fact is that overnight riches, à la Google or other such hi-tech firms, is a fairly recent phenomenon.

And, the question is, If it’s that way, is it a necessary evil? Meaning this, must we generate income inequality just to meet a craving for riches that is … quite possibly, idiosyncratic – that is, an abnormal reaction to the simple fact that amassing riches is allowed by a lax tax system. So everybody goes for it.

And, let’s not fool ourselves regarding another point that the historical data shows: Look at that spike upwards in 1989 of earned-income, from less than 10% up to 14% and its inexorable rise thereafter – the foundations of today’s American plutocracy. (Btw, who was in office up till 1988 and prepared the reduction in marginal tax rates that resulted in the spike upwards doubling the income percentage from around 8% to 16% today? You guessed it, Republican Ronald Regan - plutocrat hero of the 20th century.)

Critics of the Piketty-Saez data argue, with some justification, that tax return data is unreliable ...

Well, they would say that, wouldn't they?

Of course the data is biased, unreliable, tainted, incomplete ... any sort of cognitive dissonance to diminish the veracity of what it shows: Income inequality has been around since America's inception.

It's so tarnished as to be thoroughly dismissed as fundamentally incorrect?

C'mon, gimme a break.

[Lafayette]

Article: A top education is no guarantee of great riches, but it often helps.

Hmmmn -- maybe, maybe not.

Sociological studies have shown a very large correlation of historical income to .... a man's height. Of all things.

Recent findings have also been reported of a good correlation between testosterone levels of male traders and their daily profitability - read about it here.
[If the link does not work, see here: From The Economist print edition, Financial endocrinology; Bulls at work; Apr 17th 2008]

There are indications that physiological characteristics may be at work to determine our financial success.

And, who would not believe that smaller than average people do not try to compensate with redoubled effort and ambition? I don't.

We may be Homo Sapiens and Inveterate Risk Takers ... but we remain nonetheless a species of the animal kingdom, don't we?

[Lafayette]

Icky: The US already spends too much on education

Duhhhhhhhh .......

You are steadfast in your incorrigibilty, Icky, which is the most I can say.

Either you do not understand or do not wish to understand -- and, frankly, it seems more like the latter.

[Lafayette]

Joe: What has caused the increase in inequality. Well what has changed in the last 30 years? Several things, but a major change has been the size of business enterprises over the last 30 years.

Look at the obvious facts in the data on the Piketty-Saez chart that I linked to above.

What changed in the last TWENTY years (since 1989) is the decrease in marginal taxation rates. It's that simple.

Let's not look for other "facts" that are tenuous at best. Drop marginal income taxes and the rich keep more. Maintain that marginal tax rate for 20 years and a nation creates its plutocracy. (Btw, the UK has done the same, since both Reagan and Margaret Thatcher lowered marginal rates almost simultaneously.)

That plutocracy, on the Right and Left, then fights for the White House by means of influencing elections. Look at the make-up of today's Congress (particularly the Senate) -- and try to convince me that it is representative (key word, that one) of the American body politic.

Why? Cuz it takes Mucho Moolah to get elected in the US of A. And, it shouldn't, should it? Is the exaggerated accumulation of wealth a necessary prerequisite for a democratic nation? You know, the kind of accumulation that leads to Gross Income Inequality.

Explain to me how, because I don't see the tangible benefit of all those zillionaires -- except to populate People Magazines.

(Yep, I must be envious ... never having been featured in People Magazine of invited to Oprah's. ;^)

[BJ Feng]

Lafayette, what about the overall wealth of society? You are obsessed with the rich, but our poor and middle class are extremely well off compared to others in the world. And those societies that try to punish the wealthy as you want, have poverty we could never imagine here. Do you know that Mexico is considered a wealthy country in world terms? Yet I cringe at the horrid conditions most Mexicans live in. I'd rather allow some people to be extremely rich if it means that our poor and middle classes can live in luxury as they do compared with other poor around the world. Our poor are only poor because they're compared to our rich! In a neighborhood of billionaires, the millionaire is in dire poverty! Our poor happen to live in the Beverly Hills of the world, we don't want to make a Compton out of Beverly Hills by doing what you propose.

