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2012 October 03 Wednesday
Some Still Believe Obama Or Romney Can Help Middle Class

Hope springs eternal.

About half (52%) of adults who self-identify as middle class say they believe Obama's policies in a second term would help the middle class, while 39% say they would not help, according to a survey conducted in July.

By comparison, 42% say that Romney's election would help the middle class, while 40% say it would not help.

I do not expect conditions to improve for the middle class in the next 4 years. Another recession is more likely. Higher oil prices are more likely. The continued departure of members of the middle class headed either up or down seems more likely. The middle is not holding. I say again: try to go up so that you can avoid going down.

Romney's problem is that he is perceived as the candidate of the upper class.

There is much more variance in the judgments of the middle class about the likely impact of the two candidates' policies on the wealthy and the poor. Fully seven-in-ten (71%) middle-class respondents say Romney's policies would help the wealthy, while just a third (33%) say they would help the poor. Judgments about Obama tilt the opposite way. Roughly four-in-ten (38%) middle-class respondents say his policies would help the wealthy, and about six-in-ten (62%) say they would help the poor.

It is probably better in the long run if Obama gets elected because then when conditions worsen for the middle and lower classes people will come to understand that even a supposed champion of the lower classes can't or won't help them. Now there's still widespread misunderstanding about why living standards are declining. Having a Democrat in charge will go further toward spreading the understanding that deep economic fundamentals are working against the shrinking American middle class.

By Randall Parker    2012 October 03 09:27 PM Entry Permalink | Comments (15)
2012 October 01 Monday
More Americans Identifying As Lower Class

It used to be that living standards went up every year for the vast majority of Americans. It used to be the case that the overwhelming majority of Americans identified themselves as middle class. Not any more One third of Americans now identify themselves as members of lower classes.

The percentage of Americans who say they are in the lower-middle or lower class has risen from a quarter of the adult population to about a third in the past four years, according to a national survey of 2,508 adults by the Pew Research Center.

Not only has the lower class grown, but its demographic profile also has shifted. People younger than 30 are disproportionately swelling the ranks of the self-defined lower classes.1 The shares of Hispanics and whites who place themselves in the lower class also are growing.

31% of whites and 40% of Hispanics now identify as lower class. Since Hispanics are a growing portion of the US population the long term trend is even more strongly toward a bigger lower class. America is going to cease to be a middle class nation. My advice (often repeated): Try to go up. Otherwise you are going down. The middle is shrinking. Avoid the lower classes.

Do you feel helpless to escape from what is going wrong? Move to where opportunity is greater. There are still pockets of high tech and venture capital. Escape from occupations that are going to get automated out of existence. Escape from an also-ran company that has lost out to a dominant player in a sector. Get away from loser jobs, loser companies, loser industries. You've got plenty of decisions to make. Start making decisions that cut your exposure to downsides.

The people with less money feel more stressed.

The survey finds that hard times have been particularly hard on the lower class. Eight-in-ten adults (84%) in the lower classes say they had to cut back spending in the past year because money was tight, compared with 62% who say they are middle class and 41% who say they are in the upper classes. Those in the lower classes also say they are less happy and less healthy, and the stress they report experiencing is more than other adults.

The lower classes are losing their work ethic as they feel increasingly stuck.

As they look to their own future and that of their children, many in the lower class see their prospects dimming. About three-quarters (77%) say it’s harder now to get ahead than it was 10 years ago. Only half (51%) say that hard work brings success, a view expressed by overwhelming majorities of those in the middle (67%) and upper classes (71%). While the expectation that each new generation will surpass their parents is a central tenet of the American Dream, those lower classes are significantly more likely than middle or upper-class adults to believe their children will have a worse standard of living than they do.

We've got a cluster of problems. The US government is running up a huge debt burden even before most of the baby boomers retire. Immigration has brought in a large and growing lower skilled population. Growing competition from Asia for natural resources collides with declining mined ore concentrations. The remaining oil costs more to extract and the marginal cost of production is now very close to (high) world oil prices. The rate of innovation doesn't appear to be fast enough to pay for the innovation costs needed just to maintain civilization. Do not take your living standard for granted.

By Randall Parker    2012 October 01 10:28 PM Entry Permalink | Comments (19)
2012 September 23 Sunday
Declining Restaurant Labor Costs And Living Standards

Upscale restaurant sales are up while the middle class is treading water. Take this as a warning. Try harder.

At Darden’s premium brand, the steakhouse chain Capital Grille (where the average per-person check is between $70 and $72), same-restaurant sales rose 4 percent. At the firm’s restaurants aimed at the middle class, same-restaurant sales were more mixed: up 0.3 percent at Olive Garden and down 2.6 percent at Red Lobster.

You've got a choice: Try to go up or let economic forces pull you down. High unemployment rates translate into lower wages and declining labor costs.

In the 2010 fiscal year, labor costs represented 33.1 percent of sales; labor costs fell to 31.3 percent in the 2012 fiscal year and down to 30.4 percent in the first quarter of the 2013 fiscal year.

Restaurants are an industry ripe for automation. Imagine being able to order your food before you get there and robots that set out your food before you arrive. Pizza chains such as Dominoes, Papa Johns, and Pizza Hut already accept online orders. I've ordered and paid online. I see from a quick Google search that some online ordering companies offer online ordering services to any restaurant. Information flow is especially easy to automate. You shouldn't have to wait for the check. A touch panel on the wall should give you your costs and let you slide a card thru a card reader to pay your bill.

The physical work of a restaurant is harder to automate. But robots in the kitchen will eventually take over most food preparation work. The future employment prospects for lower skilled workers look grim.

By Randall Parker    2012 September 23 10:04 PM Entry Permalink | Comments (24)
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.

By Randall Parker    2012 September 19 10:43 PM Entry Permalink | Comments (8)
2012 September 15 Saturday
Median Household Income In USA Still In Decline

Median household income has declined in 9 out of the last 12 years. Are you old enough to remember when living standards went up every year for the vast majority of Americans? Not any more. Median income in America peaked in 1998 and now we are partying like its 1995.

Median annual household income—the figure at which half are above and half below—now stands 8.9% below its all-time peak of $54,932 in 1999, at the end of the 1990s economic expansion.

Yes friends, no progress in 17 years. Even the 90th and 95th percentiles are below peak. A little poorer than last year.

The U.S. Census Bureau announced today that in 2011, median household income declined, the poverty rate was not statistically different from the previous year and the percentage of people without health insurance coverage decreased.

