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Gary Burtless of Brookings is skeptical of those Census Bureau surveys showing falling household income:
According to Census tabulations, real median household income dropped 1.5 percent last year. It was the sixth year out of the last seven in which median income fell. … Measured on a comparable basis, it appears that median income adjusted to reflect consumer price change has shrunk more than 9 percent since 2007 and more than 10 percent since 1999. If we accept these estimates, middle-income Americans have about one-tenth less income than they had in the late 1990s. Many politicians and opinion writers accept the estimates without question.
Burtless does not accept those estimates without question. First, economic growth and real disposable income were up 2% or so last year. So it’s weird incomes were down by almost the same amount. But maybe it’s an income inequality thing. The 1% took all the income gains. Yet Burtless points that, according to the Census, “average incomes in the top 5 percent of the income distribution fell faster than incomes in the middle and at the bottom of the distribution.” So that’s not it, either.
So what’s going on here? Here is the explanation Burtless prefers:
The explanation for the shortfall of income growth in the household survey compared with the national income statistics must be the growing discrepancy between the amount of income reported by households in surveys and the amount recorded in other sources, such as tax reports and Social Security payment files. These administrative data files provide the main source of information for compiling the national income accounts. According to the Census Bureau’s CPS survey, the total money income received by Americans, adjusted for price inflation, fell 1.1 percent per person in 2014 compared with 2013. In contrast, the national income and product account statistics show that money income per person, using the same consumer price index, increased 2.1 percent. The CPS has shown slower money income gains than the national accounts in 10 of the past 15 years.
So while Census surveys suggest real income person has fallen by 4% since 1999, Commerce Department’s estimates suggest an increase of 8.5%, if not twice as much.
Income disparities have certainly increased over the past 40 years, producing smaller income gains for low- and middle-income Americans compared with those at the top. In addition, average income gains have slowed in the past 15 years compared with the previous 20. It is also the case, however, that income reporting on household surveys has deteriorated over time, reducing the fraction of income gains that are captured in the country’s oldest income survey. Middle class income gains have slowed since 2000, but it is doubtful they have turned negative over the period.
A company called Blade is promising to disrupt traditional transportation even further with helicopter Uber-style services when the pope comes to NYC. Plus the return of the printed book, how Netflix has demolished another stronghold of network TV, and why one writer calls the pope’s relationship with technology “#itscomplicated.”
Book sales hang on as e-books wither – Fortune
Songwriter says he made $5,679 from 178 million Spotify streams- Ars Technica
Morgan Stanley: U.S. Consumers Are Doing “Dumb Things” With Money- Business Insider
Blade, the Uber of helicopters, will get you around Pope traffic in Manhattan for $95 – The Verge
It’s Time to Rein in Exorbitant Pharmaceutical Prices – HBR
A New Netflix Study Reveals when Viewers get “Hooked” on their TV Shows – FastCompany – “This debunking of the importance of the pilot is yet another cannon Netflix is firing at the traditional television paradigm. The notion that it may take several episodes for a show to gain traction is anathema at networks, where the clock starts to tick as soon as a pilot airs, and pressure is on to cancel any series that isn’t immediately performing. ”
VW Probably Won’t Die—But if It Does, Europe Is in Trouble – Wired
There are plenty of people who expect that this will all blow over, mainly because, as icky and evil as this case may look, the vehicles themselves are still safe to drive. “No one’s dying because of this,” says Sean McAlinden, chief economist at the Center for Automotive Research. “The big shock is that they lied, and they did it on purpose.” …
Others… expect Volkswagen to feel the effects of this scandal for years. For starters, the fact that Volkswagen has already set aside $7.3 billion to deal with the fallout is a strong sign that the company expects to owe a lot more than that.
What Does the Pope Think About Technology? #It’sComplicated – Wired
He’s called the Internet a “gift from God.” But he’s also warned that the abundance of data and digital stimulation we all consume each day can amount to a kind of “mental pollution” that harms our relationships and shields us from the real pain and joy that comes with human interaction. … On the surface, Pope Francis’ thoughts on the power of the Internet can appear contradictory, particularly when the Internet is flooded with news about his historic arrival in the US, complete with hashtags and PopeMojis. And yet, these seemingly conflicting approaches to technology reflect what it means to be the pontiff in the digital age. Even as he cautions against over-reliance on technology, he has no choice but to embrace it.
