AEI » Blog http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Sat, 22 Nov 2014 05:25:14 +0000 en-US hourly 1 An amazing chart of an amazing job-creating state; we owe a debt of gratitude to ‘Saudi Texas’ and the shale boomhttp://www.aei.org/publication/822253/ http://www.aei.org/publication/822253/#comments Sat, 22 Nov 2014 00:22:24 +0000 http://www.aei.org/?post_type=publication&p=822253 The chart above shows a most amazing economic phenomenon: Since December 2007 when the Great Recession started, Texas civilian employment has increased by 12.4% and by more than 1.36 million jobs, from just over 11 million jobs in December 2007 to 12.37 million in October of this year (see blue line in chart). In contrast, [...]

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The chart above shows a most amazing economic phenomenon: Since December 2007 when the Great Recession started, Texas civilian employment has increased by 12.4% and by more than 1.36 million jobs, from just over 11 million jobs in December 2007 to 12.37 million in October of this year (see blue line in chart). In contrast, civilian employment in the other 49 states without Texas is still 0.26% and more than 350,000 jobs below the December 2007 level (see red line in chart) — there were 134.9 million non-Texas jobs in October vs. 135.26 million in December 2007.

It’s also important to note that while job growth in Texas slowed considerably in 2008 and 2009 due to the recession, the level of civilian employment in Texas never fell below its pre-recessionary, December 2007 level. Also, while Texas was able to actually increase jobs slightly even during the depths of the recession in 2008 and 2009, the US labor market minus Texas experienced a stunning loss of 8.374 million jobs (a percentage drop of 6.2%) in the two year period between December 2007 and December 2009.

In another job-related milestone for Texas, the BLS reported today that annual payroll employment in Texas increased in October by more than 400,000 jobs from a year ago for the third straight month, and established a new all-time state record for job growth over a 12-month period with a 421,900 gain from October 2013. Over the last year, Texas has added more than 1,600 new jobs every business day – a hiring rate of more than 200 jobs every hour! Also, Texas’s annual job gain of 421,900 through October represented 16% of the country’s 2.643 million increase in nonfarm payroll employment over that period, even though Texas’s population is only 8.4% of the US total. In percentage terms, Texas payrolls increased by 3.74% over the last 12 months, almost double the 1.93% growth in US payroll employment.

The chart and data tell a powerful and remarkable story of job creation in the Lone Star State of more than 1.36 million new jobs added since the start of the Great Recession, compared to a net deficit of 354,000 jobs for the other 49 states combined. Much of the economic success of Texas in recent years that has fueled job creation in the state is a direct result of the shale oil and gas boom taking place in areas like the Permian Basin in west Texas (1.8 million barrels of oil per day) and the Eagle Ford in south central Texas (1.6 million barrels per day). Texas is now producing almost 37% of America’s total crude oil production, and as a separate country would be the world’s 8th largest oil-producer. Further, Texas has done a great job of attracting businesses like Toyota because of the state’s “employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce.”

Bottom Line: The country, the president, and all of us individually owe a huge debt of gratitude to the state of Texas and to the oil and gas industry for helping support the US economy during and after the Great Recession. Without the energy-driven economic stimulus from the fracking revolution, and without the gusher of jobs in the state of Texas, there’s no question that the Great Recession would have been much worse and lasted much longer, and the jobs picture today would be much bleaker. The chart above helps to illustrate how important the state of “Saudi Texas” is to the US labor market and economy. Thanks largely to the Lone Star State, the US has finally gained back all of the jobs lost during the Great Recession – September and October this year have been the only two months since 2007 that civilian employment in the US surpassed the pre-recession jobs peak. God Bless Texas.

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Greece’s collision course with Germanyhttp://www.aei.org/publication/greeces-collision-course-germany/ http://www.aei.org/publication/greeces-collision-course-germany/#comments Fri, 21 Nov 2014 20:00:48 +0000 http://www.aei.org/?post_type=publication&p=822231 The Greek government’s budget presentation was made in the context of its expectation that general elections might need to be called early next year. Under the Greek constitution, the government needs a 60% parliamentary majority to elect a replacement for the country’s current president, whose term expires in February 2015. In the all too likely event that the government fails to muster the required majority, the Greek parliament would be dissolved and a general election would be called.