Real median household income in the United States in 2011 was $50,054, a 1.5 percent decline from the 2010 median and the second consecutive annual drop.

The nation's official poverty rate in 2011 was 15.0 percent, with 46.2 million people in poverty. After three consecutive years of increases, neither the poverty rate nor the number of people in poverty were statistically different from the 2010 estimates.

I've made this point before, but it bears repeating: try harder. If you want to avoid the decline you've got to move up. I am currently working harder than I ever have. So I'm following my own advice on this.

Note that the peak in 1999 was higher than the peak in 2007.

  • Median family household income declined by 1.7 percent in real terms between 2010 and 2011 to $62,273. The change in the median income of nonfamily households was not statistically significant.
  • In 2011, real median household income was 8.1 percent lower than in 2007, the year before the most recent recession, and was 8.9 percent lower than the median household income peak that occurred in 1999. The two percentages are not statistically different from one another.

You might wonder why. Obvious causes: 1) Outsourcing. Billionaires don't need your labor when they can buy cheaper labor elsewhere; 2) Immigration. More labor. Plus, the labor is lower skilled and therefore earns less; 3) Oil field depletion and other natural resource depletions; 4) Rising Asian demand for the remaining depleting resources.

What's amazing to me: these causes of stagnant living standards have swamped 17 years of technological progress. What's scary to me: These causes will get worse in their effects and yet these problems are not part of the mainstream political debate. Plus, we aren't getting as many fundamental discoveries that enable new industries as we used to. Name a discovery as economically enabling as the laser or the semiconductor that came after 1960. I can not think of one. We seem to be on a course of declining economic growth rate.

By Randall Parker    2012 September 15 08:17 AM Entry Permalink | Comments (34)
2012 January 22 Sunday
Why Apple Manufactures Abroad

This New York Times article underscores why the remaining members of America's middle class should not take their middle class positions for granted.

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

Read the full article and you will appreciate the scale of the change in America's standing in the world and the power of Chinese manufacturing, engineering, and government finance to make it all happen.

The elites of the United States have made a grave error for the last 40 years or so by importing a large low-skilled labor force. All those cheap illegal immigrant construction workers are useless for high tech manufacturing. The Chinese have a huge labor force advantage for manufacturing. That advantage is going to cost Americans dearly in the years to come.

I will repeat a familiar theme to regular readers: Raise your game! If you are old enough to have grown up in good times, well, that was then and this is now.

You've got a choice: go down or go up. Your odds of standing still are not good. In a world where more people are competing for a declining amount of remaining natural resources you've got to try harder to maintain your current slice.

Maybe cold fusion can save your future old age pension checks from your government. But it would be imprudent to count on LENR to save our bacon. Don't expect the cavalry to come riding over the hill. If you want to do well in the future you've got step it up yourself.

Update: A piece in The Atlantic by Adam Davidson about manufacturing in the United States (thanks TimG for the heads-up) includes a picture of a rather pretty 22 year old single mom, Maddie Parlier, in a Greenville South Carolina manufacturing plant. Her employers think she's a very good worker with lots of promise. Maddie would like to learn more but does not have the time.

At one point, she looked around the office and said she’d really like to work there one day, helping to design parts rather than stamping them out. She said she’s noticed that robotic arms and other machines seem to keep replacing people on the factory floor, and she’s worried that this could happen to her. She told me she wants to go back to school—as her parents and grandparents keep telling her to do—but she is a single mother, and she can’t leave her two kids alone at night while she takes classes.

I am struck by the need for education that comes in smaller bites. Want to raise the skills level of American workers? Provide them ways to learn in small slices of their time late in the evening or while on a work break or on a Saturday morning. The learning has got to be delivered digitally across the web with many automated tests tied to lots of mini lessons.

Our education system is so 19th century. Yet the world is so 21st century. If governments want to craft useful industrial policies my advice would be to make the learning of useful skills (not college humanities classes) easy to do. The technological infrastructure exists for delivering education in bite size pieces. What's needed is the political push to make it happen.

By Randall Parker    2012 January 22 04:35 PM Entry Permalink | Comments (42)
2011 December 08 Thursday
America's Most Affluent Concentrating Into Fewer Places

The wealthiest neighborhoods are growing in population as America increasingly breaks up into zones based around economic class.

As the income gap has grown, America's wealthy families seem to be concentrating in the most-affluent neighborhoods

The article also reports that the poorest neighborhoods are becoming more purely poor. People are stratifying into economic classes. Liberal elites have helped accelerate this process by promoting immigration policies that brought in lots of poor people and drove down incomes at the bottom. This has increased concentrations of poor people. A poor person is better off around more affluent people. So this demographic change increasing the ranks of the poor has also effectively has raised the costs of being poor.

There's less of a shared national experience because people differ for more overlapping reasons. This means less feeling of common interests and, not surprisingly, every class moves away from the classes beneath it. This isn't just a migration of the very rich away from everyone else.

While many zip codes in the U.S. have been battered by the economic downturn, neighborhoods around Palo Alto are among a small group of expanding rich areas. In a new OECD report, the top 10 percent of the country?s income earners made nearly 15 times more than the bottom 10 percent in 2008, up from a multiple of 12 in the mid-1990s. As is often the case, the rich are grouping near golf courses, beaches, upscale boutiques, and schools.

People raising kids are going to try to live as close to the most successful as possible. Living near more successful people means sending your kids to schools who have fewer children of the poor and dysfunctional.

If you want to see how much income inequality is mapping to divisions between neighborhoods by income check out these graphics from the New York Times on Philadelphia and surrounding counties in 1970, 1990, and 2007. Note how the higher and lower income levels are growing and separating from each other while the middle income areas are shrinking.

American living standards in decline:

Nationwide, median household income fell to $51,914, a $2,678 drop over the decade when adjusted for inflation. Black households lost the most, with median household income falling 8 percent to $35,194. Hispanics reported $41,354, a 5.5 percent drop. The figure for white, non-Hispanic households fell to $56,466, a 4.3 percent decrease over the decade. Asian households reported $68,950, a 2.2 percent gain.

The middle is shrinking. My advice: try harder. Try to learn more. Look for a better job. Look for ways to excel in your current job. Create a bigger buffer between you and personal poverty and between you and the swelling ranks of the poor.

Update: Half Sigma's response to this post got me to thinking: We are looking at market failure. There's a clear large unmet need for cheaper ways for smarter people to raise families and get their kids well educated while living near dumber and poorer people. That need is only going to rise in the next couple of decades. So I'm wondering: how to do this?