[Joe]

The size of business enterprises is more then a tenuous fact. But as I said, several things have changed in the last 30 years that have caused an increase in inequality. Yes globilization (i.e. labor competition) is also just as obvious and also as a significant cause. Before the advent of fax machines and containerized cargo, the main discussions regarding international trade revovled around the level of tariffs. Technical advances that made it advatageous to capital to "all the sudden" reverse past history and become free traders. Such a change was not advatageous to labor but labor did not make enough campaign contributions to forestall trade deals that were profitable to capital, who did make enough contributions to get their ends. Like the market power of big national business enterprises, who has the power in our political system is who will profit. Another effect of that power is tax rates which over the last 30 years have been mitigated for top incomes and also has contributed to inequality.

There are also other less significant causes of trhe increase in inequality and yes illegal immigration is a factor. Was it Richardo that said when there is excess supply of labor, wages will sink to a subsistence level.

Bottom line we need not spin all kinds of arcane theories regarding returns on education, the reasons for the increases in inequality are right in front of our noses. Merely look at the situation 30 years ago in this country and notice the changes that have occured since then and you can't help but find the answer to the question.

[Lafayette]

BJF: what about the overall wealth of society? You are obsessed with the rich, but our poor and middle class are extremely well off compared to others in the world.

I am obsessed with Income Inequality, not the rich. I don't see the economic utility of billionaires. I presume they are aberrations, meaning had marginal taxation and redistribution been more fair, they would not exist. And, income inequality would be greatly diminished.

Nonetheless, I will not deny the motivation of all humans to better their well-being, even by wealth accumulation. I am just asking the pertinent question: "How much annual income is enough?"

In the millions, certainly. Hundreds of millions? No way, José. Billions? Completely out of the question.

It is not the aggregate amounts that matter, but the percentage amounts earned by each population class.

And those societies that try to punish the wealthy as you want, have poverty we could never imagine here. Do you know that Mexico is considered a wealthy country in world terms?

"Punish the wealthy" -- a bit of journalist license, there. ;^)

How about some figures in rebuttal. I prefer, however, for purposes of debate, not to compare apples and oranges, but apples and apples. So, consider the Human Poverty Index (found here): (The higher the rank, the worse the score)
* US: 15.4
* UK: 14.8
----------
* France: 11.2
* Germany: 10.3
* Denmark: 8.2
* Netherlands: 8.1
* Sweden 6.3

In the above, I distinguish from relatively lower marginal taxation countries to relatively higher marginal taxation countries. Also, the bottom countries have a better record of Social Expenditure than the top group.

Yet I cringe at the horrid conditions most Mexicans live in

I would as well. They are almost at the bottom of the totem when it comes to Social Expenditures.

But, comparing Mexico to the US (where per capita GDP is 3.7 times as large as Mexico) is a bit foolish. Not even the UN does it for purposes of comparing poverty. The above figures are from developed countries only. Developing countries are considered differently and therefore are incomparable statistically.

Still, if you insist, consider these numbers from the World Factbook (note, again, the higher the Gini coefficient, the worse is Income Inequality ):

Country----Gini Coeff.(%)
Mexico-----51
US---------45

Which means, roughly -- because I doubt it is obvious to you (or your ilk) -- that with about 4 times the Per Capita GDP, the US and Mexico have similar Gini Coefficients (read Income Inequality ).

Or, even more simply: The US (with 3.7 times more economic generation of wealth) share wealth in about the same manner as Mexico. I.e., with gross unfairness.

Btw, compared to the EU, the difference is even more stark. This time take the measurements of Per Capita GDP (but in PPP):

Area-----PC GDP(PPP)----Gini Coeff.(%)
US-------$40,000---------45
EU-------$27,700---------30

So, for a GDP that is 44% greater than the EU, the US has a Gini coefficient that is 15% worse. Which means, if you want to get rich, go to the US. If you want to share the richness more fairly, stay in Europe.

Any way that one cuts/compares the economic parameters relating to income and income inequality, the same sad fact appears. The US can do better in terms of Income Fairness.

A lot better.

[reason]

Lafayette,
given that the USD exchange rate has fallen so much in recent years, it is rather important that you quote the year for PPP figures. (I should also point out that the current EU is a very diverse place. It is like putting the US AND Mexico into one pot.)