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Today’s decision by the Greek government to present a budget for 2015 that is in open defiance of the wishes of its European Union and IMF paymasters is of singular importance. Since it signals that not only the far-left Syriza Party but the whole of the Greek political establishment is now hostile to further fiscal adjustment and structural economic reform. This would seem to put Greece on a clear collision course with Germany that could have serious consequences for the Greek economy next year.

The Greek government’s budget presentation was made in the context of its expectation that general elections might need to be called early next year. Under the Greek constitution, the government needs a 60% parliamentary majority to elect a replacement for the country’s current president, whose term expires in February 2015. In the all too likely event that the government fails to muster the required majority, the Greek parliament would be dissolved and a general election would be called.

The far-left Syriza Party, which is comfortably ahead in the electoral polls has long since called for an end to fiscal austerity and structural reform. The significance of today’s move by the government appears to be that it too is now singing from the same hymn sheet as the opposition. This means that irrespective of which party wins the general election next year, Greece will no longer hew to the line dictated to it by the IMF and EU, which are very much despised by a recession-weary Greek public.

Many across the Greek policymaking spectrum appear to think that Greece can now thumb its nose at the IMF and EU with impunity. They do so in the belief that since the Greek government has a primary budget surplus (or a surplus once interest payments are excluded from the budget), it no longer needs net financing from abroad to cover its budget needs. Sadly, in so doing they overlook the fact that the Greek government has major amortization payments to make in 2015, a large part of which payments are due to the IMF and to the European Central Bank (ECB). It would be fanciful to believe that the IMF and the ECB would passively roll over the payments falling due to them in the absence of a Greek commitment to budget prudence and structural reform. Since such a stance by the IMF and ECB would send a clear message to the other countries in the European periphery like Italy, Portugal, and Spain, that there are no consequences for wayward economic policy behavior.

Running afoul of the ECB would be a particularly risky course for Greece to take as Greece policymakers should well know from their own experience at the start of the European sovereign debt crisis. Since Greece needs to have acceptable macroeconomic policies in place to access the ECB’s rediscount window. Absent such ECB access, the Greek banking system would be highly vulnerable to capital flight from Greece in search of safer havens abroad.

Hopefully the developing Greek political consensus against budget discipline and structural reform is noise ahead of a likely general election early next year. Since, if it is not noise, the world should be bracing itself for a second round in the Greek exit from the Euro saga.

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Why America’s entrepreneurial heart is beating more slowlyhttp://www.aei.org/publication/americas-entrepreneurial-heart-beating-slowly/ http://www.aei.org/publication/americas-entrepreneurial-heart-beating-slowly/#comments Fri, 21 Nov 2014 19:04:37 +0000 http://www.aei.org/?post_type=publication&p=822213 Again on the subject on the decline of US entrepreneurship -- or at least the decline of US startups -- over the past three decades, here is the latest research from Ian Hathaway and Robert Litan, as summarized by the great Ben Casselman at 538.

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Again on the subject on the decline of US entrepreneurship — or at least the decline of US startups — over the past three decades, here is the latest research from Ian Hathaway and Robert Litan, as summarized by the great Ben Casselman at 538:

Hathaway and Litan look at more than three decades of data on business startups, expansions and failures from the Census Bureau’s Business Dynamics Statistics. They find a strong correlation between a region’s population growth and its startup rate. That makes intuitive sense: For example, Arizona, Florida and Utah experienced booming economies for much of the late 20thcentury that attracted new residents and new entrepreneurs. Overall population growth, however, has been gradually slowing over the past 20 years, possibly dragging the startup rate down with it.

The second big trend Hathaway and Litan look at is consolidation. Virtually every sector of the economy is more dominated by big companies today than it was 30 years ago. The authors find that regions that have seen more consolidation have also seen bigger declines in entrepreneurship. That, too, makes sense: For all the talk about disruption, it’s much harder to break into an industry that’s dominated by a handful of big, entrenched incumbents.