View related content: Pethokoukis
The fallout from the VW emissions scandal continues (via the FT):
Martin Winterkorn is to leave Volkswagen with a pension pot worth €28.57m after resigning as chief executive in a scandal that has wiped €25bn off the car maker’s shares and spawned probes across the world. He could also be eligible for a severance payout of over €3.2m following his early departure from the company’s board. Mr Winterkorn bowed to mounting pressure during a meeting at Volkswagen’s headquarters over an emissions scandal that knocked a third off the car maker’s share price in three days. The stock began to rise late on Wednesday after slumping 30 per cent earlier in the week.
Corporate short-termism in action! Certainly this might be a legit case for compensation clawback, though apparently VW’s “compensation program lacks any mechanism to do that.” And what might US-touring Pope Francis says about this, given his capitalism critique? Certainly there is greed and sin and stupidity in every institution created by man. Including business and government. Even do-gooding non-profits. For more on this, I urge you to check out this overnight tweet-storm by my pal Pascal-Emmanuel Gobry. Here is a bit of it:
In a fallen world, Pope Francis, capitalism is not perfect. But it is better than any available alternative
In my latest The Week column, I write the obligatory defense of market capitalism against the Pope Francis critique. It’s an argument I’ve made before, but the pope and China’s President Xi Jinping almost being in Washington together gave me a nice “what if” hook. What if they took a meeting? How would the pope contextualize his capitalism critique with 700 million Chinese escaping extreme poverty due to China’s market tilt over the past four decades?
So, yeah, it would be great if Pope Francis fully acknowledged this humanitarian marvel provided by markets. But not just that. Economic freedom also enriches the lives of humans far above starvation levels. As my AEI colleague Michael Strain beautifully writes:
Free markets also enable flourishing lives through meaningful work. Pope John Paul II writes in Laborem Exercens that man is “called to work.” “Man is the image of God,” writes Saint John Paul, “partly through the mandate received from his Creator to subdue, to dominate, the earth. In carrying out this mandate, man, every human being, reflects the very action of the Creator of the universe.” In our ordinary tasks — in our day jobs — we are, according to the church, “unfolding the Creator’s work.”
The free enterprise system allows individuals to choose where (and if) to work, educating our passions by directing them to productive ends — ends that we choose ourselves, and that are therefore likelier to bring us fulfillment and to maximize our potential. They allow us to express creativity, to make our contribution to society as we see fit. The remarkable capacity of market economies to generate jobs sufficient to match a growing population allows us the opportunity to fulfill one of our most basic human desires and meet one of our most basic duties: to provide for our families.
Not that the pope’s argument is without any merit. Far from it. As I write at the end of my The Week column:
Capitalism isn’t perfect, of course. And free marketeers should talk about those imperfections. Capitalism has created a globalized, technologically advanced world generating great wealth and great anxiety. (Will the robots take all the jobs other than CEO??!?) And every market outcome isn’t an acceptable one. For instance, if the market wage for low-skill jobs won’t keep families out of poverty, then society, through government, should act.
More on that to come on that. And finally, this bit from a previous post by me that again quotes the great Deirdre McCloskey:
As the Christian and libertarian economist Deirdre McCloskey writes in The Bourgeois Virtues: Ethics for an Age of Commerce, the good society can be built on the cardinal and theological virtues that also support a prosperous commercial society. The virtue of courage, for example “to venture on new ways of business … to overcome the fear of change, to bear defeat unto bankruptcy, to be courteous to new ideas, to wake up the next morning and face fresh work with cheer.” And hope “to imagine a better machine … to see the future as something other than stagnation or eternal recurrence, to infuse the day’s work with a purpose, seen one’s labor as a glorious calling. … The claim here is that modern capitalism does not need to be offset to be good. Capitalism on the contrary can be virtuous. In a fallen world, the bourgeois is not perfect. But it is better than any available alternative.” McCloskey goes on to write that capitalism needs to be “inspired, moralized, completed.” That sounds exactly like what Pope Francis is trying to do.