[boris]

I don't see the economic utility of billionaires

So society should accomodate your myopia?

Why not way you don't see the musical utility of the Beatles, Maria Cary, Eagles, etc. Doesn't their prolific output rob other artists of opportunity?

I OTOH do see musical utility of unusually prolific mega stars while agreeing that modern media promotes, develops and exploits their existance. One might imagine that squelching both would somehow improve the lot of local working musicians but I would not. Even if the pre-mega-media days were better in some way for working musicans, those days are not returning.

[No One]

Icarus - the NBA gets a huge subsidy from the NCAA. Baseball and Soccer fund their own development leagues. The BBA also gets a huge subsidy in exepmtion from Anti-Trust legislation.

Icarus - you are behind the times - there are enough CEO's giving themselves such big numbers that the dollars are statistically significant.

Wilder - you are spending too much time worrying about Colege education. Any competent and honest teachres knows that not everyone is suitable for a 4 year degree. What are we supposed to do with this majority? Give them a broom?

[Lafayette]

reason: it is rather important that you quote the year for PPP figures.

I quite agree, but I employ the stats that I can find, in the manner I find them, in order to develop my argument. I give also as much information as possible about the nature of the statistic.

I should also point out that the current EU is a very diverse place.

Yes, I agree. But, which country would you compare the US with in terms of Income Inequality? Canada, its kissing cousin? I doubt that a fair comparison as they are too similar in terms of economic policy -- though Quebec is more French and the rest is more American.

The EU and the US are the best benchmarking countries for international comparison in a good many domains, and particularly Income Inequality.

It is like putting the US AND Mexico into one pot.)

I doubt frankly that the EU would allow Mexico in. (Not even if Mexico offered all its oil. The EU already has the North Sea source.) Mexico is institutionally backwards. Which is why NAFTA will likely never develop into anything other than a trade agreement.

Most countries must undergo a long trial period as they harmonize both regulations and policies to EU standard. Turkey was told recently it had a 15 year wait, which went over like a lead balloon.

[baileyman]

Why does anyone read Mankiw? Well, I for one keep reading to see if at least one thing from him is not a total zero. Nope. Gotta quit this habit.

[Icarus]

No One...

Saying the NBA gets a 'subsidy' from the NCAA is silly. How many people from the NCAA does the NBA employ each year? 20? 30? This is not enough of a number to justify the NCAA (which should be illegal, in my opinion).

College basketball (and football) are actually subsidizing something else...the rest of the NCAA. Those two sports are the only consistent profit makers, and they subsidize the (unnecessary) costs for all the other NCAA sports (a few break even now and then...but the vast majority lost money).

This is a true subsidy; one which tranfers the labor of black athletes to priviledged white athletes. Basketball/Football should not be paying for Tennis/Swimming/Wrestling/etc...

That's a subsidy.

[Icarus]

Lafayette...

I think you are missing the mark with this obsession with inequality. Growth is not orthogonal. The billionaires your despise are often responsible for tremendous change and increase in utility. Does JK Rowling deserve her billion? Of course...
Would you rather have it re-distributed to the masses? I don't think the entrepreneur in all of us could swallow that. She truly deserves her hundreds of millions because she created the product which the masses value.

This is the ingenuity force of capitalism. You come up with the next great innovation in fuel cells, or video games, or food processing, or pharma, or whatever...you come up with it, and you get the connected financial rewards.

The poor in the US don't suffer because of the actions of the wealthy...it's quite the opposite. The poor suffer mainly due to their own decision making. This is the sad reality which most of the progressive left wont awknowledge.

People have children they can't afford, people abuse their health, people choose not to read and learn...then, of course...poverty arises.

The Bill Gates of society, however ruthless in spirit, provide an incredibly valuble service...they innovate and create. The dim grey of socialist existence is not the answer...

Also...a thought experiment...why have capitalist societies been so attractive over the past 50 years? They have elevated the living standard of the masses who participate within its rules. Such is the attraction...

[Icarus]

Andrew...

The only problem I have with calling this a 'subsidy' is that I just don't trust the math...and, I don't think the equation can be quantified.