Hathaway and Litan conclude these two factors could be responsible for some three-fourths of the multi-decade decline, with bad policy such as regulation and taxes perhaps making up some bit of the rest. As far as a policy agenda goes, the researchers think it is “very likely that creating and expanding both entrepreneur and STEM education/green card visas in the future would increase startup rates. Teaching entrepreneurship in college and K-12 might also have some promise but needs more research and experimentation. Hathaway actually addressed the education issue in a recent podcast with me:

So Bill Aulet at MIT has written a great book on this called “Disciplined Entrepreneurship.”  Some folks say you can’t teach entrepreneurship.   I disagree with that.  And I think Bill’s sort of one of the leaders in this space and has a lot to say on that. And my co-author Bob Litan  has this great idea of instead of just teaching math and science  where students aren’t that engaged, but actually incorporating how that scientific and that mathematical knowledge has been used in the course of business to create goods and services and, teaching the commercial side of this, providing a link to that from young ages so it’s sort of a part of that curriculum and that learning all along throughout the education process.

Beyond that, let me add this: Increased immigration overall and fertility rates would be one way to address the first startup inhibitor. As for the second, consolidation, that could be result of less competitive intensity in the economy and the rise of strong creative monopolies like Facebook and Apple due to network effects. As economist Mike Feroli of JP Morgan has argued, ” … the decline in start-up activity has been a disconcerting feature of this expansion. … This is especially the case since most measures of business profit margins look elevated, which should stimulate new business formation. … One hypothesis is that those elevated margins owe to natural monopoly profits, perhaps due to an increased prevalence of network effects. In this case, the incumbent profits are incontestable, and start-up activity shouldn’t be expected to increase.”

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Red ink redux: Why a return to trillion-dollar budget deficits starts in 2017http://www.aei.org/publication/red-ink-redux-return-trillion-dollar-budget-deficits-starts-2017/ http://www.aei.org/publication/red-ink-redux-return-trillion-dollar-budget-deficits-starts-2017/#comments Fri, 21 Nov 2014 18:00:28 +0000 http://www.aei.org/?post_type=publication&p=822179 It's an underreported story -- except on this blog -- but the US budget deficit has come way down in recent years. The fiscal gap has narrowed from $1.4 trillion, or 9.8% of GDP, in fiscal 2009 to $483 billion, or 2.8% of GDP in fiscal 2014. The key drivers:an improving economy, 2013 tax hikes, and the spending cuts/caps of the 2011 Budget Control Act. But enjoy it while it lasts. Trillion-dollar deficits are likely on their way back.

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It’s an underreported story — except on this blog — but the US budget deficit has come way down in recent years. The fiscal gap has narrowed from $1.4 trillion, or 9.8% of GDP, in fiscal 2009 to $483 billion, or 2.8% of GDP in fiscal 2014. The key drivers:an improving economy, 2013 tax hikes, and the spending cuts/caps of the 2011 Budget Control Act.

But enjoy it while it lasts. Trillion-dollar deficits are likely on their way back. Citi:

Despite recent reductions in the Federal deficit, we believe that FY2016 will be a turning point, after which the deficit (as a share of GDP) resumes its rise. Unless policymakers implement substantial measures now, a legacy of outsized mandatory spending on health care (Medicare and Medicaid) and retirement (Social Security) benefits, rising debt service and inefficient tax collection, along with demographic trends, will cause the Federal deficit and debt to balloon over the next decade. …

Outsized deficits and debts may reduce the pace of economic growth and lower the standard of living of many. Moreover, government resources that could be used for national priorities or mitigating shocks, might be crowded out by interest expenses generated from borrowing to finance fiscal obligations. Currently, such pressures have been muted because nominal and real interest rates on Federal debt are at record lows. But over time, debt service will mount amid more normalized interest rates. On balance, the large amount that the government will have to borrow to finance rising future mandated expenditures will raise US Treasury securities issuance well above historical norms.