Links and quotations for September 23, 2015: Kids won’t eat government-mandated fruit, Sweden’s six hour workday, and more
Sweden is experimenting with the six-hour workday in its senior care facilities… Even there, there are major questions whether it’s workable. That and more, including how you can give kids an apple but not make them eat, and how history illustrates donor politics as part and parcel of human progress. Printing press, anyone?
For China, a Pyrrhic Victory in PCs – Bloomberg View
Musicians hear songs when they read music, non-musicians seek visual patterns – Ars Technica – “…our brains are fundamentally changed when we choose to specialize and train in a specific area of expertise.”
Deal allowing tech companies to transfer data between US and EU is invalid – Ars Technica
Kids Are Tossing Their Government-Mandated Fruit Straight In The Trash – FastCompany
Could the US ever adopt a six-hour workday? – FastCompany – “It’s no wonder that the idea of a six-hour workday is getting its most rigorous test drive in Sweden, which has actually been experimenting with it on and off since the late ’80s. And even there, it still faces pushback from officials who say it’s too costly.”
The Return of Political Economy – RealClearWorld
The second decade of the 21st century has been marked by the return of political economy, as realpolitik has replaced the globalization theme in the framework of geopolitics. Considering the key events in 2014 – the Ukraine crisis being the most prominent, but also the fall in the price of oil and the struggles of the eurozone – relative standing in the global economy is now one of the most important factors in the relations between major geopolitical actors.
Military alliances are reinforced by economic linkages among the allied countries. Regional integration efforts take into account market opportunities and risks as well as security challenges. Two agreements currently under negotiation – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership – have the potential to create a new level of coordination between the United States and its partners. The accords would not only impact trade, but also aim at regional regulatory harmonization. The two partnership blocs, covering the Atlantic and the Pacific, would add political ingredients to economic interdependencies, positively influencing security coordination among partner states.
Why the US jobs market is a lot healthier but still may have ‘some way to go’ before it’s back to normal
The official unemployment rate of 5.1% suggests a jobs market that is more or less healed:
The employment population ratio, the number of employed as a share of the working-age population, still looks deeply depressed:
So which measure better reflects the true state of the labor market? Well, one way to gauge is by looking at a third measure. A new Atlanta Fed blog post highlights the “utilization-to-population” ratio, or ZPOP. (Yes, there is a K-pop joke in there somewhere.
The ZPOP ratio is the share of the working-age population that is “working full time, is voluntarily working part-time, or doesn’t want to work any hours.” It is a way of answering the question, “Are your labor services being fully utilized?” The Atlanta Fed:
According to this measure, about 91 percent of the working-age population is considered fully utilized. The remaining 9 percent are “underutilized” and are a roughly even mixture of the unemployed, those not in the labor force but wanting to work, and those working part-time but wanting full-time hours. The headline U-3 unemployment rate is very close to its prerecession level but is thought to overstate the health of the labor market. At the same time, we think that the EPOP ratio overstates the amount of remaining labor market slack. The ZPOP ratio is in the middle; approaching its prerecession level but still with some way to go.
So maybe that isn’t a bad way of looking at the labor market, ” … approaching its prerecession level but still with some way to go.”
Economist survey suggests a better way to help low-income workers than raising the minimum wage to $15
An interesting question from the latest University of Chicago IGM Forum economist survey: “If the federal minimum wage is raised gradually to $15-per-hour by 2020, the employment rate for low-wage US workers will be substantially lower than it would be under the status quo.”
Their responses, weighted by confidence level: 34% agree (9% strongly), 37% uncertain, 29% disagree.
A bit more evidence, then, suggesting that the “Fight for 15” isn’t the least risk free way to help boost worker wages versus the Earned Income Tax Credit or other wage subsidy.
First, this was my original hed: “Hey, anti-growth regulations, Jeb Bush says he’s coming for you and he’s bringing hell with him! Or at least the REINS Act!”