Why would a city be willing to put up $100 million, or more, to entice a particular sports team? Is it charity? Is it simply to have public activity?
And, keep in mind, they line up to do so...I doubt the motive is charitable.

So, some combination of financial, and non-financial factors contribute to the decision making. And, what the city provides, is really just a financial incentive. There's no real rule saying the team has to build the stadium. A city can provide the infrastructure for business to locate there (the SEZs which are coming about all over the globe are essentially this).

A city throwing $100 million or more into a stadium is really a business proposition, and not a subsidy. They are betting that investment pays off over time...both through the benefits of increased economic activity, and, as well by the branding it creates.

If it wasn't worth $100 million, and we discovered corruption behind the scenes (the Bud Selig story included), I'd possibly understand your point. But, I still see it as 2 actors negotiating for self interest...the team, and the city.

[OhNoNotAgain]

"If there's a will...one can get a degree. The issue isn't cost...the issue is the will power, and preparation of the potential students."

This is over-simplification taken as practiced by most conservatives. "I did it, or know someone that did, therefore everyone can do it !!!" As if everyone is in the exact same circumstances.

What on earth is so debatable about universal access to a college education in this country ? We did it for high school, and now that isn't enough to ensure a decent wage. Therefore, we need to bump it up to include college also.

However, something tells me that the issue isn't one of education, which is why conservatives really balk at the idea of a free college education for everyone.

[OhNoNotAgain]

Icarus, please stop with the fairy-tale bullshit.

"The poor suffer mainly due to their own decision making."

Please. Tell you what - you give up all of your posessions, knowledge, and experience and go start out in an inner-city neighborhood, and let's see how far you get. My guess is that you'll either be dead or a drug addict before the year is out. There's a reason that a lot of poor people make bad decisions - it's because there aren't any good decisions to be made. They're all bad, and they get to pick the least bad.

"The Bill Gates of society"

Bill Gates is pure mythology. He didn't do anything besides make one really lucky business deal. He hardly did any development at all, and certainly cannot be credited with "creating" or "innovating" anything. Microsoft is responsible for more misery in the computer industry than I care to recount, and all because of their monopoly position in the market. Most of their designs are crap, and the good ones that they do have come from other companies (DOS from IBM, NT from DEC, and on and on) that they either buy outright or steal valuable employees from. But, people like yourself just love this story because it validates their warped fairy tale of the warrior entrepreneur against the world.

[Icarus]

OohNotagain...

Actually, I came from such a background, growing up in Queens, coming from no real money.

But, the results weren't my doing, of course...it requires parents who invest, and provide the disciplinary strucutre required. And...that is what is needed.

As for "will power"...if you can get into a decent college, you should be able to finance it. There are many public universities which provide a very reasonable cost structure. Money isn't getting in the way of getting the degree...competence or will power may...but, money isn't the issue, I'd say.

[Icarus]

Ooohnot again,

Also, as long as we're vilifying Bill Gates...why on Oprah. She doesn't deserve her spoils, right? I mean, Phil Donohue really created the afternoon talk show structure...and, Oprah has done more to squash creativity in afternoon talk shows geared at women.

Ugh.

Technically, this is called "player hating".

Bill Gates isn't clean and infallible. He just succeeded where other's didn't. If creating an operating system which is the global standard is 'no big deal'...then, I'm not sure what is. Also, Sql Server is a decent product; as in internet explorer. Yes, they may not be the best. But, there is value in bundling, and standardizing. Microsoft has done that.
The world can respond with another entrant...you're free to attempt to develop something better (mozilla), and compete. Yes, the deck is stacked against you...but, that is the nature of large competition...the barriers to entry are real, and formidable.

This is why a billionaire is a visionary...they all enter the 'game' in such a situation, and persevere regardless.

Stop hating; participate.

[boris]

cannot be credited with "creating" or "innovating" anything

The intellectual property he created and innovated made it possible for him to construct his empire. Both the IP and the empire were his creations.

As to "fairy-tale bullshit" you assert a fair test would be "give up ... knowledge, and experience". Well the knowledge and experience of others is exactly what inner city sufferes choose to ignore. A fair test would be providing common sense middle class guidance to a willing pupil from that background. It works.