I'm not talking about how multi-millionaires can raise their kids. They can afford private schools and tutors. It is the highly skilled husband-wife team that met at a first or second tier college or even a better state school that I'm thinking of. How can they separate their kids from the kids of single moms who made babies with 2 or 3 men? How to get their kids away from these lower class women who manage to get housing vouchers that put them in apartments or run down houses in the same school district? Seriously, the upper middle class (i.e. the people who still can afford to live middle class lifestyles) needs to be able to create safe and cheap environments for child raising.

I don't see telecommuting as an answer. Brainy people need to be geographically concentrated. A different solution is needed. So here are some ideas to create livable towns for smart people with children:

  • Break towns up into smaller towns in order to create smaller school districts. If that suburban neighborhood can get itself put into a different school district than all those apartments on the other side of the highway then lots of smarter kids don't go to school with lots of dumber kids.
  • Strategically convert certain apartment complexes in select towns into retirement communities. Suddenly no supply of dumb kids to mess up the local school. Hey, the ranks of the elderly are swelling and expensive. At least use them as buffers between the smart and the dumb kids. Don't waste the elderly in pure old communities in Florida. Get them into apartment complexes near engineering families in tech centers.
  • In key towns that are attempting to shift the balance of power against the poor claim budget problems and get rid of free ride school rides.
  • More zoning ordinances that limit the number of people per dwelling.
  • Get apartment building owners in key towns to require large deposits. The poor and the voucher programs won't come up with cash.

I welcome more ideas on this subject.

By Randall Parker    2011 December 08 10:20 PM Entry Permalink | Comments (12)
2011 December 03 Saturday
Expensive Data Centers Bring Few Jobs

The people of Maiden North Carolina can be forgiven for expecting that a $1 billion investment in a data center near town would have produced a lot of jobs. Surely in the old economy a $1 billion factory would have employed thousands of people. But, as an article in the Washington Post illustrates, in the new economy capital has little need for labor.

Just off Startown Road, on the edge of town, Apple recently completed a massive $1 billion data center to help power its cloud computing products.

Total new full-time jobs running the facility: 50.

Sounds like some contract workers for security are supposed to work there too. But this little town's people don't seem to be among them.

Apple’s data center is also supposed to create 250 indirect contracting jobs for maintenance and security. But many in this close-knit town of about 3,400 people — it essentially shuts down Friday nights for high school football — do not know anyone working at Apple.

I am reminded of an article about manufacturing by former Intel CEO Andy Grove in he observed that for every Apple employee in the United States Apple supplier Foxconn employs 10 in China making stuff for Apple. Many supply chains have migrated to East Asia.

The future for low skilled workers in America looks bleak. Yet American immigration policy for decades has been to let in tens of millions of low skilled workers on the theory that they are key to economic growth. Instead, these immigrants drive down wages for Americans on the left half of the Bell Curve. Those wages have gone down even lower than would have been the case with only outsourcing and automation as causes. The coming years will see lower class wages go down even further with changing American demographics. I also think that resource limitations will push wages even lower still.

By Randall Parker    2011 December 03 01:15 PM Entry Permalink | Comments (12)
2011 October 30 Sunday
Occupy Wall Street And Global Top 1%

A great article in the Motley Fool: Lots of Occupy Wall Street protestors who feel poor are in the global top 1% of income. Do you make at least $34k per year? If so, you are in the global top 1%. Never knew you were that elite did you?

The recent Occupy Wall Street protests have aimed their message at the income disparity between the 1% richest Americans and the rest of the country. But what happens when you expand that and look at the 1% richest of the entire world? Some really interesting numbers emerge. If there were a global Occupy Wall Street protest, people as well off as Linda Frakes might actually be the target.

In America, the top 1% earn more than $380,000 per year. We are, however, among the richest nations on Earth. How much do you need to earn to be among the top 1% of the world?

$34,000.

If you are making at least a few dollars a day you are making more than over half the world's population. Keep that in mind when a Prius driver claims he's being more ecologically and economically responsible to the world by driving a Prius. Then ask him how he's spending the money he's saving on gasoline. Perhaps spending it on airplane trips? Or home remodeling?

Any reader not in the global top 10%? I want to know how much you have to make to be in the global top 0.01%. Maybe that's a goal within reach.

That was the finding World Bank economist Branko Milanovic presented in his 2010 book The Haves and the Have-Nots. Going down the distribution ladder may be just as surprising. To be in the top half of the globe, you need to earn just $1,225 a year. For the top 20%, it's $5,000 per year. Enter the top 10% with $12,000 a year. To be included in the top 0.1% requires an annual income of $70,000.

OWS is about declining living standards within America. They would not be pleased to know that part of the reason American living standards are declining is that living standards in Asia are rising. But our natural resources demand now competes with rising Asian demand and we've got to get less as they get more. Plus, rising world population (including rising US population driven mainly by immigration) increases the number of people competing for those natural resources. Imagine all 7 billion (and growing) people of this planet made as much money per year as the average OWS protestor. There aren't enough resources on the planet to support such a lifestyle globally. This will become more apparent as oil production hits limits and starts declining.

By Randall Parker    2011 October 30 10:51 AM Entry Permalink | Comments (8)
2011 October 23 Sunday
Median Paycheck Back To 1999

Workers can only afford to party like its 1999.

The median paycheck — half made more, half less — fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999.

Beats partying like its 1699. But if we were as underexposed to media as 1699ers would we be happier?

The 1999 median figure is even worse than it looks at first glance because the unemployment rate is much higher than it was in 1999. The unemployed have lower potential earning power than the employed and they have no earning power right now.

The median number is for occupations that are pretty low skilled. At about $12 or so dollars an hour employer aren't getting highly skilled workers. Well, the demand for less skilled workers has been declining relative to the demand for highly skilled workers for decades. That's due to both outsourcing and automation. In spite of this it is an uphill battle to stop the influx of low skilled illegal immigrants. Combine outsourcing, automation, immigration, and rising costs of energy and other commodities and the result is median paychecks have gone back in a time machine to 1999. In a rational world where government was enlightened and concerned about its populace these causes would be discussed and policy changed appropriately. But no.

Some argue (incorrectly in my view) that we live in in a period of rapid innovation with big benefits for all. If the innovations really are large and rapid then their benefits are being eaten up by the many other things going wrong.

