2012 September 19 Wednesday
Aim Higher Since The Middle Is Shrinking
Netscape co-founder and venture capitalist Marc Andreessen says your only choice is between the upper and lower layers. The middle is not holding. Half Sigma agrees and so do I.
I agree with Andreessen’s statement that “There's no such thing as median income; there's a curve, and it really matters what side of the curve you're on. There's no such thing as the middle class. It's absolutely vanishing.” Settling for just being middle class is not an option today the way it was fifty years ago. You must shoot for the top or likely wind up at the bottom.
Some are moving up and others are moving down. Median incomes have declined back to 1995 levels. My expectation is that the number who can move up will shrink and the downward path will become more heavily traveled. Look at manufacturing for what will happen to services next. Manufacturing companies are only increasing their employment of people with advanced degrees. Easier jobs will get done by machines and computers.
Go for STEM degrees in college. Avoid large college debts. Be ready to move away from wherever you grew up because the higher paying jobs are going to become even more concentrated in places like Silicon Valley.
Elizabeth Warren's work on two income families, including her cites of Hacker's numbers on income volatility, show that real inflation figures provided by the government are gross underestimates when the items priced are the large, fixed recurring expenses critical for family formation, such as home, medical insurance, food and transportation.
A more accurate statement of what is really happening is that (contrary to the Pew Research study claim that 150 have moved up, out of middle income for 100 who have moved down, out of middle income) the entire middle has moved down into the real lower income group and that for every 150 who managed to stay in the real middle income group, 100 moved into poverty.
Now, having put the reality of what is facing families in perspective (hence putting divorce statistics in a bit better perspective) the idea of an Ivy League education as the path to remaining in the real middle class is more accurately stated as follows:
Merit is rapidly being replaced by rent-seeking and one of the primary modes of rent-seeking is obtaining a life title of nobility. In the US, life titles of nobility are provided by the Ivy League schools and they are called "degrees". Other rent-seeking avenues are civil service, obtaining special legal monopoly protections (taxi cab medallions and medical licensing being a classic examples). Immigrant cultures to the US generally have much longer history of evolution in land-limited environments where rent-seeking is the primary economic mode -- hence we can expect, and we have been observing -- the takeover of these rent-seeking positions by those cultures in the US. Since these cultures are immune to charges of "racism", they have a free hand to practice another art with which they are highly evolved: Ethnic nepotism.
The few guys that manage to remain in the real middle class that are founding stock Americans are basically the flashing lights and clanging bells going off in the casino that increasingly is being run by an elite consisting of effete Americans and their foreign culture sycophants.
How did this come to be?
Tyler Cowen at 'Marginal Revolution' this morning points to a Financial Times article which provides an explanation.
"Today, Mexico exports more manufactured products than the rest of Latin America put together."
In 2009, Mexico overtook South Korea and China to became the world’s leading producer of flatscreen television sets. The bulkier the item, the more Mexico makes sense. According to Global Trade Atlas, the country is also the leading manufacturer of two-door refrigerators.
Soon it *will* become more cost effective to produce goods currently produced over seas in the U.S., however these industries will be automated by then and require only a small fraction of workers currently employed.
Here's a sad but interesting article about the closing of what was once the world's largest steel mill, Sparrow's Point, outside Baltimore (http://articles.baltimoresun.com/2012-09-02/business/bs-bz-sparrows-point-younger-workers-20120902_1_sparrows-point-workers-laid-off-workers-wave-of-job-losses). At one time, Americans with only a high school diploma could get a well-paying unionized job in such places and have a secure middle class position for life. Mostly gone now. Employment in the US steel industry has declined from a peak of about 600,000 fifty years ago to about 87,000 now. Ditto for autos, shipbuilding, electronics, etc. The US is starting to look more like parts of Latin America - a moneyed elite, a small and relatively impotent middle class, and a horde of unwashed peasants.
A bilobal economy won't favor the achievers, since the greater group will vote themselves anything they want from the lesser group.
Jim: is that how it works in Mexico? How about India? In both places the elite do have to make some concessions to the poor in order to prevent riots in the streets, but the unwashed masses are hardly in a position to 'vote themselves anything they want'. Democracy can be gamed, you know...
One thing amazing about Mexico is how small a take of GDP the government collects in taxes.
Higher oil prices will shift more heavy goods manufacture to be nearer customers.
Manufacturing in Mexico: I bet the computers in the factories that make TVs are managed remotely. In a different industry I had dealings with guys who remotely managed lots of servers for test fixtures in factories around the world. You gotta follow the money today. Factory locations do not say as much about the money flow as they used to.
Aim high or aim for a public sector job.
I am not so sure that Mexican factories need to have computers run remotely. The country is 10% white and 10% nearly white mestizo. That is plenty of talent to draw from. And if it were really high tech it would not be in Mexico. Small LCD monitors and TVs are under $100 now, and modern refrigerators are not much changed from 1990 models.
I don't see having raw steel being made abroad as too big a deal. It is a really filthy industry, and subsidies by BRIC governments means it has long been low profit and too competitive.
"The country is 10% white and 10% nearly white mestizo. That is plenty of talent to draw from."
Why couldn't a country draw from dark mestizo or indians? Is it that they do not have talent?