Citi

Citi

Citi, CBO

Citi, CBO

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The rise of the machines vs. workers, in one charthttp://www.aei.org/publication/rise-machines-vs-workers-one-chart/ http://www.aei.org/publication/rise-machines-vs-workers-one-chart/#comments Fri, 21 Nov 2014 16:49:05 +0000 http://www.aei.org/?post_type=publication&p=822162 For a long time, the share of national income going to labor vs. capital (represented in the above chart as worker income vs. corporate profits) was a steady relationship. But as University of Chicago economists Loukas Karabarbounis and Brent Neiman note in "The Global Decline of the Labor Share," "the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries." A macro-observation deserves a macro-explanation.

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For a long time, the share of national income going to labor vs. capital (represented in the above chart as worker income vs. corporate profits) was a steady relationship. But as University of Chicago economists Loukas Karabarbounis and Brent Neiman note in “The Global Decline of the Labor Share”, “the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries.” A macro-observation deserves a macro-explanation:

We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced fi rms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing pro ts, capital-augmenting technology growth, and the changing skill composition of the labor force.

As machines can do more,  companies need man less — at least the kind of man without complementary skills. Policymakers must at least consider that technology-driven unemployment is a long-term factor that should influence next steps on reforming everything from education to taxes to the safety net. More from Andrew McAfee in the FT, who pointed me to the chart:

I expect the red line to continue to fall as robots, artificial intelligence, 3D printing, autonomous vehicles, and the many other technologies that until recently were the stuff of science fiction, permeate industry after industry. Policies intended to keep these advances out of a country might halt the decline of the labour share for a while, but they’d also halt competitiveness pretty quickly, thus leaving both capital and labour worse off.

I think the continued decline of the labour share, brought on by tech progress, will be a central dynamic, if not the central dynamic, of the world’s economies and societies in the 21st century. It’s a story much more about what will happen to the livelihood of the 50th percentile worker than to the wealth of the 1 per cent. And a much more important story.

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Something to be thankful for: the real cost of a Thanksgiving dinner is 1.3% cheaper than last year, 21% cheaper than 1986http://www.aei.org/publication/something-thankful-real-cost-thanksgiving-dinner-1-3-cheaper-last-year-21-cheaper-1986/ http://www.aei.org/publication/something-thankful-real-cost-thanksgiving-dinner-1-3-cheaper-last-year-21-cheaper-1986/#comments Fri, 21 Nov 2014 16:35:08 +0000 http://www.aei.org/?post_type=publication&p=822134 From the American Farm Bureau Federation (AFBF): The American Farm Bureau Federation’s (AFBF) 29th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $49.41, a 37-cent increase from last year’s average of $49.04. The big ticket item – a [...]

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turkey2From the American Farm Bureau Federation (AFBF):

The American Farm Bureau Federation’s (AFBF) 29th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $49.41, a 37-cent increase from last year’s average of $49.04. The big ticket item – a 16-pound turkey – came in at $21.65 this year. That’s roughly $1.35 per pound, a decrease of less than 1 cent per pound, or a total of 11 cents per whole turkey, compared to 2013. The average cost of the dinner has remained around $49 since 2011.

The AFBF survey shopping list includes turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10. There is also plenty for leftovers.

Foods showing the largest increases this year were sweet potatoes, dairy products and pumpkin pie mix. Sweet potatoes came in at $3.56 for three pounds. A half pint of whipping cream was $2.00; one gallon of whole milk, $3.76; and a 30-ounce can of pumpkin pie mix, $3.12. A one-pound relish tray of carrots and celery ($.82) and one pound of green peas ($1.55) also increased in price. A combined group of miscellaneous items, including coffee and ingredients necessary to prepare the meal (butter, evaporated milk, onions, eggs, sugar and flour) rose to $3.48.

In addition to the turkey, other items that declined modestly in price included a 14-ounce package of cubed bread stuffing, $2.54; 12 ounces of fresh cranberries, $2.34; two nine-inch pie shells, $2.42; and a dozen brown-n-serve rolls, $2.17.