We wouldn't have an Occupy Wall Street movement or the Tea Party if median incomes still rose like they used to. But a number of factors have come together to halt and reverse median income growth. As a result different political movements are pushing for wealth redistribution, lower taxes, and assorted policies that their advocates (wrongly) expect will reignite economic growth and rising living standards. So you'll read people on the Left crying out for more education, mass transit, (which does less in Europe than American proponents believe) and infrastructure spending in the mistaken belief these forms of spending still offer positive ROI. At the same time right wing calls for lower taxes and less regulation are based on a different erroneous hopes.

One has to diagnose all the root causes before we can try to make the future less bad. But rising Asian demand for commodities, cheaper Asian labor, depleting oil fields, and other causes of our woes do not make it into mainstream debates on what is going wrong. I've laid out in past posts why economic stagnation and declining per capita income are in our future. My practical advice: try harder to make more and save more and think about how to cushion yourself from worse times ahead. Peak Oil along is going to hit the economy very hard. Lots of other factors are combining together to make the decline even worse. I've got no suggestions on how to prevent it. Things will get worse for some years before they get better.

By Randall Parker    2011 October 23 07:27 PM Entry Permalink | Comments (4)
2011 October 05 Wednesday
Michael Lewis On Local Government Finance Nightmares

See this Vanity Fair piece.

The smart money says the U.S. economy will splinter, with some states thriving, some states not, and all eyes are on California as the nightmare scenario. After a hair-raising visit with former governor Arnold Schwarzenegger, who explains why the Golden State has cratered, Michael Lewis goes where the buck literally stops—the local level, where the likes of San Jose mayor Chuck Reed and Vallejo fire chief Paige Meyer are trying to avert even worse catastrophes and rethink what it means to be a society.

Lewis argues that Meredith Whitney's 2007 comments on 60 Minutes about muni debt have been misrepresented and basically a straw man version of her comments has been pummeled. What's important is what she sees going wrong in state economies.

What Meredith Whitney was trying to say was more interesting than what she was accused of saying. She didn’t actually care all that much about the municipal-bond market, or how many cities were likely to go bankrupt. The municipal-bond market was a dreary backwater. As she put it, “Who cares about the stinking muni-bond market?” The only reason she had stumbled into that market was that she had come to view the U.S. national economy as a collection of regional economies. To understand the regional economies, she had to understand how state and local governments were likely to behave, and to understand this she needed to understand their finances. Thus she had spent two unlikely years researching state and local finance. “I didn’t have a plan to do this,” she said. “Not one of my clients asked for it. I only looked at this because I needed to understand it myself. How it started was with a question: How can G.D.P. [gross domestic product] estimates be so high when the states that outperformed the U.S. economy during the boom were now underperforming the U.S. economy—and they were 22 percent of that economy?” It was a good question.

From 2002 to 2008, the states had piled up debts right alongside their citizens’: their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion.

Why did citizens pile up debt? One possibility: To delay a decline in living standards. Why did government spending increase faster than the economy grew?

Tyler "Great Stagnation" Cowen argues we are using tax cuts to partially make up for declining incomes. Basically, after-tax incomes haven't declined as much as pre-tax incomes. At the same time, people are trying to get more from government, again because they are poorer. The declines are quite dramatic.

The median income for Wisconsin fell 14.5% in the last 11 years. That's tanking.

If you're making do with less, you're not alone -- especially in Wisconsin.

The state's median household income, adjusted for inflation, fell 14.5 percent between 1999 and 2010, according to U.S. Census Bureau estimates released Thursday.

That 14.5% decline is with 11 years of technological advance. Do technological advances deliver higher living standards? If so, imagine what else must be going wrong to swamp out the effects of 11 years of technological advances. Nationally household median income is down 7% ($3,800) since 1999 and household median income is still declining. New Jersey's median household income is down 2.9% just last year. Since 1969 median male earnings (including those not working) have declined 28%. Also, either the value of a college degree has declined or the quality of the people getting college degrees has declined on average.

Tyler Cowen thinks the Republican drive to prevent tax increases has become an obstacle to making needed cuts in government spending.

IN a debate in August, Republican presidential candidates were asked whether they would support a budget deal that bundled $10 of spending cuts for every $1 of tax increases. All said no. They rejected any deal that involved raising taxes.

...

Furthermore, this refusal to contemplate a tax increase — which I’d characterize as an extreme Republican stance — has brought what seems to be an extreme Democratic response: President Obama’s latest budget plan is moving away from entitlement reform and embracing multiple tax increases on the wealthy. We may be left with no good fiscal options.

If living standards continue to fall then the pressures both for and against tax increases will intensify. On the one hand, government finances will get even worse as tax revenues go down on declining incomes. On the other hand, lower living standards will make people even more opposed to paying more in taxes. People won't want to give up more of a shrinking pie.

Reihan Salam reacts to Tyler saying but don't forget the potential to make government more efficient. I agree with Reihan. We need to push for higher productivity and also lower staffing governments. Do more with less. That's the only way to raise living standards (or at least slow the descent).

I see the "Occupy Wall Street" movement as a populist response to declining living standards. Just as social media helped enable Arab Spring and Arab Spring was a response to declining living standards so again social media is helping the "Occupy Wall Street" protestors to organize and express frustration that comes as a result of declining living standards. Will a further decline in US living standards lead to a much more aggressive and demanding protest movement? Is serious political instability possible in the United States?

By Randall Parker    2011 October 05 10:04 PM Entry Permalink | Comments (15)
2011 August 12 Friday
How Fast To Hit Economic Wall?

Jim Goad comments on the retarded state of US public debate over the debt ceiling and spending.

Since there will be no happy ending, this weeks-long “debate” boiled down to a drunken saloon argument over whether we drive into a brick wall at 85MPH or 95MPH. This country’s financial wad is red, white, and blown. Neither side wanted to admit that the nation’s financial condition is way beyond redemption. All they did was argue over an acceptable size for the tumor and tried to place blame for who caused it. Neither side is willing to admit that it’s terminal cancer.

My take: the political class is a reflection of the deluded voters who put them there. As the Democracy In America blog at The Economist points out, the American people do not want either fewer benefits or higher taxes - except on a few.

ACCORDING to a new CNN poll, 63% of Americans want the imminent "super committee" to call for tax increases on high earners and 57% want large cuts in domestic spending. Sounds sensible! But don't get your hopes up. Only 47% favour big cuts in defence spending. Worse, a mere 35% support "major changes" in Social Security and Medicare.