Anyway, deregulation is just not as sexy a policy as tax cuts. Kind of technical and wonky, the effects less immediate and obvious. But regulatory reform may be just as important as tax reform in boosting US economic growth. It also may be a bigger political winner, at least for the GOP, than high-end tax cuts. So, Jeb Bush has come out with a regulatory reform plan. It’s a key part of his 4% GDP target idea. From the proposal:
Regulatory reform can bring America into the top 10 in ease of starting a business. It can increase productivity. It can finally give American workers a raise. Fully implemented, regulatory reform can boost GDP by three percent over the next 10 years. In conjunction with Governor Bush’s tax reform plan, the regulatory reforms outlined here will help increase average compensation, so that by 2020 a typical family of four earning $50,000 will have an after-tax income that is approximately $3,100 higher than it would without these reforms. … First, we will require regulators to live within a budget – for every one dollar of regulatory cost they propose, they will need to also propose ways to save an equivalent dollar through regulatory relief. We will implement a “one in, one out” regulatory budget. A rule like this would have avoided roughly $99 billion in regulatory costs over the Obama presidency.
Second, we will enhance and enforce presidential control over regulations.Regulations will not be issued unless regulators have identified a major market or policy failure that new regulations are likely to solve. They will need to show that state-based solutions are insufficient and that benefits outweigh costs. And we will expect regulators to strictly adhere to the plain, ordinary meaning of constitutional and statutory limitations. I will also sign the REINS Act into law, empowering Congress to approve or reject, through a simple majority vote, regulations that impose outsized burdens on the economy.
Third, we will establish a two-year deadline for completing federal permitting process – including environmental impact reviews — for major infrastructure projects that are mired in delays stretching up to a decade or more. We will get highway, port, bridge and other critical projects going, creating jobs and growing our economy.
Directionally, this is good stuff. The “one in, one out” riffs off the One-for-One regulatory rule instituted recently by Canada. Also begins building the case for infrastructure spending. But I would have preferred more on financial reform other than just a critique of Dodd Frank. Also nothing on reforming intellectual property, something that was outlined the other day in an excellent deregulation blueprint from Lincoln Labs. Of course, that stuff is more controversial on the right than, say, signing the REINS Act.
Likewise, a bit surprising there was nothing explicit about the sharing/gig economy given how much Republicans like talking about Uber. Team Bush does, however, reference occupational licensing. I guess overall I would have liked the proposal to have been placed more firmly into a startups/Innovation State framework, especially given the recent Mercatus study. (This is something the Lincoln Labs report does a great job of, infusing these issues with Silicon Valley perspective.) I dunno, maybe something on bitcoin or drones, maybe?
A new study from Brookings shows flat wages for men since the mid-1970s. That and more surprises, like the Midwest’s opiate and heroin epidemic, and what technology can’t change in our happiness.
Unabomber’s anti-technology manifesto published 20 years ago – ArsTechnica
Who’s Benefiting from MOOCs, and Why – HBR
People Are More Likely to Cheat at the End – Scientific American – “This study concludes that, as people get closer to finishing an activity, they become more and more likely to deliberately deceive others for their own benefit. And they do this, the research shows, because they anticipate regretting a missed opportunity to cheat the system.”
Men haven’t gotten a real raise since the 1970s – The Week – “Analysis from the Brookings Institute finds that men in America haven’t had a real raise in 40 years.”
How Companies Can Help Rebuild America’s Common Resources – HBR – “Starting around 1980, however, shifts in technology, geopolitics, and governance changed the game. … Throughout this period, America systematically underinvested in the common resources that underpin shared prosperity. That needs to change.”
Why Europe isn’t creating any Googles or Facebooks – Business Insider
Europe’s relatively cautious attitude to investment stands out as one of the biggest hurdles — and among the most difficult to change. … Investors in Europe want to see that a young company can generate revenue from the start. Europe’s many high-technology companies are focused on manufactured goods that can be sold right away to generate revenue — industrial equipment, energy turbines, high-speed trains, medical devices, and nuclear energy.
By contrast, Internet companies often have little to no revenue at the beginning.
What Technology Can’t Change About Happiness – Nautilus
This article is too great to miss, and hard to excerpt, but here’s my best effort:
In 2014, researchers at the University of Warwick in England announced they had found a strong association between a gene mutation identified with happiness and well-being. It’s called 5-HTTLPR and it affects the way our body metabolizes the neurotransmitter serotonin, which helps regulate our moods, sex drives, and appetites. The study asks why some nations, notably Denmark, consistently top “happiness indexes,” and wonders whether there may be a connection between a nation and the genetic makeup of its people. Sure enough, controlling for work status, religion, age, gender, and income, the researchers discovered those with Danish DNA had a distinct genetic advantage in well-being. In other words, the more Danish DNA one has, the more likely he or she will report being happy.