BTW Gates did not write DOS, his entry into the game was Microsoft Basic.

[piglet]

Mankiw is up to something but as usual without knowing it: "If there is one thing about the United States economy in recent years that is beyond dispute, it is this: It’s a great time to be rich."

It is always a great time to be rich, everywhere. What makes it an especially great time here and now is this: the United States in the early 21st century is the rare (maybe unique) example of an extremely stratified, plutocratic society with the vast majority of the people not being angry at the Upper Class. If you can imagine French peasants in 1789 without a trace of anger towards the aristocracy, firmly believing to live in an admirable social system offering equality and opportunity to everybody, then you understand the United States of America.

[boris]

I'd much rather be a middle class modern American than pre-revolution French aristocrat.

[BJ Feng]

Lafayette, notice that the PC GDP(PPP), is much higher for the US than for the EU ($40,000 vs $27,000). That means even with income inequality, the lower middle class here are wealthier than, perhaps even the upper middle class in Europe. I would have to do actual calculations, but I hope you understand my point.

There is a tradeoff in OUR type of economic system (with minimal corruption relative to overall GDP). We allow all the billionaires and such because along with those filthy rich come a higher living standard for all, including the poor. If you are genuinely concerned about the poor, then you should want a system that increases their wealth the greatest, regardless of the greater wealth of others in that society. I'd much rather be a relatively poor millionaire living among billionaires in Bel Air than an relatively rich citizen living in Compton. although I am "poor" compared to my neighbors, I enjoy a far better standard of living than my "rich" counterpart in an relatively equal society. Absolute wealth is what we should be concerned with, not relative income inequality.

[BJ Feng]

Another thing that seems to be forgotten is that those obscenely rich people have created products/systems that have benefited a huge number of people and made their lives better.

Let's say I'm in a pre-modern society where everyone has to work 8 hours a day farming to produce enough food to survive. I invent a tool that reduces that workload to 6 hours for everyone, forever. Shouldn't I be rewarded an incredible amount for this invention? I mean I have just cut 2 hours of work for everyone forever! I should never have to work again and be given luxury upon luxury for this great gift. And because of this invention, the "regular" people are much better off as well and are richer because they now have 2 more hours to either produce more food, or spend as they wish. Everyone wins, and that's indeed what happens under our system.

The people who made computers possible and what we're doing now possible deserve riches. I'm very grateful for the discoveries that have made it possible to share my thoughts with the world, and I express my gratitude by buying a computer and the various products needed, knowing that others are making a profit. It's a fair exchange, the computer and what it does is worth the money I give up even with profit margins built in. I'm better off with a computer instead of that money, the sellers are able to make a profit, we all win.

Those on the left should love the win, win concept. But somehow they frame the discussion as if I'm being exploited because what I buy includes profit for others. Or that others are able to make a huge amount of money by selling products/services that they create to the public. Well if it wasn't worth it, I wouldn't buy it. I still don't have a DVR! Nor do I have a flat screen TV. They aren't worth the money to me, I'm not forced to purchase those products, so when I do buy and give someone a profit, you can be sure I'm going to be better off.

[paine]

"Here's a puzzle: why doesn't the EPI's "Agenda for Shared Prosperity" get more mentions in discussions like this"

maybe its because
the EPI ten point plan
is every one's ten point plan
that is everyone
left of greg mankiw

the problem is not plans its actions

[paine]

"Another thing that seems to be forgotten is that those obscenely rich people have created products/systems that have benefited a huge number of people and made their lives better. "

really ???

they did all that
inventin' and designin'
and shit ???

i guess the problem in the dark ages
b4 1980
WAS "gubmint"

[paine]

"I'm very grateful for the discoveries that have made it possible to share my thoughts with the world "

hmmmm

[Icarus]

If Howard Hughes makes a billion or so, yet helps to pioneer the aviation industry as we know it...and, takes the RISK to do so..isn't that worthy of market remuneration?

Paine...please pontificate via poem.

[Icarus]

If Larry Ellison helps to build the infrastructure which allows societies to collect, store, and process data at levels Kafka would find unbelievable...again, does he not deserve the reward?

[Icarus]

Ratan Tata is now venturing forward with a 'people's car'...after buying Land Rover and Jaguar, he'll approach the other end of the market, attempting to export an 'indian' car. If successful...is he not worthy?