The position of the vast majority of Americans is that, except for a small number of fat cats, we shouldn't have to give up anything to close the monstrous deficit. Brink Lindsey points out that entitlements spending is set to grow so much that just taxing the rich won't generate enough income to pay for the projected future growth in entitlements.

And, as Mr Lindsey notes, citing the CBO, maintaining anything in the neighborhood of status quo growth rates in entitlement spending would require huge across-the-board tax increases. Yet 87% of Americans oppose tax increases on the middle- and lower-classes. If I were a big credit-rating agency, this is what I would cite in support of the proposition that American debt is increasingly risky. Politicians naturally fear straying too far from public opinion, and this makes the incoherent cast of American public opinion dangerous.

If you aren't familiar with the details of the the entitlements problem read my category archive on entitlements. The story is bleak. The population is aging and other things are going wrong. The ratio of productive employed workers to everyone else is falling. The productive can't fund a larger number of non-workers without giving up quite a lot - like in Euro welfare states with much higher overall taxes.

The top 3% earn 26% of total income. The top 3% are those who make $200k and higher. Putting 74% of earned income off limits for tax increases won't provide for enough taxable income to keep the government funded. If the tax rates go way up to 60+% on the top earners some will just leave. Others will stop earning as much. That's why European countries use a Value Added Tax (basically a sales tax). They tax consumption because it lets them raise more than income tax alone. But a tax on consumption is a broad based tax that would hit everyone, not just the top 3%.

Also as Brink Lindsey points out, if the US government succeeds in upping its cut of GDP enough to fund entitlements the US rate of economic growth will slow substantially.

A recent paper by Swedish economists Andreas Bergh and Magnus Henrekson surveys and untangles the confusing, apparently conflicting literature on the relationship between the size of government and economic growth. They find that once the focus is narrowed to rich countries only, and consistent measures of the size of government are employed, a reasonably consistent picture emerges. “The most recent studies,” they conclude, “find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.”

I already expect economic stagnation anyway due to Peak Oil and other limits to growth. Since oil prices are going to go back up and that will cause a recession all the official government projections of future budget deficits are way too optimistic. US government financial soundness depends on growth. Take away growth and the money for big entitlements promises to the elderly and poor will not materialize. Our financial system's accumulated debt can't be paid back once Peak Oil hits and therefore our government's promises can't be kept.

Those big deficits the US government is running are all claims on your future earnings ability. Since the deficits are going to continue the claims against your future living standard are going to get bigger. Therefore, as I said in my previous post, you've got to try harder just to maintain your current position. Excel in your skills development and career or go down. The middle will not hold.

By Randall Parker    2011 August 12 11:00 AM Entry Permalink | Comments (12)
2011 June 18 Saturday
Nauru: What Happens When Resources Run Out

CNN iReporter Johnny Colt visits the island of Nauru and finds a very small country that has fallen far into poverty now that most of its phosphate has been mined.

Not long ago, Nauru was one of the wealthiest nations on Earth: The phosphate mines, before they dried up, gave the nation the second-highest per-capita GDP in the world. But today, 90% of its residents are unemployed and the nation's economy sags under enormous debt. The phosphate mineral money that brought Ferraris to the island in the 1970s and '80s has dried up, leaving all those sports cars to rust. Today, most Nauruans live on about 90 to 100 Australian dollars a week.

Fortunately, America's decline will not be that sharp. But as world mineral resources become more expensive to extract and as water, farmland, and other resources get divided over a growing population we will have to live on less per person. Only ways to produce really cheap energy can save us from this fate.

How fast will resource limitations cause living standards declines? Hard to tell but some indications are worrisome.

By Randall Parker    2011 June 18 01:13 PM Entry Permalink | Comments (1)
2011 April 10 Sunday
Food And Energy Inflation Hits Poor Hardest

Economist Mark Thoma draws attention to a Cleveland Fed study on household income and food and energy expenditures by income quintile.

Households in the top 20 percent of the income distribution spend 11.6 percent of total expenditures on food and energy, which adds up to 7.9 percent of disposable income. For the bottom 20 percent these shares rise to 20.4 percent of expenditures and a whopping 44.1 percent of after-tax income!

The poor obviously are hit much harder by food and and oil price rises. This result illustrates a more general point: We do not all experience the same rate of inflation. People with chronic illnesses experience a much higher inflation rate due to the higher rate of inflation for medical services and drugs. People who live in an apartment in a moderate climate and who walk to work experience much less energy price inflation than the average.

But you might be wondering how people could have much higher expenditures than they have after-tax income. Several reasons:

For those astutely wondering why food and energy expenditures are a larger fraction of total expenditures than of total income for the bottom 20 percent, there is a much higher fraction of households in this quintile which may be using savings and credit markets to consume above their annual income. Likely categories are the unemployed, business owners with temporary losses, students living on loans, and retirees drawing down their nest eggs.

I'd like to see the same analysis for working age people who are not in school. In particular, how do the chronically poor people spend their money? Since the incomes of median working age males have already been trending downward for decades the food and energy price inflation have got to be hitting them very hard.

It strikes me that the people who we refer to as the "middle class" are not really the people in the middle. In America the popular image of the middle class are home owners who fairly comfortable. They work hard and have decent living standards. But it is hard to look at the median working age males income trend and conclude that the median is still the "middle class" as we come to understand it. Demographic trends with growing fractions of economically lower performing black and Hispanic populations will only only widen the gap between the "middle class" and the median.

By Randall Parker    2011 April 10 10:49 AM Entry Permalink | Comments (12)
2009 October 24 Saturday
Will Living Standards Decline For Young People

Robert Samuelson fingers health care costs as one of the factors likely to hold down living standards in the next couple of decades.

Unless controlled, rising health spending would absorb much of that gain. The increase in per capita GDP from 2007 to 2030 is $16,700. If health spending continued to grow at past rates, it would go from $7,100 per person in 2007 to $15,300 in 2030. This rise of $8,200 is half the overall gain ($16,700) in per capita income. (For policy wonks: This assumes health spending grows 2 percentage points faster than GDP per capita, the 1975-2005 trend.)

Some will ride the down escalator. The de-escalator if you will.

Downward mobility is possible. Expanding health spending would raise taxes (to pay for government insurance), lower take-home pay (to pay for employer-provided insurance) or increase out-of-pocket medical costs. Other drains also loom: higher energy prices to combat global warming; higher taxes to pay for underfunded state and local government pensions and repair aging infrastructure; higher federal taxes to cover deficits and payments to retirees (much of which reflect health spending). The pressures will undermine private living standards and other public services (schools, police, defense).