“America’s farmers and ranchers remain committed to continuously improving the way they grow food for our tables, both for everyday meals and special occasions like Thanksgiving dinner that many of us look forward to all year,” said AFBF Deputy Chief Economist John Anderson said. “We are blessed to be able to provide a special holiday meal for 10 people for about $5.00 per serving – less than the cost of most fast food meals.”

A total of 179 volunteer shoppers checked prices at grocery stores in 35 states. Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals. The AFBF survey was first conducted in 1986. While Farm Bureau does not make any scientific claims about the data, it is an informal gauge of price trends around the nation. Farm Bureau’s survey menu has remained unchanged since 1986 to allow for consistent price comparisons.

Some comments:

1. Compared to last year’s cost of $49.04 for a complete classic Thanksgiving dinner for ten people, this year’s cost of $49.41 for the dinner is only 0.75% (and 37 cents) higher (see blue line in chart). That compares to increases in overall consumer prices over the last year of 1.7% and average wages of 2.2%.

In addition to the 0.5% decrease in turkey prices compared to last year, the other items that decreased in price over the last year were: rolls (-0.5%), stuffing (-4.9%), cranberries (-3.3%), peas (-7.2%), and pie shells (-2.8%). The items that were more expensive this year compared to a year ago were sweet potatoes (+6.0%), pumpkin pie mix (+0.6%), milk (+2.7%), relish tray (+1.2%) and whipping cream (+8.1%).

2. Adjusted for inflation, the cost of a classic Thanksgiving dinner for ten this year is 1.3% cheaper than last year, 3.6% cheaper than two years ago and 5% cheaper than 2011 (see blue line in chart).

3. Compared to the cost of a Thanksgiving dinner of $62.30 in 1986 (in 2014 dollars), today’s classic turkey dinner for ten is almost 21% cheaper at $49.41.

4. Measured in time worked at the average hourly wage for all private production workers of $20.70 in October 2014, the “time cost” of this year’s classic turkey dinner for ten is only 2.39 hours, down by 1.2% from 2.42 hours last year and down by 4.7% from 2.50 hours in 2012 (see bottom chart). Compared to 1986 when the average American would have worked 3.22 hours to earn the income necessary to purchase the turkey dinner for ten, the “time cost” for a worker today (2.39 hours) is almost 26% lower.

5. Cost conscious shoppers can buy the same classic Thanksgiving meal at Walmart for only $32.64 (see top chart above), a savings of 34% compared to the AFBF national average, according to this press release from Walmart. In hours of time worked at the average hourly wage for private production workers, that would be a “time cost “of only 1.58 hours for one worker to purchase a holiday feast for ten people at Walmart, a truly amazing bargain.

Bottom Line: The fact that a family in American can celebrate Thanksgiving with a classic turkey feast for less than $50 and at a “time cost” of only 2.39 hours of work for one person (and only $32.64 or 1.58 hours of work for Walmart shoppers) means that we really have a lot to be thankful for on Thanksgiving: an abundance of cheap, affordable food. Compared to 1986, the inflation-adjusted cost of a turkey dinner today is 21% cheaper, and 26% cheaper measured in the “time cost” for the average worker. Relative to our income and relative to the cost of food in the past, food in America has never been more affordable than it is today.

Bon appetit!

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The disappointment of President Obama’s executive actionhttp://www.aei.org/publication/disappointment-president-obamas-executive-action/ http://www.aei.org/publication/disappointment-president-obamas-executive-action/#comments Fri, 21 Nov 2014 15:28:36 +0000 http://www.aei.org/?post_type=publication&p=822069 The real disappointment is that this executive action distracts Congress and the American public from the far more important issue of the need to reform the entire US immigration system. Instead of focusing on unauthorized immigrants, who are less than 30% of all immigrants in the US, the US should rethink how it admits legal immigrants. The US needs to change its legal immigrant system to increase the number of visas available to workers and to reduce chain migration based on family ties.

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President Obama’s supporters and opponents are likely to be disappointed by his executive action on immigration, albeit for different reasons. His supporters may be disappointed that the action does not cover more unauthorized immigrants and falls far short of a pathway to citizenship. Meanwhile, his opponents may be disappointed—or more accurately outraged—by a blatant sidestepping of congressional authority and disregard of most voters’ expressed desire that he not take such action. Both of these disappointments miss the bigger picture.