[piglet]

"I'd much rather be a middle class modern American than pre-revolution French aristocrat."

If that is so, it remains to be explained why the hell the American upper class still can't get enough. They are already much richer than Louis XIV ever was. Why do they still need more? Why do they need more tax breaks and corporate welfare, and why do poor and middle class Americans have to live in a state of growing precarity and insecurity in order to protect the wealth of the few?

"Lafayette, notice that the PC GDP(PPP), is much higher for the US than for the EU ($40,000 vs $27,000). That means even with income inequality, the lower middle class here are wealthier than, perhaps even the upper middle class in Europe."

We have heard that before, and it doesn't become true by repeating it all the time. GDP comparisons have become a joke (for a quick reference, e.g. check Kevin Philipps' "Numbers racket: Why the economy is worse than we know" (Harper's May 2008); comparing averages is meaningless if the distributions are significantly different; and anyway GDP is for many reasons not a valid indicator of the living standard. E. g. health care spending will increase GDP - does that mean you are richer the sicker you are?

[OhNoNotAgain]

"Also, as long as we're vilifying Bill Gates"

I'm not villifying Bill Gates. I'm saying that the story that everyone keeps recanting to justify their free-market ideology is not true. *He* didn't actually create anything.

"Bill Gates isn't clean and infallible. He just succeeded where other's didn't."

No, he didn't. He basically managed to pull one over on IBM and then force exclusive licensing deals with PC manufacturers. He may be a shrewd businessman, but he isn't the lone hero that he's made out to be in the fairy tale.

"If creating an operating system which is the global standard is 'no big deal'...then,"

He didn't create a single OS. The only thing that came close was OS/2, which was jointly-developed by MS and IBM, with most of the input and resources coming from IBM.

"I'm not sure what is. Also, Sql Server is a decent product;"

SQL Server came from Sybase and Ashton-Tate originally.

"as in internet explorer."

Internet Explorer came from Spyglass Mosaic.

"Yes, they may not be the best. But, there is value in bundling, and standardizing. Microsoft has done that."

Yes, due to their monopoly position they've been able to force the industry to use whatever they put out. We will never know if it was the best, however, because we never got to see the competitors, and the few that we did were squashed so quickly that they never had a chance.

"The world can respond with another entrant...you're free to attempt to develop something better (mozilla), and compete. Yes, the deck is stacked against you...but, that is the nature of large competition...the barriers to entry are real, and formidable."

Yes, and it has cost us all billions and billions of dollars. Are you happy about paying more for sub-standard quality over the years ? I'm sure not happy about it. It's not what our markets should be like, and we all suffer for it in the same way that we suffer because we only have one cable provider to choose from in most areas.

"Stop hating; participate."

You can stuff the platitudes. I happen to own a software company that competes with Microsoft, so I know all too well how to "participate". Every day I have to deal with people choosing MS products, not because they're better or cheaper, but because everyone else is using them. They constantly dump free low-end products into our market space, only to charge a fortune in licensing fees for the higher-level products that will be necessary for these same "free" customers as soon as their applications go live. But, people keep on paying through the nose because they don't want to risk being "incompatible". And, of course, to reinforce the "incompatible" argument, they constantly change their APIs and interfaces to their products so that compatibility (to the level that they provide) is a pipe dream. They've been busted by the US and EU on this several times, but they still keep doing it.

[OhNoNotAgain]

Boris,

"Well the knowledge and experience of others is exactly what inner city sufferes choose to ignore."

They don't *choose* anything. That's the problem. Geez, do you guys completely lack any understanding of what being poor means ? Being poor is, by its very definition, an absence of choices. They are stuck in a shit situation with no way of getting out. Do you have any idea of what that does to the psyche and decision-making skills of a child growing up in that environment ?

"BTW Gates did not write DOS, his entry into the game was Microsoft Basic."

I never said he wrote DOS. In fact, I've been arguing the opposite all along.

[Icarus]

OhNotAgain...

"No, he didn't. He basically managed to pull one over on IBM and then force exclusive licensing deals with PC manufacturers. He may be a shrewd businessman, but he isn't the lone hero that he's made out to be in the fairy tale."