Since government debt is growing faster than the economy and is projected to do so for at least the next decade the cost of servicing that debt is going to become a rising fraction of government spending. So the spending party will eventually be replaced by a new fiscal austerity coupled with higher taxes. Government will cost more and deliver less.

The United States government is running up large debts with a projected increase in total debt so large that there's a substantial chance total US government debt will hit 100% of GDP. At that point debt service alone could easily equal 5% of GDP.

By Randall Parker    2009 October 24 11:09 PM Entry Permalink | Comments (16)
2009 September 20 Sunday
US 2008 Household Income Decline

A recent US Census Bureau report has a number of interesting facts about income, poverty, and health insurance coverage. 2008 was not fun for most people.

Between 2007 and 2008, the real median income of non-Hispanic white households declined 2.6 percent (to $55,530); for blacks, it declined 2.8 percent (to $34,218); for Asians, it declined 4.4 percent (to $65,637); and for Hispanics, it declined 5.6 percent (to $37,913). Except for the difference between the declines for non-Hispanic white and Hispanic households, all other differences between the declines were not statistically significant.

Since whites are a shrinking portion of the US population and Asians as a percentage are not growing fast the growth of Hispanics and blacks will cause a decline in overall US per capita income. Peak Oil will also cause a decline in overall per capita income.

Working men earn bigger bucks than working women.

In 2008, the earnings of women who worked full time, year-round was 77 percent of that for corresponding men, down from 78 percent in 2007. The real median earnings of men who worked full time, year-round declined by 1.0 percent between 2007 and 2008, from $46,846 to $46,367. For women, the corresponding drop was 1.9 percent, from $36,451 to $35,745.

But the industries hardest hit in this recession (e.g. manufacturing, mining) are male-dominated. So the recession has been called a mancession. Whereas health, education, and government - all industries that employ more women - have done well in this recession. In May 2009 the male unemployment rate was 10.5% while the female unemployment rate was 8%. A 2.5% gap.

Obama's attempts to extend health insurance to more people would benefit blacks and Hispanics far more than whites.

The uninsured rate and number of uninsured for non-Hispanic whites increased in 2008 to 10.8 percent and 21.3 million, from 10.4 percent and 20.5 million in 2007. The uninsured rate and number of uninsured for blacks in 2008, meanwhile, were not statistically different from 2007, at 19.1 percent and 7.3 million. The uninsured rate for Asians in 2008, 17.6 percent, was not statistically different from 2007.

The percentage of uninsured Hispanics decreased to 30.7 percent in 2008, from 32.1 percent in 2007. The number of uninsured Hispanics was not statistically different in 2008, at 14.6 million.

Based on a three-year average (2006-2008), 31.7 percent of people who reported American Indian and Alaska Native as their race were without coverage. The three-year average uninsured rate for Native Hawaiians and Other Pacific Islanders was 18.5 percent.

By Randall Parker    2009 September 20 11:07 PM Entry Permalink | Comments (7)
2009 May 31 Sunday
US Economic Growth Shifting To Lower Long Term Rate?

Is the future potential growth rate of America lower than it has been in the last half century?

May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won’t grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.

By this time next year, “the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.

I think this is the same Mohamed El-Erian who left management of Harvard's endowment just before it tanked along with the rest of the market. I wonder if he saw what was coming.

What is important about a slower growth rate: If it happens it is more disastrous than appears at first blush. America's big entitlements programs depend on rapid economic growth to make them able to pay even most of what they (unrealistically) promise to future generations of retirees. Even before factoring in a long term decrease in the rate of economic growth the big US government old age entitlements programs have seen their projections for insolvency moved up this year as has happened in other recent years.

Things have gone from bad to worse for the future of Social Security and Medicare. Social Security will begin to pay out more than the program receives in tax revenues by 2016, a year earlier than expected, according to a recent government report. Trust funds for Social Security are expected to run out completely by 2037, four years earlier than projected a year ago.

Medicare's fund that pays hospital bills for seniors, meanwhile, already is operating in the red and is expected to be exhausted by 2017, two years earlier than projected a year ago.

In the last 7 years Medicare's expected insolvency date has moved up 13 years sooner. Imagine what happens if the recovery from the current recession comes late and slowly.

The current economic downturn, which has eliminated millions of jobs and reduced workers' payments into the system, has further eroded Medicare's hospital trust fund.

The fund's fiscal health is tied, in part, to the economy's health. As recently as 2002, the trustees projected the fund could remain solvent until 2030; five years before that, they had warned of a collapse by 2001, precipitating a rescue by Congress.

Another contributing factor: Bad economic conditions drive people to retire and start collecting benefits sooner.

I expect Peak Oil and a less skilled population will make this picture far worse in the coming years. Bad economic conditions cause retirees to start collecting benefits sooner. This trend could continue for years.

The rate at which the US government is piling on unfunded obligations is not sustainable.

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

You think we've been irresponsible individually? We've been far more irresponsible collectively.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

Barack Obama (peace be upon him) now wants to saddle us with a huge expansion of government spending for medical care for poorer people. This is on top of all the bad news above. He's got the spendthrift nation on a spending bender. The empire is in decline.

Update: Barack Obama also favors an immigration amnesty that will undermine the welfare state by increasing the number of welfare recipients and low earners and low tax payers. The problems of the United States are becoming too large already without more new policies that make them even worse.

Update II: Medicare spending increases combined with a stagnant economy will cause a financing crisis.

The trustees predict a 30 percent increase in the number of Medicare beneficiaries in the coming decade, to 58.8 million in 2018, from 45.2 million last year.

But the projected increase in health costs and the use of medical care is a more significant factor in the growth of Medicare. The trustees predict that average Medicare spending per beneficiary will increase more than 50 percent, to $17,000 in 2018, from $11,000 last year.

The 2010s will be characterized by fighting over pie slices as the pie doesn't grow as fast the demands on it.

By Randall Parker    2009 May 31 11:36 PM Entry Permalink | Comments (5)
2009 February 13 Friday
Household Net Worth Declining

If your net worth is rising then you are successfully swimming against the tide.

According to the Fed’s survey of consumer finances, released Thursday, average net worth is estimated to have fallen 22.7% from 2007 until October 2008. The median, or midpoint, fell a more modest 17.8%, suggesting declines were centered among wealthier families.

Easy come, easy go.