[…] Over the past decade or so, a growing number of researchers have begun to rethink exactly what happiness is and distinguish between two types: “hedonic” happiness, that positive mental high, and “eudaimonic” happiness. Aristotle was referring to this second kind when he wrote 2,300 years ago: “Happiness is the meaning and the purpose of life, the whole aim and end of human existence.” This is the kind of happiness that qualifies a life well-lived, time on this planet well-spent. Medical technology may soon be able to engineer a momentary absence of fear, or the presence of a moment-to-moment sense of well-being, but engineering this second kind of happiness would be far more difficult.
Heroin in the Midwest: A hydra-headed scourge – The Economist
Heroin hit the Midwest harder than other places because the coasts learned to deal with the problem in the 1960s, and are thus better able to handle its resurgence, says David Ferguson, a medicinal chemist at the University of Minnesota… Midwesterners, especially in rural areas, are less aware of the dangers. They had to learn how to fight drug traffickers, mostly from Mexico, who use Chicago as a transport hub for their wares. The Midwest and the South also have far fewer treatment centres for addicts than the north-east.
The heroin epidemic in the Midwest is closely linked to the rampant opiate epidemic. As doctors prescribed opioid painkillers such as OxyContin more and more liberally, their abuse grew. Sales of prescription opioid painkillers have increased 300% since 1999, according to the federal Centres for Disease Control and Prevention (CDC), even though the amount of pain Americans report to their physicians has not changed. …“This is a doctor-caused epidemic,” says Tom Frieden, boss of the CDC.
Mandating companies pay this or that benefit may seem like a free lunch to policymakers. Workers are helped, and taxpayers don’t bear the burden. Yet as Larry Summers wrote in“Some Simple Economics of Mandated Benefits”back in 1989: “If policymakers fail to recognize the costs of mandated benefits because they do not appear in the government budget, then mandated benefit programs could lead to excessive spending on social programs. There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers. … Mandated benefit programs can work against the interests of those who most require the benefit being offered.”
The Economist looks at this issue, in the context of part-timers, freelancers, and independent contract. Gig economy alert!
The main benefits associated with employment fall into three broad categories: public pensions, health care, and unemployment insurance. In the case of pensions, governments usually levy payroll taxes on firms in proportion to their workforce, and use the proceeds to support pensioners. Hire a worker as a contractor, and firms need not pay the levy; in America, the self-employed must instead pay it themselves. Workers’ advocates claim this means contractors face higher tax rates than employees.
However, conventional economics says the burden of a tax cannot be altered just by changing which party writes the cheque. America’s Congressional Budget Office considers payroll taxes part of a worker’s tax burden, even though employers pay them. Were Uber forced to pay social-security contributions instead of its drivers, it would presumably offset this extra cost by reducing the share of each fare that goes to drivers. Their take-home pay would remain the same. This argument cuts both ways: if it does not matter who pays, firms may as well cough up (though businesses may legitimately worry about the associated administrative costs of paying contributions).
Then there is health care, which is often tied to jobs in America. Again, there is no free lunch for workers when employers foot the bill. Numerous studies have found that the more firms pay for health insurance, the less they pay in wages. For instance, in 1994 Jonathan Gruber of MIT found that when some states began insisting on better coverage for childbirth, married 20- to 40-year-old women—whose insurance costs rose most on average—took an offsetting hit to their pay. …
If compulsory benefits are offset by lower wages, why should Uber’s drivers care how they are labelled? Accepted economic wisdom provides one possible answer: wages are “sticky”, or hard to cut in cash terms. If it takes time for pay to fall in real terms, workers who win more benefits in court would be better off for a short while. Workers may also recognise that there is one benefit attached to employee status—a minimum wage—that cannot be offset by lower pay.
Is that an argument for a minimum wage for contractors? Opponents point to its distorting effect on incentives. Workers would look to boost hours rather than output, requiring firms to monitor their effort closely. In Uber’s case, a driver could stay in a quiet area, take few passengers and still make money. What might tip the balance the other way is if firms have too much bargaining power over their workers. This should not apply to a traditional contractor, such as a plumber, who works for lots of clients. But were apps to dominate a whole market—as some suspect Uber eventually might—then contractors may feel outgunned. If that happens, they will need more protection.