The real disappointment is that this executive action distracts Congress and the American public from the far more important issue of the need to reform the entire US immigration system. Instead of focusing on unauthorized immigrants, who are less than 30% of all immigrants in the US, the US should rethink how it admits legal immigrants. The US needs to change its legal immigrant system to increase the number of visas available to workers and to reduce chain migration based on family ties.

Only 14% of permanent resident visas, or green cards, are awarded on the basis of employment, and half of those are to accompanying dependents of workers. Two-thirds of green cards are awarded on the basis of family ties. We limit every country to at most 25,620 green cards a year across numerically limited categories, resulting in some skilled immigrants from India and China waiting years for a green card. Many give up or never even apply. The number of H-1B visas for skilled specialty workers is capped at 85,000 per year, and so the US ran out of them within a week after they became available in the last two years. The number of H-2B visas for temporary non-agricultural workers is capped at 66,000 per year, also less than the number desired by employers and potential workers. And the H-2A visa system for temporary agricultural workers remains filled with bureaucratic red tape that leads farmers to turn to unauthorized workers. The system discourages high-skilled workers from trying to enter or remain in the US while encouraging low-skilled workers to enter illegally or overstay visas.

This executive action, as well as the earlier Deferred Action for Childhood Arrivals program, does nothing to address these fundamental flaws in our immigration system. The few changes that the executive action makes regarding legal immigration, such as increasing some temporary visa holders’ ability to switch employers, are steps in the right direction, but they are only baby steps. Worse yet, the outrage over the action makes it even less likely that bigger steps will occur in the next Congress, which seems likely to instead spend its time arguing about whether to block funding for carrying out the executive action. Congress and the White House would better serve the American public by adopting changes that would boost immigration’s economic contribution. Such changes would include increasing the number of green cards available to workers, particularly the high-skilled, and streamlining and expanding temporary worker programs.

Dealing with the large number of unauthorized immigrants in the US is a challenge. The unauthorized population has grown so large—and, in the case of the Dreamers, so vocal—that some action may be required. And a population that has worked so hard in the US for so long may have morally earned the right to stay here. But surely any action should consider the incentives it creates. The executive action creates an incentive for more people to come here illegally and have children here. Coupling legal status for some 5 million people with increased border enforcement is not enough. If the US wants to get serious about reducing future illegal immigration, it needs to require all employers to participate in E-Verify while also providing a legal way for more temporary workers to enter the US. The executive action does neither of those. Instead, it seems doomed to just worsen the problems created by current policy by delaying true reform for even longer.

I sometimes remind my children, just because you can doesn’t mean you should. President Obama would have been wise to follow such advice.

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Long live the Maidan!http://www.aei.org/publication/long-live-maidan/ http://www.aei.org/publication/long-live-maidan/#comments Fri, 21 Nov 2014 14:27:22 +0000 http://www.aei.org/?post_type=publication&p=822063 The Ukrainian revolution, which began a year ago, started with no more than 150 people deciding to stay on Independence Square (also known as the Maidan) to protest the decision of former President Viktor Yanukovich to turn away from signing an Association Agreement with the European Union and, instead, accept $15 billion from Moscow, on top of a 30% discount on the Russian natural gas.

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The Ukrainian revolution, which began a year ago, started with no more than 150 people deciding to stay on Independence Square (also known as the Maidan) to protest the decision of former President Viktor Yanukovich to turn away from signing an Association Agreement with the European Union and, instead, accept $15 billion from Moscow, on top of a 30% discount on the Russian natural gas.

Yet what was truly remarkable and inspiring about the unfolding protests —in addition, of course, to the heroism of the people who stayed, day and night, in an open square in freezing temperature, beaten and, toward the end of the three month vigil, even killed by the “anti-riot” police — was how quickly it evolved into a movement that at its finest could serve as a prototype for a kind of mature democracy that they hoped Ukraine may one day become.