This is what makes the fairy tale...this may be the greatest 'negotiation' in history. For small outfit to wheel and deal with IBM, and swindell them (in historic proportions), is amazing. This is the root of our collective awe. And, it was amazing.

If you think it so easy, just look at the myriad corporations which fall outside the Fortune 50...the attrition or turnover is enormous. For a college dropout and a buddy to build a global empire, in a frontier economy, is something the rest of us admire. Perhaps you find each step 'easy'...'oh, he just did this, and didn't do that'...just sounds like player hating.

And, your comments about understanding the lack of choices for the poor is as well problematic.

First, lets separate the lower middle class, from the 'poor'. We have a lower middle class who have choices. They can choose how to plan a family. They can choose how to approach education. They can even choose the idols they choose to worship. In fact, all they have is the results of those choices. We must not encourage them to rely on govt handouts and subsidies...that logic is a recipe for failure. They have to succeed within the parameters of their choices, and expand the horizons of their coming generations.

As for the truly poor...again, most do have choices, but, I do hear your point. The depression, violence, extreme poverty, and sense of hopelessness do lead to poor decisions in terms of long term stability and growth.

The problem is that we have new entrants who'll rise beyond those conditions, or those monetary limitations.

A 'middle class' or lower middle class family in India can successfully survive on $500/month. That's enough to raise a child or two, within an inexpensive and controlled household structure. These children can be disciplined effectively, in a loving environment, and be raised to embrace education. It's an intense life, of hard work, and constant studying.
This is the environment which a global economy allows for.

We have new entrants who will overcome financial limitations, and raise a generation of children who know calculus by age 15. They'll study profusely for any exam, and struggle and stretch to get the opportunity to work within the parameters of global capital. They'll do this without laptops and new textbooks, and all the other new tools we think a good education requires.

This competition is the issue. We have people around the globe who are materially much more limited, who nevertheless rise.

Why? We can discuss that for hours...but, the net result is that being poor isn't enough of an excuse. Others rise above it...and, frankly, being the US is a great head start over many other situations.

[Icarus]

Ohnotagain...

A personal anecdote may illustrate my point...

I have a good friend who grew up in Compton, which is a bad area in Los Angeles county. He had a eventful childhood, including gang activity, juvenille hall, and a disturbing home.

He decided, at the age of 18, that he had to 'get away'...ie, that there was little chance of staying in his 'hometown', and being able to escape his environment. He'd have friends asking him for favors, which could amount to continued violence, and/or illegality.

Instead of walking down that familiar path, he managed to move. He took the little money he had, and drove 4 hours north, to Fresno, and got a low paying job.

He needed to get away, and made that choice.

His low paying job turned into a slightly better paying one, and soon, he was able to begin classes at Fresno state. He's now in his 30s, and is working on a phd.

The point isn't that everyone has to get away (although, many need to)...the point is that there are choices. They are often difficult, and could entail lonliness...but, that is the fate of the immigrant, or migrant, or aspiring new entrant.

[OhNoNotAgain]

"This is what makes the fairy tale...this may be the greatest 'negotiation' in history. For small outfit to wheel and deal with IBM, and swindell them (in historic proportions), is amazing. This is the root of our collective awe. And, it was amazing."

No, it was luck and simply the result of a dumb-ass move on the part of IBM management due to a lack of foresight. Don't attribute abilities to people that they don't actually possess. The only reason that the whole thing worked out was MS's ability to *force* PC manufacturers to ship machines with MS-DOS on them instead of a competitor. Had MS-DOS and MS-Windows actually had to compete to gain market share, MS would have been toast very early on.

"If you think it so easy,"

Did you not read what I wrote ? I *own* a software company that I built from nothing to thousands of customers today. It took me 12 years just to get to the point that I'm at. My company also has to actually *compete* with quite a few other companies for every single dollar that we make. From the time MS-DOS was introduced until 12 years later, Microsoft went from being nobody to 4.6 billion in revenue per year. You don't get that far that fast without being the only player in your market. No competition = Microsoft, with all of the resultant market distortions.

"We must not encourage them to rely on govt handouts and subsidies...that logic is a recipe for failure."