Here's another sign that the declines were sharper among higher net worth people:

If the value of second homes and businesses are excluded, the Fed said in its report, average household net worth fell 12 percent, which reflects that such assets are "relatively concentrated among wealthier families."

We've given up all the gains of yet another bubble. I hope we can at least swim in place and not see even bigger declines than 2001 brought.

As of October, median net worth had fallen to $98,900, down 3.2% from the end of 2007 and 2% below the level reported in the 2001 survey that was conducted after the dot.com bubble burst. Since October, stock prices have fallen another 15%, while home prices have fallen at least 2%.

The biggest decline in 56 years.

"Americans' personal net worth declined 11% Y/Y from the end of 3Q07 to the end of 3Q08... the largest (year-to-year) decline in 56 years for which the agency has data available."

But some of this net worth decline is not as bad as it looks. Housing price declines are cutting the prices on homes which otherwise are just as usable as when they cost more.

The median price of a U.S. home declined 12 percent to $180,100 from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions, the Chicago-based National Association of Realtors said today. Prices declined in almost nine out of every 10 cities.

For people who want to buy a home salaries aren't going up but then the prices of homes are going down. How this balances out varies from person to person.

About 33 percent of U.S. companies may freeze pay this year, an increase from 25 percent last year, according to a Jan. 22-29 survey of 400 mid-size and large companies released Feb. 9 by Mercer, a compensation consulting company in New York. The survey did not include questions about pay reductions.

Can we unravel the accumulated mountains of private sector debt without deep deflation?

By Randall Parker    2009 February 13 11:55 PM Entry Permalink | Comments (2)
2008 November 19 Wednesday
Deflation Brings Great Deals For Rich People

Rich people who managed to hang onto their cash during the economic decline can find great deals in the sorts of products and services they buy. Luxury hotel prices are down.

For instance, room rates at luxury hotels fell 5.4 percent in the 28 days ending on Nov. 15 — in contrast to a 1.3 percent increase in rates at midscale hotels that do not serve food, estimated Smith Travel Research, a firm that studies the industry. Over all, hotel prices fell 1.6 percent in October, according to the Labor Department.

High end retailers are cutting prices.

High-end retailers are resorting to drastic discounting to lure customers into stores. Executives at Nordstrom, the department store chain, said on a recent conference call with analysts that the company had lowered prices on more than 800 clothing styles by an average of 22 percent.

Next time you hear someone complaining about the economy tell them they have a bad attitude. This is a new era of opportunity and fun if you have the right credentials. If you can gain entrance into the upper class what a great time to be filthy rich.

But this is a tragic time if you happen to be a new luxury automobile. Large numbers of Mercedes are becoming homeless orphans at the Long Beach Californa shipping port.

LONG BEACH, Calif. — Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times.

For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property.

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

These immigrant cars come off of long cargo ship voyages to discover no one in America will love them. Sob.

By Randall Parker    2008 November 19 10:35 PM Entry Permalink | Comments (3)
2008 August 23 Saturday
UK Inflation Rate Higher For Students

Economists frequently speak of a single inflation rate for an entire nation. Other times they distinguish between inflation rates in different parts of a country. But inflation rates are really more meaningful by social class and age. In Britain inflation for students is 1.5 times that for the general population because more of a student's budget goes for goods with high inflation rates.

The first Student Price Index survey, from the Open University, found that the true inflation rate for undergraduates in England is almost 7%, compared to the Consumer Price Index which currently stands at 4.4%.

This is because, compared with other households, students spend a higher share of their total budget on items which have risen in price fastest over recent years - goods such as food and drink, clothing, tobacco, personal care products, housing and travel, plus tuition fees.

Students spend 75% of their budget on these items altogether, compared to just over 50% for the average UK household. Overall, their living costs are rising at 1.5 times the rate of that of the general population, it found.

Students are (with the exception of tuition and books) more like the permanently poor in their spending since they are, at least temporarily, poor. So this result tells that poor people are probably experiencing an inflation rate far higher than middle class and upper class people are experiencing. This isn't surprising when you think about it. Food costs are rising rapidly and food makes up a much higher percentage of the income of the poor than of the rich. Ditto for some other basics which are rising faster in costs.

You might think that this result is just due to rising tuition costs. But no. Housing, food, and travel together are going up 12.8% in Britain.

These include tobacco, housing, travel, clothing and food and drink, which the Bank of England has calculated is rising at 12.8 per cent annually.

Home computers and other electronic gadgets aren't going up much, if at all, in price. Ditto many luxury goods. New housing prices are actually declining. So if you have a lot of cash to spend on the good life your biggest inflation hits are going to be from gasoline and airplane tickets. But if you are poor you are getting hit a lot harder.

So then is effective inequality increasing? Maybe not. The downturn in stocks and corporate profits mean that many of the wealthier folks are losing ground in net worths. Also, the middle and upper classes have houses which are going down in value. But my guess is that poorer people are experiencing a bigger drop in living standards.

Update: Some things are dropping in price (this is a measure in the US).

The consumer price index for durable goods — things like furniture and cars — is down 0.8 percent over the last 12 months. That’s not an aberration either; it has been down year-over-year in every month since late 2005. What’s more, that may understate the deflation.

So if you can afford to pay for the food and gasoline it is a great time to buy furniture and cars.

But as prices in New York City demonstrate, if food is a big part of your budget then you are hurting.

In the past year, grocery prices in the metropolitan area have risen 7.3 percent, the biggest increase in any 12-month period since 1990, Mr. Dolfman said. Prices of a range of foods, including seafood, apples, potatoes and snacks, rose by 0.8 percent from June to July alone.

Electricity, natural gas, and gasoline are all rising rapidly. So the plasma TV gets cheaper as the electricity to power it goes up.

Adjusted for inflation real earnings in the US dropped 3.1% in the last year.

After adjusting for inflation, the average weekly paycheck dropped by 0.8 percent in July from June, extending an ongoing slide in real income. That left real earnings 3.1 percent lower in July than they were a year ago.

But how is that earnings drop distributed? Whose earnings are declining the most and whose the least? Which occupations are hit the hardest?

By Randall Parker    2008 August 23 09:20 PM Entry Permalink | Comments (0)
2008 April 09 Wednesday
Latest US Peak Median Income Less Than In 2000

The latest business cycle never brought median income back up to the level it peaked at in 2000.

The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.

This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy’s health: does it produce ever-rising living standards for its citizens?

In the second half of the 20th century, the United States passed the test in a way that arguably no other country ever has. It became, as the cliché goes, the richest country on earth. Now, though, most families aren’t getting any richer.