To begin, unlike the previous anti-authoritarian mass protests, including the 2004 Orange Revolution, the people were not predicating their hopes on a particular party or an individual. Instead, they were counting primarily on themselves: their own determination, their own wisdom. “Vlast —eto my!” (“We are power!”) was the chant that became the leitmotif of the protest.

Very quickly, the demonstrators began to exhibit another key feature of successful democracy: an active,  self-organizing and responsible civil society. Feeding and, if only sporadically, warming up tens of thousands of people every day required a sustained, daily and nightly, voluntary effort of hundreds of men and women, donating their time and money to a cause they deemed morally imperative.

Unlike the Orange Revolution (or the Winter 2011-2012 mass protests in Russia), the Maidan movement was not about a flaw in the current regime, but about the national purpose, the country’s strategic direction. “Ukraine is Europe!” and “For a European future for Ukraine” were key slogans, whose cyber symbol was #EuroMaidan.

And the Maidan was European, at least in the ideal sense, in the unity of ethnicities and religions represented on the square: Ukrainians and ethnic Russians (at least 30% of the protesters were Russian speakers), Jews and Muslims, Ukrainian Catholics and Orthodox froze and fought and sang and danced together to forge a new Ukraine.

Now, by the decree of President Petro Poroshenko, November 21 is declared a national holiday, the Day of Dignity and Freedom.

Kiev – the cradle of the Russian state and its Christianity – is suddenly showing Russia the way toward dignity in liberty and democratic citizenship.

No wonder Vladimir Putin is mortally afraid of this Ukraine.

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Have changing household composition and retirement caused the decline in median household income?http://www.aei.org/publication/changing-household-composition-retirement-caused-decline-median-household-income/ http://www.aei.org/publication/changing-household-composition-retirement-caused-decline-median-household-income/#comments Fri, 21 Nov 2014 04:15:02 +0000 http://www.aei.org/?post_type=publication&p=822044 One of the most frequently reported economic trends is the gradual decline in US real median household income from its 1999 peak of about $57,000 to below $52,000 in each of the last three years (see blue line in top chart above). We hear a number of reasons from politicians and pundits for the decline [...]

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earnersOne of the most frequently reported economic trends is the gradual decline in US real median household income from its 1999 peak of about $57,000 to below $52,000 in each of the last three years (see blue line in top chart above). We hear a number of reasons from politicians and pundits for the decline in median household income over the last decade, mostly reasons that involve a narrative about economic stagnation and growing inequality caused by the progressives’ usual suspects: gains in worker productivity, income and wealth going to corporations and “the rich” instead of being shared by average workers; failure to increase the minimum wage or pass “living wage” laws; the combined effects of globalization, free trade and outsourcing putting downward pressure on middle-class incomes in America, and other variations of economic pessimism. Former President Bill Clinton recently offered his three reasons for stagnant median household income that include not raising the minimum wage and excessive corporate greed.

But there are some other very obvious, but mostly overlooked, factors that could easily explain why median household income has declined over the last decade that have nothing to do with economic stagnation: demographic changes in the composition of US households. AEI’s Alex Pollock addressed this issue recently in his essay “If income is going up, can median household income go down? It’s possible.” Here’s how Alex frames the issue:

One of the most commonly cited numbers in discussions of inequality is the trend in median household income, often used as if it settled the issue. Using median household income poses a fundamental problem, however. It conflates two measurements — changes in the composition of households and changes in income — and thus can easily mislead us.

Has the composition of households in America been changing? Obviously, it has. The percent of married couple households has fallen from more than 60 percent in 1980 to less than 50 percent in 2010. One-person households have risen from 23 percent to 27 percent of households in this period. Shifting from two-earner households to one-earner households lowers the median household income, even if everybody’s income is the same as before [or rising].

Alex provides a series of hypothetical examples showing how simple household demographic changes can result in rising individual incomes while at the same time the median household income is falling. For example, if there is a shift from two-earner, married households to one-earner single households as a result of divorce, the overall median household income could fall even when income is increasing for all individuals in the new mix of households with a greater share of single households.