These are people, not hamsters. The best thing that we can do for them is to make sure that the kids have enough to eat, get an education, and don't get shot at when they leave the house to go out to play. Currently, we don't provide anywhere near these minimal requirements. If the parents don't do so, then that responsibility falls on us. We either pay for it up-front or we pay for it on the back-end, with the up-front payment being immensely cheaper.

As for your personal story - sure, lots of people rise above poverty. However, that is the exception, not the rule. Being poor in the US means systemic forces working against you non-stop, with the result being that most do not make it out of poverty, thus repeating the cycle and making the situation even worse.

[Lafayette]

ONNA: They've been busted by the US and EU on this several times, but they still keep doing it.

Because the multi hundred-million euro fines applied don't amount to a fly's fart in comparison to their daily net revenue stream.

Still, given that the American courts bent over backwards not to break up the company, I doubt they will get such a comfortable handling in Brussels. The head of the Competition Ministry is one helluva lady not to mess with.

So, here's the heart of the matter: A female Federal judge in the US slapped MS on the wrist, but no one went to jail (for abuse of a dominant position, for which MS was found guilty). A female European Minister of Competition is literally squeezing their you-know-whats because MS slips 'n slides in conforming to EU competition rules - particular in disclosure (of key OS kernel elements) to parties integrating MS software into their products. Go figure.

(And, as some suggest, Ballmer is about as thick as they come. Bill could not care less anymore, he and Melinda are too busy elsewhere spending his colossal fortune.)

So, here's my take: I figure it is not "dirty tricks". More like the fact that even the hotshots at MS don't even know what is happening in the kernel! ;^)

What sayest thou, ONNA?

[OhNoNotAgain]

"Because the multi hundred-million euro fines applied don't amount to a fly's fart in comparison to their daily net revenue stream."

I certainly agree with you there. It was almost like they didn't want to upset the apple cart right when the whole web thing was taking off.

"So, here's the heart of the matter: A female Federal judge in the US slapped MS on the wrist, but no one went to jail (for abuse of a dominant position, for which MS was found guilty). A female European Minister of Competition is literally squeezing their you-know-whats because MS slips 'n slides in conforming to EU competition rules - particular in disclosure (of key OS kernel elements) to parties integrating MS software into their products. Go figure."

From what I've read, that sounds about right. The EU has definitely put *way* more pressure on them then the US ever even hinted at doing.

"(And, as some suggest, Ballmer is about as thick as they come. Bill could not care less anymore, he and Melinda are too busy elsewhere spending his colossal fortune.)"

Yep, it's like WalMart now - the ship has lost its rudder and is starting to drift in alternating directions.

"So, here's my take: I figure it is not "dirty tricks". More like the fact that even the hotshots at MS don't even know what is happening in the kernel! ;^)"

I wouldn't go that far, although my interactions with MS indicate that they do have a severe case of the head not knowing that the hand is picking the nose. This may sound weird given what I've posted already, but we both compete with MS and pay them thousands of dollars a year to co-market and gain access to their customers and products so that we can integrate with them. And, based upon what I've been able to gather in our dealings, they are very much starting to resemble the IBM behemoth of yesteryear. For example, they have literally hundreds of people doing the same function that we accomplish with just 4 people. I think if everyone knew exactly how much money this inefficiency was costing them, they wouldn't be so enamoured of them.

[hari]

The EU Competition Commissioner happens to be a Dutch Conservative with above average credentials from private and public sector. She set on Boards of EU firms of reknown and understands how monopolies actually succeed in EU climate!

[reason]

Lafayette,
you seem to forget a lot of the countries that already ARE in the EU (Poland, Slovakia et.).

[Lafayette]

reason: you seem to forget a lot of the countries that already ARE in the EU (Poland, Slovakia et.

Are they not roughly equivalent to Kansas or Wyoming or Montana with small population densities and a lot of agriculture? But, I'll bet you find a lot more qualified engineers in Poland than the above three American states put together.

The per capita GDP of the EU and the USA are grossly different($27,700 vs: $40,000), but I maintain that the demographics and industrial aggregate makeup are similar ... enough for valid comparisons. And, I suspect that the newer nations will one day soon enough close the per capita GDP gap.