Demographics plays a large role in this outcome. The large growth in lower income Hispanics has begun to weigh down American living standards. I'd like to see these numbers broken out by race. Did whites achieve as high a median income in this business cycle as they did the last time around?

Still, other things are going on as well. Globalization is one big one. The owners of capital are using lots more foreign labor and this is holding down wages of employees. Though the decline of the dollar is cutting demand for imports and boosting domestic demand for labor.

Another biggie? The commodity price rise. The high costs of energy, food, and raw materials weigh on living standards. I expect oil prices to go much higher when global oil production starts declining. Due to the coming of Peak Oil I do not see how living standards can rise in the next 10 years.

By Randall Parker    2008 April 09 09:13 PM Entry Permalink | Comments (10)
2008 March 23 Sunday
Rising Medical Benefits Costs Depressing Wages

One of the reasons median incomes aren't rising is that more employer labor costs are going to medical insurance.

Recent history has not been kind to working-class Americans, who were down on the economy long before the word recession was uttered.

The main reason: spiraling health-care costs have been whacking away at their wages. Even though workers are producing more, inflation-adjusted median family income has dipped 2.6 percent -- or nearly $1,000 annually since 2000.

This isn't new news. But is it a good or bad trend?

Employees and employers are getting squeezed by the price of health care. The struggle to control health costs is viewed as crucial to improving wages and living standards for working Americans. Employers are paying more for health care and other benefits, leaving less money for pay increases. Benefits now devour 30.2 percent of employers' compensation costs, with the remaining money going to wages, the Labor Department reported this month. That is up from 27.4 percent in 2000.

But if total compensation was rising more rapidly then the rising cost of medical benefits would not so easily swamp the effects of rising output.

Poor people don't buy medical insurance. But even over $15 an hour the rate of getting health insurance is quite high.

While about three out of four full-time workers who earn $15 an hour or less have access to health-care coverage on the job, just over half buy it, according to a report by the Bureau of Labor Statistics. Many analysts say that the cost -- lower-wage workers pay about a third of the plan premiums with employers picking up the rest -- discourages many from having coverage. By comparison, nine out of 10 full-time workers making more than $15 an hour have health coverage available, and overall almost three in four are covered by their jobs.

The huge flood of low skilled Hispanic immigrants (both legal and illegal) is expanding the ranks of the poor and disproportionately boosting the number who do not have medical insurance.

Among people under age 65, minorities were substantially more likely than whites to lack health insurance. For all Hispanics under 65, 37.7 percent were uninsured, compared to 20.2 percent of black non-Hispanics and 14.9 percent of white non-Hispanics (Figure 2). Although 68.4 percent of non-elderly Americans were white non-Hispanics, they accounted for only 54.3 percent of uninsured persons (Figure 3). Among males under age 65 (Figure 4), being uninsured was more likely among Hispanics (39.9 percent) than among black non-Hispanics (21.3 percent) or white non-Hispanics (15.7 percent). Similarly, among females under 65, being uninsured was more likely among Hispanics (35.5 percent) than among black non-Hispanics (19.2 percent) or white non-Hispanics (14.2 percent).

This results in more government spending on medical care. Immigration expands the welfare state. Immigrants who have low productivity make society as a whole worse off.

By Randall Parker    2008 March 23 09:59 PM Entry Permalink | Comments (3)
2008 March 08 Saturday
US Wages Never Returned To Late 1990s Peak

The US economy is entering a recession. So how did we do during the period of economic gowth since the last recession that started in 2000? Most American households have yet to regain the level of income they achieved before the last recession.

And if the good times have really ended, they were never that good to begin with. Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a new record.

David Leonhardt of the NY Times thinks a whole decade will go by before most Americans receive a raise. I think he's being optimistic.

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

The 1999 high point might persist for a long time. We are in a period of a bumpy oil production plateau while Asian oil demand is rising and internal demand by oil exporters is preventing increased production from translating into increased oil exports. At the end of the production plateau comes the fall. To put it mildly, I expect that to be most unpleasant.

We can no longer afford to party like its 1999.

Median family income in the United States has decreased about $1,000 since peaking in 2000. The income decline came after more than a quarter-century of slow growth. Between 1973 and 2000, incomes increased at just a third the rate of worker productivity, a sharp break from the previous generation when family incomes and productivity both doubled, fueling an unprecedented expansion of the middle class.

The wage stagnation experienced by many Americans has been accompanied by a sharp growth in income inequality. After-tax family income for the nation's middle tier of wage earners increased 21 percent between 1979 and 2005, to $50,200. Incomes of the top 1 percent of wage earners, meanwhile, tripled, to just over $1 million, even as the after-tax income of the bottom fifth of income earners grew just 6.3 percent, to $15,300.

Rose says that if total compensation -- which includes the increasing cost of health and other benefits -- is included, American workers have done better than census numbers would indicate.

Yes, costs of non-wage benefits have gone up faster than salaries. Rising medical insurance costs are the major reason why. How much of that rise in medical costs is due to newer and better yet more costly treatments?

But some economists think we really are doing better since people own more gadgets and live in bigger houses.

Items once considered luxuries -- dishwashers, central air conditioning, video cameras -- are now common. The average size of new homes has increased 40 percent in the past generation. And as many consumer items cost less, Americans are shopping more. In 1991 the average American bought 33.7 pieces of apparel; by 2002 he or she bought 48 items, according to Boston College sociologist Juliet Schor. In 2005, she said, Americans were projected to discard more than 63 million computers.

I wonder how much of that improvement came before 2000.

The big China export engine drove down costs of lots of products as factories closed in the US and opened in China. But that way to lower product costs came with drops in wages of those who used to get paid to make things in the United States. Now that the US dollar is dropping and inflation is heating up in the US and China the foreign sourcing of products isn't going to be a source of lower prices any more.

I see a few things coming together to cause at best a stagnation of US living standards. First off, we live in what Warren Buffett calls Squanderville where we run up debts to the world and our government destroys wealth in a pointless war while signing itself up for more unfunded liabilities for old folks. Plus, our demographic picture looks grim between the retirement of the more skilled Baby Boomers and the swelling ranks of low skilled Hispanics. On top of all that comes Peak Oil. We aren't going to build new capital equipment to generate energy from non-oil sources fast enough to make up for the decline in oil production.

By Randall Parker    2008 March 08 05:35 PM Entry Permalink | Comments (12)
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