Alex’s key point is that when demographics and household composition are dynamically changing, individual income and median household income can naturally move in opposite directions. The most frequent mistake, according to Alex, is to look at median household income over time assuming that household demographics are static. And that is precisely the mistake made in almost all of the discussions about median household income, and that leads to a distorted and inaccurate conclusion about why median income is falling.

One example of a major dynamic change in household composition is the significant increase in the share of US households with no earners, from fewer than 20% of all US households in 1980 to 23.7% of households in 2013 (see blue line in bottom chart above, Census data here from Table H-12). Likewise, the share of single-earner households has also increased from 33.2% in the early 1990s to above 37% for the last five years (see red line). In contrast, there’s been a decrease in the share of US households with 2 or more earners from above 46% of all households in 1989 to fewer than 40% of US households in every year since 2010 (see brown line in bottom chart above).

In summary, over the last several decades, there’s been an increasing share of no-earner, single-parent and single-earner households and a decreasing share of married and two-or-more-earner households. That major demographic shift has likely depressed median household income significantly in the last decade, even though it’s possible, as Pollock shows, that the income of individual working Americans could be rising.

Another key demographic shift is the increasing number of retired Americans as a share of the adult population based on Social Security data. As the red line in the top chart above shows, US retirees represented a pretty stable 15% share of the US population from 1990 to 2008. Starting around 2008 when the early “baby-boomers” – those born in 1946 — reached early retirement age of 62, the share of retirees started increasing from less than 15% of the adult population in 2007 to more than 16.6% in 2013.

In the five year period between 2008 and 2013, the number of retired Americans increased by 5.6 million, which was the largest five-year increase in US history, and more than double the 2.5 million increase in the previous five-year period. Given that wave of recent retirements, there have been millions of older, experienced, highly-paid workers going from their peak earning levels to a much lower retirement income that would typically include Social Security payments, pensions, and distributions from retirement accounts. As those millions of retirees are replaced in the workforce by younger, less experienced, lower paid workers, median household income could be falling even though the average income of working Americans could be rising.

It’s probably no coincidence that the recent increase in retirees, both in absolute numbers and as a share of the adult population, along with the other demographic changes described above, has naturally coincided with a decline in median household income. It would be hard to imagine that an aging population with a significant increase in the number and share of retirees, wouldn’t depress median household income, for purely demographic reasons.

Bottom Line: Most explanations of the recent decline in US median household income are based on some variation of a narrative of economic stagnation, rising inequality and pessimism. But what is almost always overlooked are the very significant demographic changes that have taken place in the composition of US households over time that would significantly impact the income of the median US household. Taken together, a) the increase in the share of no-earner, single-earner, and single-parent households, b) the increase in the number and share of retirees, along with c) the decline in the share of two-earner and married households, would logically and necessarily depress the income level of the median US household.

In summary, the composition of US households is not static, fixed and permanent; rather it’s dynamic, evolving and ever-changing. Discussions on changes in median household income over time that ignore the changes in household composition over time will always be incomplete, distorted and misleading. Perhaps the decline in median household income this century is not a narrative of economic pessimism and stagnation after all, but a more upbeat story of a greater number of Americans living longer lives, and enjoying periods of time in retirement that were never possible until this century.

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Banter #164: Cami Andersonhttp://www.aei.org/publication/banter-164-cami-anderson/ http://www.aei.org/publication/banter-164-cami-anderson/#comments Thu, 20 Nov 2014 19:50:08 +0000 http://www.aei.org/?post_type=publication&p=821993 Appointed by Governor Chris Christie, Anderson has been implementing an aggressive reform agenda that expands charter school options, allows for merit pay, makes room for the dismissal of ineffective teachers, and provides “open enrollment” to students so that they can choose which schools they attend.

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We’re joined this week by Superintendent of Newark City Public Schools, Cami Anderson. Appointed by Governor Chris Christie, Anderson has been implementing an aggressive reform agenda that expands charter school options, allows for merit pay, makes room for the dismissal of ineffective teachers, and provides “open enrollment” to students so that they can choose which schools they attend. We talk with her about what she’s accomplished since taking over in 2011 and what she hopes to accomplish going forward. Enjoy!

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